Natural and Organic Food and Beverage Industry Trends: Current and Future Patterns in Production, Marketing, Retailing, and Consumer Usage

Table of Contents

Chapter 1: Executive Summary

• Scope and Methodology
  • Scope of Report
  • Report Methodology
• Market Overview
  • Market Size and Growth
  • Figure 1-1: Share of U.S. Retail Sales of Organic Foods and Beverages by Product Category, 2005 (percent) Mainstream Supermarkets Lead Retail Channels in Organic Sales
  • Not Just a Fad
  • Natural/Organic Market to Reach $46.1 Billion in 2010
  • Most Mass-Market Brand Shares Still Under 2 Points
  • Natural/Organic Brands Outperform Their Categories
  • Organic Products Outperform Natural Ones
  • Higher Levels of Education and Income Characterize Consumers
• The Retail Arena
  • Retail Competition Driving Market Growth
  • Big Three's Growth Explosion Begins in 1990s
  • Whole Foods Brings "Supernaturals" Format to Fruition
  • Mainstream Supermarkets Taking Up the Challenge
  • Opportunities in Store Brands
  • The Foodservice Connection
• The Producer/Marketer Arena
  • Mainstream Moves to Incorporate Natural/Organics
  • Global Marketers, Investors Now Control Most Natural/Organic Leaders
  • Big Money Influx Is Altering Market
  • Mainstream Marketers Entering Natural/Organic Arena
  • Foodservice Side Emphasizing Flavor, Origins
• New Product Trends in Natural/Organics
  • Organic Linked to Weight, Heart Health Concerns
  • Figure 1-2: Selected High-Growth Package Tags on Organic Food & Beverage New Product Introductions, 1996 vs. 2005
• Looking Ahead
  • Trends and Opportunities

Chapter 2: Market Overview

• Introduction
  • Definition of "Natural"
  • "Natural Beef" Benefits from Definition
  • Definition of "Organic"
  • Different Degrees of Organic
  • Sales of Organics Are Easier to Track
  • Organic Sales Reflect Attitudes Toward Health, Social Issues
  • "Organic" Exposes Lack of Definition for "Natural"
• Market Trends
  • Market Size and Growth
  • Table 2-1: U.S. Retail Sales of Natural and Organic Foods and Beverages, 2002-2005 (in billions of dollars)
  • Produce Is Largest Organic Category
  • Figure 2-1: Share of U.S. Retail Sales of Organic Foods and Beverages by Product Category, 2005 (percent)
  • Produce Is Also Most Often Purchased Category
  • Mainstream Supermarkets Lead Retail Channels in Organic Sales
  • Figure 2-2: Share of U.S. Retail Sales of Organic Foods and Beverages by Channel, 2005 (percent)
  • Health Product Shoppers Rate the Channels
• Market Outlook
  • Not Just a Fad
  • Organics' Greatest Growth Is Yet to Come
  • Organics Just Beginning to Take Hold in U.S.
  • Few Introductions as Yet from Major Marketers
  • Consumer Survey Findings Augur Well for Organics
  • Limiting Factors: Price and Supply
  • Organic Acreage Growing, But Not Fast Enough
  • Supply Expected to Catch Up with Demand
  • Controversy Over Standards
  • Alarm Over Changes to Organic Standards
  • Lower Standards Favor Large Marketers
  • Organics Has Dedicated Constituency
  • Natural/Organic Market to Reach $46.1 Billion in 2010
  • Table 2-2: Projected U.S. Retail Sales of Natural and Organic Foods and Beverages, 2005-2010 (in billions of dollars)
• Leading Marketers and Brands
  • Methodology: Estimates Based on IRI Three-Channel Data
  • Most Brand Shares by Category Still Under 2 Points
  • Earthbound Farm Is Standout in Produce
  • Dairy Is Second Strongest Department
  • Natural/Organic Brands Far Outperform Their Categories
  • Figure 2-3: Cold Cereal: Mass-Market Sales Growth of Organic Brands vs. Conventional Brands, Private-Label, and Overall Category, 2004-2005 (percentage change)
  • Amy's Kitchen Is Standout in Frozen Foods
  • Three Natural/Organic Brands Stir Soup Category
  • Healthful Image Helps Snack Brands
  • Dakota Growers Paces Spaghetti/Macaroni/Pasta Category
  • Organic Products Outperform Natural Ones
  • Newer Natural/Organic Entries Take Sales from Older Ones
  • Meat Category Still Small, Especially at Mass
  • Organic Brands vs. Conventional Brands
  • Methodology and Data Limitations
  • Organic Brands Breakfast on Conventional Rivals
  • Organic Brands Outshine Competition in Milk Category
  • Figure 2-4: Refrigerated Whole Milk: Mass-Market Sales Growth of Organic Brands vs. Conventional Brands, Private-Label, and Overall Category, 2004-2005 (percentage change)
  • Organics Also Lead the Way in Yogurt Category
  • Figure 2-5: Refrigerated Yogurt: Mass-Market Sales Growth of Organic Brands vs. Conventional Brands, Private-Label, and Overall Category, 2004-2005 (percentage change)
  • Table 2-3: Top-Selling Natural/Organic Brands in the Mass Market: By Product Segment, 2005 (in millions of dollars)
  • Table 2-4: Cold Cereal: Mass-Market Sales Growth of Organic vs. Conventional Brands Since 2001 (in thousands of dollars)
  • Table 2-5: Milk: Mass-Market Sales Growth of Organic versus Conventional Brands Since 2001 (in thousands of dollars)
  • Table 2-6: Yogurt: Mass-Market Sales Growth of Organic vs. Conventional Brands Since 2001 (in thousands of dollars)
• Consumer Trends
  • Reasons for Buying Organic Foods
  • The Taste Factor
  • The Simmons Consumer Survey
  • Higher Levels of Education and Income Characterize Consumers
  • Asian-Americans Skew High for Natural/Organic Foods
  • Figure 2-6: Racial/Ethic Indices for Patrons of Whole Foods Market or Trader Joe's, 2005 (U.S. adults)
  • Older Shoppers, Women, Small Households Also Indicated
  • Table 2-7: Demographic Overview for Patrons of Whole Foods Market or Trader Joe's, 2005 (U.S. adults)

