UK
retailer Tesco is planning to grow its organic food business to GBP1 billion.
It has announced ambitious plans for the development of its organic foods over
the next five years. It intends to launch hundreds of new organic products at
the same time as making them both more accessible and more affordable to consumers.
Organics may be the hot thing now, but its long-term future still faces significant
threats.
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Tesco is the latest UK retailer to promote its organic food ranges heavily,
following on from Iceland’s failed initiative and Sainsbury’s recent announcement
that it too is seeking high growth from its organic foods.
Although Tesco has been at the forefront of most things in UK retailing recently,
organic foods has already seen most of the major grocery retailers seek to make
the category their own, so far without any great success.
It is easy to see the appeal of organic foods. Although manufacturing costs
are high, the goods can command high enough retail prices that allow retailers
to make healthy margins on them. Consumers see organics as ‘safe’ foods, invaluable
following the recent food industry scares that have affected both the UK as
well as continental Europe. Suppliers also approve, since they too can earn
higher margins.
A major benefit of organic foods is that consumers trust them – they feel that
they have been produced using safe and traceable methods. Consequently, consumers
see organic labels on foods as offering some form of guarantee as to how good
for them the food will be.
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However, non-organic foods are fighting back, as they increasingly provide
consumers with greater ability to track the food from ‘farm-to-fork’ and reassure
them about the farming and production methods used. This is weakening one of
the key selling points of organic foods as being the “safer alternative”, as
well as its niche positioning.
Supply-side issues may also prevent the development of organics. Tesco has
said that it intends to make organic foods more affordable. Organic foods are
expensive to produce, and whilst suppliers will be willing to supply more as
long as prices are high, if Tesco starts using its clout to push down manufacturer
prices the current support from farmers may weaken.
The future for organics at Tesco therefore seems mixed – it has certainly been
a high growth area, but consumers and suppliers alike may start to lose interest
in the near future.
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