Natural Products Expo East

Growth of natural, organic products slows in face of recession -- can functional ingredients reinvigorate space?

By Elizabeth Crawford

- Last updated on GMT

Source: Getty/blackCAT
Source: Getty/blackCAT

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Even as rising consumer interest in natural and organic products helps push overall sales to new highs, the industry’s growth rate continues to plummet from pandemic highs to below pre-pandemic levels and likely won’t rebound until 2024 as the threat of a recession looms, according to data presented at Natural Products Expo East last week in Philadelphia.

During the first year of the pandemic, sales growth of natural and organic products shot up 10% to about $250bn in 2020 from pre-pandemic year-over-year levels of about 6% in 2019, representing about $225bn in sales, according to SPINS data and analysis by New Hope.

But since then, sales growth has steadily declined to 7.7% in 2021 and is projected to climb about 6% in 2022 before it is expected to bottom out at about 4% in 2023 before slowly starting to climb again to around 5% growth in 2024.

While the sales growth is declining, total industry sales are still on the rise – reaching a record $272bn in 2021 and projected to hit $300bn by 2023, Carlotta Mast, SVP and market leader at New Hope, told attendees at Expo East.

The continual growth, while slowing, is notable because it is on top of the dollar highs from early in the pandemic, which suggests that many of the consumers who came to the natural and organic industry for the first time in 2020 because they needed to stock their pantries, continue to shop the segment even as they have other choices again, Mast said.

This is reflected in data from SPINS showing shoppers buying natural products at a higher rate than other product sales growth. Across all retail channels, shoppers purchased natural products at a rate that outpaced that of other product sales growth from April 2020 through May 2022. The gap between the two was often in the high single digits, but in recent months has tightened so that in August, the sales growth rate of all other products overtook those of natural products at 7.4% vs 6.7% year-over-year growth rate, the data revealed.

Despite the slowdown and recent shift between natural and other products, that data “is just a wonderful demonstration of how consumers are continuing to be self-aware relative to the foods they eat and their impact to our bodies and the planet,” ​said Kathryn Peters, EVP of SPINS.

For example, she noted, in 2022, wellness-positioned brands showed 9% higher growth than total market – continuing a trend from 2020 when they grew 5% higher than total market and in 2021 when they also grew 9% more than the total market.

Foods, beverages drive growth in natural, organic sector

Natural and organic foods and beverages are by far the primary growth driver in the space, accounting for 70% of industry sales, according to data presented during the session . This includes an estimated 7.1% increase in sales to $186.5bn in 2021 and projected sales of $220bn by 2024.

And while natural and organic foods and beverages sales growth follows the same trajectory as the overall category – the slowdown isn’t expected to reverse in 2024 as it is for the overall industry. But it also isn’t as steep – hovering between 5-6% between 2022 and 2024.

And, as Mast notes, the growth is “tremendous” when considered in context of the last 10 years, during which US consumer sales increased more than $100bn.

What do natural and organic consumers want?

Much of this growth is driven by consumers who are looking for products that deliver more health benefits, according to Mast, who noted US functional food and beverage sales grew roughly 8.3% to $83.7b in 2021 and are on track to reach nearly $100b by 2024.

“We’re seeing beverages as the hottest category for functional foods … and within beverages hydration and energy are key focus areas where we’re seeing a lot of innovation,”​ Mast said.

Snacks is another dynamic space for innovation with functional ingredients, including super mushrooms, the use of which grew 29% year-over-year within snacks.

Other beneficial ingredients trending up in snacks include super greens, which are up 24% yoy, collagen, up 15%, adaptogens and prebiotics – both up 11% -- and ancient grains, up 6%. Super fruit is also gaining some traction – increasing 4% yoy, according to data presented at Expo East.

Demand for products featuring functional ingredients simultaneously is being bolstered by increased understanding of food as medicine, according to Peters, who noted sales of products featuring ashwagandha are up 88% to $16m, products with collagen are up 9% to $19m and those with elderberry are up 153% to $38m.

Beyond snacks, desserts are another popular format to deliver functional benefits, Mast said.

[Editor’s note: Want to learn more about how the idea of food as medicine is reshaping the food and beverage industry and driving sales? Join FoodNavigator-USA next month during our digital Futureproofing the Food System Summit, where we will be joined by experts on medicinal mushrooms, ‘mood food,’ and how technology and nutrition can be combined for more a more direct impact. Find all the details and register HERE​.]  

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