A New Look at Organics

Organic farmers and grocery retailers are embracing the idea of lower-cost, private-label products to retain new budget-conscious consumers. Last spring the fourth-largest U.S. food retailer, by sales, expanded its organic brand to 312 items from 150. Last fall the third-largest U.S. food retailer began selling its organic food brands to other retailers.

Store-brand goods accounted for 22.7% of organic food sales for the 52-weeks ending June 13, up from 13.6% for the same period in 2007. In all, private-label organic food sales rose 34% to $1.1 billion. In 2005, organic private-label sales totaled just $166 million.

For years the organic-foods segment logged annual sales gains of 20%-plus, but that growth has slowed. Sales of natural and organic grocery products rose 4.6%, to $18.3 billion, for the 52 weeks ending June 13 from a year earlier.

Slowing demand has pushed even reluctant name-branded organic food companies to offer private-label products. As retailer requests pile up, producers of organic spices, teas and oils have begun selling private-label products.

The lower prices afforded by private-label organics are helping grocers cater to more price-conscious shoppers. While some people have cut back on organics, stores that have significantly expanded store-brand offerings have experienced high single-digit to low double-digit same-store-sales gains.