Horizon, the leading US organic dairy producer, has unveiled strong Q3 results. It has ridden the expanding organic market to the top, with its organic dairy products and fruit juices. But with the growing market going mainstream and a new seal of approval making it easier for consumers to shop for organic foods, the powerhouse producers are set to muscle in on the act. Horizon may find itself a takeover target.
US organic dairy foods producer Horizon has announced a 25% increase in Q3 US sales. The results were driven by strong growth in the organic foods market, which Datamonitor forecasts to grow at 23% per year to hit US$32.7bn by 2007.
The organic market blossomed throughout the 1990s, fueled by consumers’ growing concerns for both the environment and their own health – and Horizon has ridden it to the top. Organic foods were once found mainly in wholefood and specialty stores, but Horizon’s are now on shelves in 60% of conventional grocers stores nationwide.
Supermarkets also like organic products because of their high margins; by stocking more of them, they have helped drive the market and shift it into the mainstream.
Now the country’s big food producers, such as General Mills, Frito-Lay and Heinz, with revenues that dwarf even the leading organic producers, look ready to expand their presence in the market. That was facilitated in October, when the USDA launched new national standards that clearly define organic products and allow them to be stamped with an official seal of approval.
Heinz has already launched an organic version of its ubiquitous tomato ketchup, while Frito-Lay has been test-marketing organic versions of Cheetos, Tostitos and Sun Chips. General Mills has used its Cascadian Farm acquisition to develop and launch an entire range of organic breakfast cereals.
So just when organic foods are finally going mainstream, the traditional producers may become victims of their own success. Having forged the market, they face tough new competition from powerful producers.
Yet at the same time, the existing players should not be underestimated: their detailed knowledge of the market and track record of innovation are key advantages. A fresh round of acquisitions should therefore come as no surprise.
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