News Analysis: Organic outshines expectations

Independents look to profit as organic produce extends its appeal beyond the chattering classes.

With the food and drink sectors labouring under consumers' worries about the effect of diet on health, few will be surprised that organic products are experiencing huge growth. But the explosion in popularity of organic food and drink, revealed earlier this month in a report from the Soil Association, has amazed even those in the industry.

UK consumers spent £1.6bn on organic food and drink last year, a rise of 30% on 2004. This is much faster than the global growth rate of 7.7% and well ahead of the 3% overall rise in food and drink sales. This has picked up considerably - in 2004 organic grew 10%. It is not just because the same consumers are buying more; the evidence shows that more people are buying into the organic diet. Three years ago, half of all consumers said they had bought organic food or drink; in 2005, this had risen to two-thirds.

The profile of the typical organic consumer has broadened beyond the urban chattering classes. The report found that more than half of consumers in the C2, D and E socio-demographic groups had bought organic.

Although the sector still represents only a small proportion of the total food market (1.3%), 2005's growth could represent a tipping point. The 'Jamie Oliver' effect, educating the masses about what goes into food has been highly influential, while PR has also boosted awareness. A Dutch study on the health benefits of organic milk received high levels of publicity, and a Channel 4 documentary on dairy farming practices, aired last August, prompted a 91% leap in sales of organic milk in the three months to November.

Retail opportunities

It is good news for retailers, which have been expanding their ranges. Sainsbury's relaunched its So Organic range for Organic Week last September, adding 100 lines to its established 500. TNS figures show that Sainsbury's has a 27.7% share of all supermarket organic sales, behind Tesco's 31.1%.

The latter, which introduced organic products in 1992, is trying to cement its lead in the sector with a packaging redesign of its 400 own-label products. It is also moving its organic products out of a dedicated section and into individual aisles so consumers can more easily compare non-organic and organic alternatives, reflecting the Soil Association's findings that consumers prefer to shop this way.

Waitrose punches well above its weight in organic sales, with 1300 lines. Although it only has a 3.7% share of the total retail market, it sells 18.3% of all organic food bought from supermarkets. During the past year, Waitrose shoppers have spent 20% more on organic purchases, with dairy and meat especially popular.

Organic is not important to supermarkets just because of its price premium, says TNS Worldpanel communications director Edward Garner. Stocking organic products also attracts high-value shoppers. 'Organic shoppers tend to be less price-sensitive and hence the kind of customers you want.'

However, evidence from the Soil Association's report indicates that the supermarkets' organic fortunes may not be as rosy as they might hope. Although 76% of organic products were bought from multiples in 2005, their share of the market increased only 1%. Sales through the independent sector, including box schemes and farm shops showed bigger growth (see table), with 50% of consumers preferring to buy organic food from small local suppliers.

Riverford Farm, which delivers boxes of organic food across Southern England, experienced a 70% sales surge in the past year to reach £30m.

The independent sector is not the only threat to the supermarkets' organic ambitions. Although retailers' own-label organic products are more prevalent in store than branded versions, the Soil Association report found only 13% of consumers 'prefer' to buy them, while 44% would opt for branded versions.

Yeo Valley is one of the biggest organic food brands, having grown 23% in the past year to reach £80m. Its natural yoghurt is the market leader, beating retailer alternatives, which marketing director Ben Cull says have a trust barrier to get over. 'You really need to have proved your credentials in this sector,' he says.

If the organic market is to sustain its growth, clearer communications about organic food will be necessary. Publicity over the past year on the adverse environmental effects of importing food over vast distances has confused consumers.

'Many consumers think organic is just about making the world a better place,' says Guy Watson, founder of Riverford Farm. 'But if you air-freight organic mange tout from Kenya it is not environmentally friendly, even if it is organic.'

There is evidence that the 'food miles' issue is now more front-of-mind for consumers than the organic message. Faced with the choice of a locally grown non-organic product or an imported organic product, 84% of people in The Soil Association's survey opted for the former. Supermarkets have responded by increasing their stock of locally grown organic food by 13%, which could well be the key to future success.

DATA FILE - SUPPLIERS

2005 %
value growth
(pounds m)
Box schemes 95 22
Independent and farm shops 258 32
Farmers' markets 27@5 10

Source: The Soil Association

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