Are Organic Foods Recession Proof?

Implications: Consumers, companies and investors in the organic sector are concerned about the impact of price increases and the economy.  While companies acknowledge the price increase is eroding their profit margins, they also realize that their consumer base is relatively affluent and strong principle-based loyalty.  Some sectors such as infant formula, baby food, personal care, protein foods (meat, poultry, eggs and milk), cereals, coffee, chocolate, and pet foods (to name a few) are somewhat buffered because their value propositions and associated consumer perceptions and tolerance for price increases. 

Analysis:  It depends on the category, the target audience, the supply/demand balance, and the underlying emotional need.     

The organic product consumer base is loyal to the category and has fueled double digit growth in organic products for more than a decade.  Typically affluent, with a higher-than-average education, they are increasingly more concerned about social, environmental, and health implications of their packaged foods and beverages.  Forty percent of the 22,000 shoppers surveyed indicated they sought products grown or produced to meet organic standards (IRI, Chicago, IL).   A recent Mambo TrackTM study of 1000 consumers by Mambo Sprouts Marketing (Collingswood, NJ), reported seven in ten consumers were willing to pay up to 20 percent more for organic and environmentally friendly products.     

While shrinking organic stockpiles and surging price increases have affected some product categories and are bound to flatten new consumer conversion in 2008, sales of some products will continue to grow.  Sales of milk, eggs, and packaged produce sales are up in Q1 (SPINS, Schaumburg, IL).  Rising organic commodity prices, however, are eroding the price premium advantage that once drove farmers, dairy, and meat producers to convert to organic.  Lacking government support, organic acreage conversion – after increasing four-fold from 1995 to 2005 – is stalling out in 2008.    

Organic pet food, less than a tenth of the conventional pet food sector, went up 150 percent in 2007 and will continue to grow.  Personal care increased by 57 percent and will thrive as more consumers understand it value.  Household products and cleaners were up by 50 percent and will grow some more.  Fibers (linens and clothing) were up 55 percent and will not slow down immediately.    

Organic infant formula, a relatively new entry, is a growth engine for the category with as much as 400% increase in sales for some brands; the Cornucopia Report (http://cornucopia.org/index.php/replacing-mother-infant-formula-report/) may drum up some turbulence but will require sponsorship to gain momentum in the consumer sector. 

Organic frozen baby foods are proving most popular – Americans love their children and are afraid of the effects of chemicals in conventional foods.