Pandemic-year 2020 was a very good year for organic food sales in the US.
According to the Organic Trade Association’s (OTC) recently-released annual industry survey, organic food sales grew a record 12.8% in 2020, reaching a new high of US$56.4bn.
The increase was more than double the 2019 gain of 5%, and the highest year-over-year percentage sales gain reported in the last decade. The last rise of this magnitude was in 2013, when the OTC reported a 12.2% increase in organic food sales. In the last four years before the pandemic, 2016 to 2019, sales rose at a single-digit rate each year.
The spike in sales in 2020 in my analysis can largely be attributed to the near-total shutdown of the away-from-home sector, particularly restaurants, and the consumer pantry-loading phenomenon that occurred for most of the year. Cooking at home became the only game in town in 2020, resulting in high-double-digit sales in increases of all foods sold at retail.
However, organic food sales also benefited because, with the seismic shift to home cooking in 2020, consumers tended to put a greater emphasis on healthier eating and, in many cases, turned to organic as one way to achieve this goal. A recent survey by the International Food Information Council found one in three consumers said they felt they ate more healthily in 2020 as compared to the previous year. Research shows consumers perceive organic to be a healthier option. Sales of organic flour and baking products rose by 30% in 2020, for example, and organic produce sales grew 20%.
Pre-pandemic, organic food had double-digit sales growth in the US from 2012 to 2015, growth that started slowing in 2016 (9%), dropping to 6% in 2017 and 2018, and 5% in 2019. The general consensus in the industry is that reflected a maturation of the organic segment.
With the reopening of restaurants, the end of pantry-loading, and the pressures of food inflation, I expect a rise in organic food sales in 2021 to be more of the order of 2016 to 2019, at 6-9%.
Organic has become a mature category. It has a solid consumer base and now represents about 6% of total US retail food sales, but its major challenge is in attracting new customers. This is particularly the case with organic packaged foods, which, over the years, have been seeing much lower year-over-year sales growth than organic produce and dairy, which are the top two categories, according to US Department of Agriculture data.
One of the major pressures on the sales growth of organic packaged food is the proliferation and popularity of non-GMO products. The ingredients in such packaged food, unlike organic, can be grown conventionally, using pesticides, fungicides and herbicides, which, among other things, generally results in a lower retail price than comparable organic products. By contrast, the ingredients in organic packaged foods are non-GMO, as well as being grown without these chemicals.
Historically, the key marketing proposition for organic packaged foods was they were free of these agri-chemicals. However, starting in the 1990s, organic food marketeers shifted the emphasis to the non-GMO attribute because genetically modified organisms were becoming a consumer hot button.
The new emphasis did much for the sales growth of organic but also opened the door for the non-GMO designation, and the ‘Non-GMO Project Verified’ label, which many packaged food brands jumped on. The growing popularity of the label has eaten into the sales growth of organic.
Organic packaged food brands and the industry as a whole could benefit by going back to the future a bit and put more emphasis on the ‘clean’ nature of organic instead of focusing so much on the non-GMO attribute. Like organic, that attribute is here to stay, which means non-GMO is no longer a single point of differentiation for organic. In contrast, the ‘clean’, grown without agri-chemicals, attribute is a single attribute of organic and needs to be touted more strongly and more consistently.
The emergence and growing popularity of the better-for-you and functional foods packaged foods segments are also exerting growing pressure on the fast growth of organic. Many of the brands and products in these categories aren’t organic. Instead, these brands and products tout attributes that promise benefits that focus on improving consumers’ specific or overall functioning without focusing particularly on agrichemicals or GMOs. In a real sense, these segments are going beyond organic in terms of refocusing what healthy and beneficial packaged foods products are.
Consumers, too, seem to be looking beyond organic in many categories, focusing more on wellness foods and drinks. When it comes to organic products in these segments, organic seems to be a secondary attribute; better-for-you and functional being the primary respective attributes.
Regenerative agriculture is also exerting pressure on the rapid sales growth of organic. Foods grown using regenerative agriculture, which is a holistic farming method that focuses on sustainability and continuous improvement of the soil, can be but don’t have to be grown organically. Regenerative agriculture is a process of sustainability, while organic is more of a prescriptive way for food to be grown.
An increasing number of products labeled “Regenerative Grown” and “Regenerative Organic” have been hitting the market. The regenerative movement is picking up steam and gaining many consumers who were previously satisfied with conventional organic. As this farming practice grows in the US – and it will – more products will be introduced under these labels, competing with traditional organic.
I see the main growth in organic coming from the fresh categories, produce, dairy and meat, as has been the case historically, because research shows consumers have higher concerns about agri-chemicals and GMOs when it comes to fresh foods.
I also think it’s becoming increasingly difficult to succeed with a new brand or new product that’s primary attribute is only that it’s organic. This practice has been successful for many brands for three decades but, as the organic packaged goods segment matures, it’s becoming much more difficult to succeed in doing so. Might organic eventually become a secondary attribute in the packaged foods space?
The single-digit sales growth over the last few years has frankly been less than great news for organic. By contrast, 2020 was stellar.
In terms of future growth, 2021 is going to be an important year for us to gauge the future of organic. I don’t expect nearly 13% sales gains like in 2020 but a return to the circa 6% year-over-year sales increases of the previous years would be, in my analysis, bad news. Organic now represents about 6% of total US food sales, according to OTA. Historically, most in the industry expected that percentage to be at least 10% by today.
The good news is organic continues to have steady growth, including the fact that nearly every mainstream grocery chain in the US now has its own organic packaged foods brand. The online sales of organic foods are increasing, too. This channel offers lots of untapped opportunities for brands, particularly small, emerging organic packaged foods brands.
Organic will continue to grow. It’s a solid niche in the market. But, at only 6% of total US retail food sales, it is that: a niche.
just-food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. He is available for consultation at: firstname.lastname@example.org and https://twitter.com/VictorMartino01.