Chapter 3: The Retail Arena

• Overview
  • Retail Competition Driving Market Growth
  • Counter-Culture Origins
  • Enter the "Supernaturals"
  • Big Three's Growth Explosion Begins in 1990s
  • Whole Foods Brings "Supernaturals" Format to Fruition
• Retailer Profile: Whole Foods Market
  • Overview
  • Bigger Stores
  • A Fierce Competitor
  • Whole Foods Eyes European Market
  • A $12 Billion Sales Goal for 2010
  • From Whole Foods to Whole Lifestyle
  • Company Works to Improve Quality of Life for Farm Animals
  • Commitment to Renewable Energy, Recycling
  • Wall Street Bullish on Whole Foods
• Retailer Profile: Trader Joe's
  • Overview
  • Emphasis on Unusual Items at Low Prices
  • Parent Company Aldi Is International Giant
  • From Convenience Store to Gourmet and Health Foods
  • Big Expansion Comes in Wake of "Supernaturals"
  • Pressure to Sell Only Cage-Free Eggs
  • Larger Aldi Sister Chain Also Growing Rapidly
• Retailer Profile: Wild Oats Markets
  • Overview
  • To Health Foods Via Convenience Stores
  • Responding Aggressively to Whole Foods
  • Downturn Leads to Management Change
  • Wild Oats Seeks to Grow Private Labels
  • Strength in Supplements, Personal Care
  • Partners with Major Mainstream Supermarket
  • More Mainstream Fare; Cage-Free Eggs Only
• Emerging Supernaturals
  • Overview
  • Earth Fare
  • Strong Nutrition & Body Care Department
  • Sprouts Farmers Market
  • Produce Is Forte
  • Sunflower Market
  • Vitamin Cottage Natural Food Markets
• Mainstream Supermarkets
  • Taking Up the Challenge
  • Opportunity Is Too Good to Miss
  • Supermarkets Growing Natural/Organic Market Share
  • Keeping Prices in Line on Basic Items
  • Case Study: Safeway
  • Dominating the Middle Ground
  • Creating Proprietary Power Brands
  • Albertson's, A&P Bulk Up on Natural/Organics
  • Merchandising Natural/Organics in Mainstream Supermarkets
  • The Case for Store-within-a-Store Merchandising
  • Integrated Merchandising Wins New Customers
  • The Blended Approach
  • Supermarkets Create Own Natural/Organic Formats
  • H.E. Butt's Central Market Goes Head-to-Head with Whole Foods
  • Publix to Launch GreenWise Market
  • Bashas' Battles Supernaturals with Ike's Farmers' Market
  • Albertson's Bristol Farms Buys Lazy Acres
  • SuperValu's Sunflower Market Bears Resemblance to Trader Joe's
• Opportunities in Store Brands
  • Lack of National Brands Creates an Opening
  • H.E. Butt Brings Central Market Brand to Mainstream Stores
  • Early Commitment to Natural/Organics Boosts Harris Teeter
  • SuperValu Expanding with Nature's Best
  • Other Mainstream Chains Also Active
• The Foodservice Connection
  • The Dining/Food Shopping Dynamic Duo
  • Organic Items on the Rise in Restaurants
  • Supernaturals Entering Restaurant Business
  • Wild Oats Recruiting from Foodservice
  • Gourmet Supermarkets Also Reap Benefits of Converging Trends

