There is some debate about the future growth of the organic products industry. Is it with brands or retailer private labels? The industry has been built by brands that have crossed over from specialist to mainstream retailers. However, new research shows retailer private labels are showing the highest sales growth in the current environment.
O Organics is becoming the leading brand of organic foods in the US. Launched by Safeway in 2005, the private label now houses over 300 certified organic products and exceeds USD 400 million sales. In Germany, the leading brand of organic & natural cosmetics is the private label of a drugstore.
Retailers are very successful with private labels as they enable organic products to be marketed at competitive prices. In some cases, the organic products are even cheaper than conventional ones. For instance, Lidl’s organic yogurts are priced GBP 0.35 (EUR 0.40) compared to GBP 0.50 (EUR 0.58) for similar conventional yogurts (150g pots) of a leading UK supermarket.
Some argue that large food retailers are taking advantage of the ‘organic’ brand without making any of the associated investment. Indeed, the industry has been built by certification agencies and pioneering brands; the very same logos and brands that are slowly disappearing in supermarkets and mainstream retailers.
Sluggish market growth rates and rising consumer price sensitivity have popularized retailer private labels. Private labels for organic foods are most successful in Germany where they have been introduced by discounters, drugstores, supermarkets as well as organic food shops. In most product categories, private label products are outselling branded products of organic foods.
With consumers preferring value organic products, some manufacturer brands are becoming marginalized and are having to re-focus on specialist retailers. Most brands were built in this channel; they crossed over into mainstream retailers as the market gained momentum. However, the rise of private labels is making them target organic food shops and health food retailers once again.
Increasingly crowded retail space is making many brands re-invent themselves. Being organic is no longer good enough as organic foods have become ‘commoditized’ in the marketplace. Some, such as Green & Black’s have positioned themselves as ethical brands. In the US, Organic Valley has positioning itself as a sustainable brand that supports family farms. It has also adopted a brand extension strategy, expanding from organic dairy to several product categories. Its success has made the co-operative the largest organic food enterprise in North America, reporting USD 520 million sales in 2009.
Pioneering brands are re-inventing themselves to widen consumer appeal. However, retailer private labels are also evolving with some transcending traditional boundaries. The O Organics private label has expanded from Safeway retailers into foodservice outlets in the US. It has also developed an international presence, marketed by numerous food retailers in Latin America, Asia and Africa.
The lines between brands and retailer private labels are becoming increasingly blurred in the global organic food industry. Private labels are leveraging organic values and winning consumers by marketing products at competitive prices. Organic brands are having to re-invent themselves, with many focusing on new values to broaden consumer demand. With increasing commoditization of organic products, there is growing pressure for leading brands to differentiate themselves. Those that do not maybe confined to specialist retailers, the same channel which they have worked hard to expand from.
Sustainable Foods Summit
The future development of the organic food industry is a major theme of the upcoming Sustainable Foods Summit, taking place in San Francisco on 18-19th January 2011. The summit will discuss the role of brands and retailer private labels, bringing together Safeway (O Organics), Organic Valley, Earthbound Farm, Bonterra Vineyards and other leading brands. More details are on the website
Source: Organic Monitor