October 2019 - 22
ORGANIC
ORGANIC
CONTINUED FROM PAGE 21
volume growth in supermarket produce
was generated by organics. As organic
items have expanded, consumers
increasingly seek them out, often stopping
purchases of conventional products when
organic substitutes are available.
Perhaps more impressive are the prices
consumers demonstrate they are willing to
pay for organic items. On average, at the
supermarket level consumers are paying
double the price for organics over the
price of conventional products. Obviously,
this price premium limits the number
of consumers who can afford or who are
willing to pay for organic produce. But as
the organic price premium falls, the largest
barrier to broader consumer purchases of
organic produce falls with it.
To date, the biggest barrier to
date for supermarkets has been
continuity of supply. Organics have
been a relatively seasonal, high-priced
segment so retailers are forced to
limit shelf space and assortment. But
as production ramps up and organic
prices inevitably fall, supermarket
executives will be increasingly
empowered to begin dropping duplicate
conventional items. In simplest terms,
if supplies of organic bananas are
Supermarkets are vital to the distribution channel for organic produce. Exhibitors at the
Organic Produce Summit in July displayed product similar to the way its found in stores.
abundant and the price premium
is modest, why will supermarkets
choose to carry both the organic and
conventional banana? At that point,
for the retailer there is almost zero
downside to removing the conventional
bananas from stores. The supermarket
has one less item to manage in stores
and this step opens up new shelf space
for additional products and varieties.
The good news for conventional
producers is in most categories this
process will unfold slowly over a
decade or more. Even in categories
with the broadest development,
organic production will limit retailers
from fully backing away from most
conventionally produced items.
The emerging challenge is that in
many categories organic production is
ramping up. High grower returns over
the past decade have incentivized growers
to expand organic production as well as
convert existing operations into certified
organic. The result is rapidly expanding
volume of organic fruit hitting the market
which will, predictably, reduce prices.
The key, unknown opportunity is
how quickly lower freight-on-board
pricing on organic fruits will be
passed on to consumers via lower
supermarket pricing. Consumer
studies reveal that the number one
purchase barrier keeping consumers
from buying more organic produce
is price. So, as retail prices fall we
can anticipate consumer substitution
of organics in place of conventional
produce will rise. In the past year,
this trend has shown strongly in
the berry category when organic
supply expanded, prices dropped and
consumers ramped up purchases.
For example, for calendar year
2018, the U.S. Nielsen data reveals
that supermarket prices on organic
blueberries dropped by 13%.
Meanwhile, organic blueberry volume
sold jumped by 47%. Organic blues
are a small segment, generating only
about 8% of total blueberry category
volume. However, organic blueberries
generated a full 55% of the TOTAL
blueberry category growth for the year.
What's clear is new organic
production is hitting the market across
multiple produce categories. This will
likely result in lower prices on organic
produce in supermarkets, fueling
product substitution among grocery
store shoppers. If you're a grower of
organics that's great. If you grow both
organic and conventional, it's simply a
transition to manage.
If you don't produce or sell organics,
it's probably a good time to re-evaluate
your product mix.
Steve Lutz is senior vice president of
insights and innovation for Category
Partners. He can be reached at steve@
stevelutz.org. FGN
JANUARY 9-12, 2020
EDUCATION
LEADERSHIP
GROWTH
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production conference and hear from industry experts!
Commodity and operational topics include peach, vegetable,
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22 | FruitGrowersNews.com
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October 2019
Table of Contents for the Digital Edition of October 2019
October 2019 - 1
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