“At the retail level, natural and organic products are what are growing sales sustainably in every category,” Daniel Lohman, category management expert and strategic advisor with Category Management Solutions, told FoodNavigator-USA.
For example, he told attendees at the Healthy & Natural Show in Chicago May 7 that dairy sales were up 1.5% in the 52 weeks ending Jan. 23, 2016, according to Nielsen data, driven primarily by sales of natural dairy, which were up 12.1% and organic dairy which is up 13.7%. Notably, however, natural and organic dairy make up only a small portion of overall dairy sales – specifically natural represents about 8-9% of total dairy sales and organic is a mere 1.7% of sales.
“This is important because it demonstrates that a little sliver of business is what is driving all the sales across the category,” and if you were to take away natural and organic then the overall growth would be much lower, Lohman said. On the flip side, if stores were to merchandise more natural and organic options, the chances are they would help drive overall category sales even higher, he added.
This same trend appears in the snack category, Lohman said. He noted that the $20.4 billion snack category grew 2.7% in the 52 weeks ending Jan. 23, 2016, according to Nielsen data, with natural representing 9.6% of that growth and organic accounting for 20.7% of the growth. Just like in the dairy segment, however, these two subcategories make up only a small fraction of snack sales. Natural accounts for only 7.4% of the snack category, and organic represents only 1.6% of snack sales currently.
Major hurdles to expanding beyond the core organic shopper
What these figures illustrate is that limited accessibility is the biggest hurdle to expanding overall store sales and natural and organic sales in particular, Lohman said.
“A lot of that is a supply-side issue and hopefully we’ll find a way to solve that down the road,” but that is the No. 1 hurdle blocking the expansion of natural and organic product sales beyond the core shopper, he said.
He added: “This is a huge opportunity that needs to be fixed” by making more products available to the end consumer.
Another significant hurdle restricting sales of natural and organic products is the illusion that they are too expensive, Lohman said.
“The reality is they are really cheaper,” he said. “For example, if you were to eat two slices of really high-quality mainstream bread that’s good but you’re going to be hungry again in a couple of hours. Whereas if you eat two slices of a really good organic bread, you are going to be more satiated for a longer time. So that extra 30 cents is actually a bargain because you need to eat less of it. So, it’s an education thing.”
What retailers can do
Retailers can address these challenges in part by expanding the assortment of natural and organic products that they stock not just in the produce or fresh foods sections, but across categories, Lohman said.
“Organic is where consumers begin to understand and experiment in the natural category. … If you have a really strong assortment of those products across categories, that will welcome the consumer to try other products from the store” beyond just those around the perimeter, he explained.
He also recommends retailers leverage the presence of organic throughout other categories because the consumer who wants a healthy organic bread, for example, is more likely to want a healthy spread or dairy product as well.
Finally, he suggests retailers stock organic products with conventional products rather than establish a separate part of the store dedicated to only organic products. He explained that by placing the products together consumers more easily will learn about the different types of organic products that are available and be more willing to experiment with them.
What manufacturers can do
Brand manufacturers also can help overcome the challenges oppressing growth of organic and natural products by better educating retailers about the value to the overall store of stocking these products, Lohman said.
“The retailer cannot be an expert on every item that they sell. So, it’s up to the brand to help educate the retailer on how they should merchandise their product effectively,” Lohman said.
This includes helping the retailer understand how offering organic and natural options drives foot traffic to the store and once consumers are in a store how they are more likely to pick up other, additional products as well.
Lohman noted that manufacturers should not give away for free key marketing advice for their brands to retailers. Rather, he said they should negotiate trading the information for a reduction in other fees that the retailer often charges.
He also recommends that brands invest in a solid category management strategy that goes beyond a pretty planogram and offer that to the retailer as a way to maximize positioning and sales.
“At the end of the day, that is the magic,” he said.