Conventional Retailers Take the Lead in Natural/Organic Food Sales

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Sales of natural and organic products grew 9.1% to reach $120 billion in 2014, reports Natural Foods Merchandiser’s 2015 Market Overview, and for the first time, conventional retailers recorded slightly higher sales than the traditional natural products retail channel.

“It could be the year we look back on, and remember as the turning point for when natural became everyday.” - Christine Kapperman, Editor in Chief, Natural Foods Merchandiser

As Editorial Director of the Natural Foods Merchandiser in the late ‘80s and early ‘90s, I remember spending a number of late nights working with the magazine’s founder, Doug Greene, pouring over paper surveys to complete the industry’s eagerly awaited annual Market Overview. Things have changed since then, yet the natural and organic products industry continues to gain momentum, posting impressive year-over-year growth, as consumers increasingly demand cleaner, healthier foods.

Everyone is taking notice. Never has the competition been fiercer among traditional natural foods super-naturals, including Whole Foods Market and Sprouts, and expansion-minded chains and independents such as Natural Grocers, Earth Fare, Fresh Thyme Farmers Market, Lucky’s Market, MOM’s Organic Market, Mustard Seed, and others. Just last month, I reported on how major food brands, including Kraft, Chipotle, Pepsi and a growing number of others, are feeling the pinch of lost market share and are now removing artificial ingredients, colorings, preservatives, GMOs and other chemicals from their ingredient decks. Additionally, Kroger’s private label organic brand, Simple Truth, in 2014 surpassed $1 billion in sales, the retailer’s “most successful brand launch ever,” said Kroger president and COO Mike Ellis in a March 5, 2015, conference call.

Natural Products Sales at a Turning Point And now, according to this year’s Market Overview, published in Natural Foods Merchandiser’s June 2015 edition, the industry has reached a tipping point, in that, for the first time, sales of natural and organic products in conventional retail stores exceeded overall sales in the traditional natural foods retail channel by a slim margin. “It could be the year we look back on, and remember as the turning point for when natural became everyday,” wrote Christine Kapperman, Natural Foods Merchandiser’s Editor in Chief.

Overall sales of natural and organic products grew by 9.1% in 2014, reaching $120 billion. Traditional natural products retailers reported $49.1 billion of those sales, or 40.7% of the market, with a growth rate of 8.0%. However, conventional retailers claimed slightly higher sales of $49.6 billion, higher growth of 10.6%, and a larger piece of the pie with 41.2% overall sales, as distribution and availability of natural and organic foods spreads to all corners of the country.

Internet Sales Post 13.7% Growth A smaller but growing market segment – the Internet – recorded ecommerce sales of $4.6 billion in 2014 for a 3.8% share of the market, up from $3.5 billion in 2013, representing an impressive 13.7% growth in sales. Practitioners, too, are registering a significant share of the dietary supplements and natural remedies market, with steady growth averaging 10% over the past two years, and $4.2 billion in sales in 2014.

Multi-level marketers, such as Amway, Herbalife, Nu Skin, Shaklee and others, continue to maintain an 8% market share, reporting $9.1 billion in sales in 2014, primarily through dietary supplements, personal care and other non-food items. However, growth in this sector has slowed slightly from 5.7% in 2013 to 5.4% in 2014. Sales by traditional mail order are slowing, too, from 8.7% growth in 2013 to 8% growth and sales of $3.8 billion in 2014.

Snack Foods Lead Category Growth Categories showing the strongest performance in 2014 include snack foods, posting 12% growth and $2.8 billion in sales; dairy ($3.5 billion total sales; 10.3% growth); meat, fish and poultry ($1.9 billion total sales; 10.2% growth); condiments ($1.2 billion total sales; 9.4% growth); beverages ($5.8 billion total sales; 8.4% growth); and packaged & prepared foods ($3.6 billion total sales; 8.4% growth).

Sales of organic products in the U.S. rose 11.3% in 2014, totaling $39.1 billion, despite the industry having to deal with tight supplies of organic ingredients, reported the Organic Trade Association in April 2015. Organic food sales totaled $35.9 billion in 2014, an 11% jump over the previous year, while sales of organic non-food products increased nearly 14% to $3.2 billion, the biggest jump in this category in six years, reported OTA.

Independents Develop Strategies to Compete As natural and organic products, especially the leading brands in the category, become more available throughout the U.S., independent natural foods retailers can thrive by focusing on service and newer local, regional and national brands that don’t have access to the larger retail chains, Yadim Medore, Managing Director of Pure Branding, told the Merchandiser.

According to Pure Branding’s new report, the Natural Products Marketing 2015 Benchmark Report, produced in partnership with SPINS, large manufacturers with annual sales greater than $15 million, while comprising only 3% of all natural products manufacturers, command 85% of market share. This presents an opportunity for independent retailers to differentiate with unique, younger, authentic brands. Also, high interest in local, gluten free and non-GMO can also benefit independent retailers, Medore said in the Market Overview.

Co-ops a Bright Spot The 2015 Market Overview also reported that retail co-ops or cooperatives are a “bright spot on the natural retail landscape.” National Co+op Grocers, a business services organization for co-op grocers, reported a rise from 136 members in 2013 to 144 in 2014 with combined sales of $1.7 billion, up 7% from the previous year, and the Cooperative Grocer Network, a trade organization, estimates there are 300 co-ops total in the U.S. and another 100 in various stages of development, and that there is “unprecedented interest” in creating new co-ops.

For more information, visit http://newhope360.com/news-analysis/nfm-market-overview.

Steven Hoffman is Managing Director of Compass Natural Marketing, providing brand marketing, PR, social media, and strategic business development services to natural, organic and sustainable products businesses. He is the former Editorial Director of Natural Foods Merchandiser Magazine and co-founder of the LOHAS Journal. Contact steve@compassnatural.com.