Chapter 4: The Producer/Marketer Arena

• Competitive Trends and Case Histories
  • Mainstream Moves to Incorporate Natural/Organics
  • Table 4-1: Changing Ownership in Leading U.S. Natural/Organic Brands
  • Factory Farms Dominate Organic Produce
  • Global Marketers, Investors Now Control Most Natural/Organic Leaders
  • Only CROPP Solely Owned by Organic Farmers
  • Big Money Influx Is Altering Market
  • Market Transformation Begins with Whole Foods' IPO
  • Hain Celestial Becomes Natural Foods Conglomerate
  • Venture Capital Migrates to Natural/Organic Market
  • Charterhouse Putting Together National Baked Goods Player
  • Solera Capital Assembles Homegrown Naturals Holding Company
  • American Capital Strategies Buys Stake in nSpired Natural Foods
  • Investor-Driven Consolidation in Meat Sector
  • Natural/Organic's Boulder Roots and "The Way Things Were"
  • Market Founders Resurface as New Company Leaders
  • Clif Bar Founder Just Says "No"
  • The Case of White Wave
  • Dean's Backing Takes White Wave's Silk to the Top
  • Incompatible Business Models?
  • The Case of Horizon Organic: Going Public to Fund Growth Leads to Takeover
  • Horizon Factory Farms Called into Question RE "Organic"
  • More Bad PR for Horizon
  • Whole Foods as "Whole-Mart"
  • Hain Celestial as Whole Foods' Marketer Counterpart
  • Table 4-2: Hain Celestial Group: Product Categories and Brand Lines, 2006
  • A New Spate of Entrepreneurship
  • The Case of Dakota Beef: Young Entrepreneur Taps into Organics' "Final Frontier"
  • Maximizing Efficiency to Reduce Prices, Increase Profits
  • The Case of Niman Ranch: A Pioneer in Naturally Raised Meat
  • Company Makes Mark in Restaurants
  • Naturally Raised Pork Enjoys Rapid Growth
  • Niman Ranch Helps Hog Farmers Survive
  • The Case of Dagoba Organic Chocolate
  • The Lesson of Gardenburger
  • Familiar Faces Among Today's Entrepreneurs
  • Mainstream Marketers Entering Natural/Organic Arena
  • J&J, Coty Target Natural Personal Care
• The Foodservice Side
  • A Heavy Emphasis on Flavor, Origins
  • Niman Ranch Banking on Better Tasting Pork
  • Bell & Evans Chicken Also Touted as Tastier
  • Green Mountain Coffee's Foodservice Success
  • McDonald's Picks Newman's Own Organics Coffee

Chapter 5: New Product Trends in Natural/Organics

• Rapid Growth in Food and Beverage Introductions
• Figure 5-1: Top Package Tags on Food & Beverage New Product Introductions, 1996 vs. 2005
• Table 5-1: Food & Beverage New Product Selling Points by Selected Package Tags, 1996, 2001-2005
• Growth of Organic Intros Outpaces Market
• Organic Linked to Weight, Heart Health Concerns
• Use of Other Accompanying Health-Related Tags Rises Sharply
• Figure 5-2: Selected High-Growth Package Tags on Organic Food & Beverage New Product Introductions, 1996 vs. 2005
• Private Label Growth
• Table 5-2: Use of Selected Package Tags on New Food and Beverage Products Tagged "Organic": 1996, 2001-2005
• Other Tags Link Organic to Gourmet, Kids, and Convenience
• Organic Products Acquire Gourmet Cachet
• Kids and the Organic Future
• Hain Celestial Focuses on Infants and Toddlers
• Raising Kids Organically
• Cereals Prominent in Kids' Intros
• Healthy Snacks for Kids
• Convenience Remains Essential
• From the Soup Kitchen
• Healthier Image for Frozen Meals
• Non-Allergenic Products-Healthy and Safe
• Saying No to Gluten
• Organics Gets Boost from Functional Foods
• Organic Energy Bars and Drinks Form Subtrend
• Organic Functional Foods Specialist
• Touring the World's Cuisines-Organically
• Cultivating Dairy
• Organic Valley Grows Cheese Line
• Whole Grains Bring Healthier Image to Bread, Cereal, Pasta
• Trend Extends to Granola Bars, Baking Mixes
• Whole Grains and Weight Management
• Fair Trade Carries Clout in Coffee, Tea, and Chocolate Intros
• Tea Category Receptive to Innovation
• Bright Outlook for Dark Chocolate
• Meats: the Final Frontier
• Barbecue Goes Organic
• Major Marketers Add Organic Entries
• Mainstream Supermarkets Create Natural/Organic Brands
• Table 5-3: Safeway's O Organics Brand: New Product Introductions, First-Quarter 2006
• HEB, Wild Oats Continue to Extend Natural/Organic Labels

Chapter 6: Looking Ahead

• Retail Competition, Expansion Will Continue to Drive Market
• The Wal-Mart Effect
• Private-Label and Price Pressure
• Additional Mergers and Acquisitions
• Continued Cross-Over by Mainstream Marketers
• Natural/Organics Tapping into Broader Food Trends
• OTA Launches "Go Organic! for Earth Day" Campaign
• Foodservice Helping to Build Organics Constituency
• Organic vs. "Organic. Inc."
• Looser Standards for Organics Could Undermine Market
• The OTA Survey: Living Organically in 2025

Appendix: Selected Marketers and Retailers of Natural and Organic Foods and Beverages