Fairtrade and organic food items have already demonstrated that, if marketed properly, they can thrive in challenging economic conditions.

However, they need to follow strategies similar in some cases to conventional food in order to reach their full potential. Price segmentation will be crucial to overcoming the elitist perception toward ethical products that still exists in markets such as the USA, France, Italy and Spain.

Simpler packaging, larger formats targeting middle-class families and, above all, greater retail (and private label) availability through mass-market grocery retailers will be crucial to further extending the consumer base for these products.

The development of hybrid lines combining organic, Fairtrade and other schemes should play a central role in continued expansion of ethical food, especially in markets where demand for ethical products is starting to reach some level of relative maturity.

These hybrid lines have brought together a third type of mainstream group: the ethical consumer. In addition to the organic label, this consumer segment looks for products carrying an assortment of auxiliary labels pertaining to Fairtrade, carbon footprint, cruelty-free, free-range, locally grown, seasonal, sustainably -produced and low water usage among others.

As the availability of Fairtrade and low carbon footprint products is still fairly limited, the environmentally and socially aware consumer will in many cases turn to purely organic products as a default option.

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Within this segment, price is still important. Less affluent consumers can be highly aware of social and environmental issues – and willing to tailor their purchasing priorities accordingly – but may also lack the means to pay for ethical products. As such, ethically-minded producers must still bear in mind affordable prices when attempting to target ethical consumers.

Strong Potential for Fairtrade Chocolate as Economy Picks Up

Overall, global Fairtrade chocolate sales are set to grow strongly in 2011, albeit from a relatively modest consumer base. This expansion will be driven by higher awareness of ethical food items in developed markets and intense promotional activity from mainstream manufacturers such as Cadbury Plc and Nestlé SA to support their existing product lines.

Organic Fairtrade chocolate confectionery is also predicted to take further share from simply organic lines, especially in highly developed markets such as the UK. The speed of expansion for Fairtrade chocolate will remain constrained by the monetary and temporal costs associated with the sourcing of Fairtrade ingredients in developing countries.

The global economic recovery will determine future retail prospects for fair trade chocolate in the USA and Western Europe. While full economic recovery (FER) might lead to global GDP growth of 4% in real terms in 2011, there are still widespread concerns that high sovereign debt levels in Western Europe and high unemployment in the USA might lead to a less robust partial economic recovery (PER). In that case, growth for Fairtrade chocolate might be lower and take longer than predicted given a FER scenario.

Chocolate Will Drive Growth for Ethical Indulgence Food

Organic confectionery is expected to register among the strongest gains of all ethical food options, with global retail sales forecast to rise by around 38% in constant value terms from 2009 to 2014 according to Euromonitor International data.

Total retail value sales, however, will remain relatively small – just under US$1 billion – and will mainly consist of chocolate rather than sugar confectionery or gum.

Organic confectionery sales will be driven by strong demand for premium dark chocolate in Western Europe and North America, which is likely to be matched by strong promotional and innovation activity from key brands such as Green & Black’s (Cadbury) in the UK and Dagoba (Hershey) in the USA.

Premium organic chocolate will focus on highlighting the link between the indulgence of dark chocolate and the superior taste and quality supposedly linked to organic cocoa farming.

Consumer demand for Fairtrade chocolate in the UK has been driven by intense manufacturer activity, particularly from Cadbury Plc through its Green & Black’s and Cadbury Dairy Milk ranges. More private-label Fairtrade chocolate confectionery lines have further bolstered retail sales in both value and volume terms.

There is consensus within the food industry that there exists a significant group of consumers willing to pay an additional premium for products that show absolute transparency when it comes to the ethical provenance of their ingredients.

Similarly, growth of Fairtrade chocolate in other Western European countries has been relatively stagnant as consumers turned to more affordable formats in supermarkets and hypermarkets, where the presence of Fairtrade items remains relatively low.

Weaker Economic Prospects Constrain Food Prices

Retail unit prices for other food categories such as canned/preserved food, frozen processed food and oils and fats could be constrained by lower-than-expected economic growth as consumers turn away from higher-priced added-value products in favour of more affordable items, including private label offerings.

This anticipated decline in retail unit prices is likely to be more visible in categories offering less premium content. In oils and fats, for example, a worsening of economic prospects could lead to further price reductions for less differentiated products such as vegetable/seed oils.

A downgrade in economic prospects is set to further the price decline for mature meal solution categories such as frozen processed food and canned/preserved food. This is due to the large presence of private label brands in each, which account for much of the promotions and price discounts seen during recessionary periods.

Crucially, the relatively limited presence of premium categories, where consumer demand is less sensitive to moderate price fluctuations, in frozen and canned food would add further downward price pressures.

Private Label

The recent economic downturn has benefited private label food. Consumers, encouraged to try relatively cheaper offerings, have invariably continued to purchase them even as economic conditions started to improve.

In addition to competing on price, retailers have also continued to work aggressively to improve their private label packaged food ranges in an effort to transcend the stigma of being cheap and poor quality imitations of branded items.

Retailers are acting in a more brand-orientated manner and introducing innovative and added-value packaged food including functional and ethical products (organic, ‘Fairtrade’, etc.). This is boosting the image of private label food among consumers. In-line with this greater focus on adding value, retailers are also starting to segment their private label ranges by price point and are implementing a tiered pricing strategy distinguishing economy lines from their premium/value-added counterparts.

Private-label packaged food also has a strong presence in staple food categories such as dairy products and pasta. Within dairy products, private label owes much of its global retail value share to strong positions in milk and cheese. These categories are already fairly mature, with not much to differentiate brands from private label. Meanwhile, other staple food categories such as noodles and bakery products have a far lower global private label retail value share in spite of their generally commodified nature.

Private label manufacturers are the biggest beneficiaries of continued price awareness among cash-strapped consumers. Moreover, demand for private label is forecast to increase significantly in food categories with a low level of brand differentiation, including milk, frozen processed food and canned/preserved food.

The future growth of private label packaged food will largely depend on the ability of both retailers and their contract suppliers to remain at the forefront of innovation and to further build up consumer trust, while still keeping prices competitive. Should this continue, opportunities in previously off-limit sectors such as baby food should arise.