It’s 2008. The world feels like it’s in meltdown. The financial sector has all but collapsed, propped up by huge bailouts. A recession is about to take hold. On the ground, retailers begin to scale back, cutting anything that isn’t part of a value offer, while the rise of the discounters begins.
The expensive organic category proves an easy target. Sales drop almost 13% in 2009, according to the Soil Association. It’s brutal. Dried fruit and nut brand Crazy Jack Organic has its distribution cut by 30% in the space of four weeks.
Fast forward to 2016. Brexit has created mass uncertainty. The only clear facts are that GDP has fallen, import costs are up, and on-shelf prices are following. So as inflation creeps back into grocery, will premium organic lines again fall victim as shoppers penny-pinch and retailers overhaul ranges?
Paul Moore, CEO of the Organic Trade Board (OTB), is optimistic, saying eight years on from the credit crunch retailers “won’t make the same mistakes as before” and that there is a “much more informed view about organic now”. UK organic sales were up 7% to £2.1bn in 2016, according to the Soil Association’s 2017 market report, and it predicts organic will grow a further 5% next year and be worth £2.5bn by 2020.
But organic consumption in the UK is well below the EU average. According to the Ifoam EU Group 2016 report, in 2014 per capita consumption in the UK was £30.60 - woeful when compared with £138 per head in Denmark and £188.60 in Switzerland. The OTB’s aim is to get the UK on a par with France’s 2011 consumption levels by 2023 (£51 per head). Can it do it? And how?
“None of the guys on the Continent do it out of love. They do it for commercial reasons, it brings added-value sales”
The OTB has good reason to be positive. British consumers have become increasingly aware of their health and the food they put in their bodies, with the growth of free-from, flexitarian, vegan and other specialist diets accelerating in recent years. As these trends have grown, so too has the organic market. And it’s not on a rising tide: non-organic sales fell 0.6%, the report says.
As well as changing consumer tastes, organic has growth potential because it can make retailers more money. “None of the guys on the Continent do it out of love,” says Moore. “They do it for commercial reasons: it brings added-value sales.”
In Denmark, supermarket SuperBrugsen has all the organic produce at the front of the store because consumers want to shop organic first, and then fill the gaps with non-organic later, says Henrik Hindborg, marketing director at trade body Organic Denmark.
Still, the price differential in the UK is wider. For instance, a pack of bananas in a SuperBrugsen in Denmark costs £1.60 compared with organic at £1.72 - a 7.5% premium. In the UK a small pack of six bananas in Tesco is 90p compared with the organic equivalent at £1.39 - a 54% premium.
And Brexit will inevitably increase prices, though how much is hard to say. The Soil Association’s Organic Market Report says only that the difference in price between “organic and non-organic may change slightly as the cost of inputs, like raw materials, and of producing products, increases”.
Availability and range are crucial
But the organic market will prove resilient, even if Brexit begins to bite, because consumers who “buy organic buy organic because they’re prepared to pay the price for food they feel is of value to them and produced in a way that means something to them,” says Moore.
Even if the impact of Brexit on shelf prices is negligible, or merely in line with the rest of a typical basket, the UK is still a long way from offering a similar organic range to a market leader like Denmark.
“The destiny of the category and its performance is very much dependent on whether shoppers can actually get organic when they go to stores,” says Soil Association trade consultant Finn Cottle. “In all retailers you can buy organic, but [apart from Planet Organic] you can’t shop organic.”
Moore wants to raise the profile of organic in retailers, and he’s just received £9.1m from the EU to do just that over the next three years. The investment is triple the amount the OTB has spent since it was created six years ago and there are hopes this new funding until 2020 could finally provide a breakthrough.
“It’s a positive time,” says Clare McDermott, business development director at the Soil Association. “We’re increasingly seeing consumers choosing organic as a shortcut to a healthy lifestyle. Despite uncertainty around Brexit, it brings lots of opportunities too - particularly around export for British organic and more product innovation.”
Commitment
Moore also believes if there is more commitment to organic contracts with suppliers, that stability will create efficiencies that subsequently reduce prices. But these contracts depend on retailers committing to greater organic ranges, and of course the organic suppliers committing to providing the products.
Melanie Cherchian, category manager for dairy and packaged food at Sainsbury’s, hopes the OTB funding will create a broader range of organic foods for the retailer. With 69% of organic sales coming from the large supermarkets, according to the Soil Association, all of them will have to demonstrate a similar commitment to wider ranging if the market is ever going to grow significantly.
What can the UK learn from Denmark?
Organic is everywhere in Denmark. You walk down the street and there’s an organic restaurant, organic signs in hairdressers that use organic styling products, and organic promotions outside every discounter and c-store.
While this can partly be attributed to the Danish way of life, it’s also thanks to government support. The Danish Okologi label is easy to spot - and it’s free to become certified, whereas in the UK it costs.
“This state controlled organic label that we have in Denmark, it cannot be underestimated because it just gives that trust to the product quality that the Danish consumer is looking for,” says Thor Jorgensen, executive vice president at Danish retailer Fotex.
Organic SKUs make up around 10% of Netto store’s offerings in Denmark. Not an overwhelming figure, yet throughout the store the PoS and promotions are disproportionately large. Red organic logos line the points where organic products sit. Throughout every aisle there’s an organic variant, whether that’s oats, beauty products, vegetables, or even frozen pizza.
Jorgensen says he believes the UK could reach these same levels. “I see no fundamental difference between the UK and Danish market.”
However, standing in the way is visibility. “Organic consumers tend to be high spenders and much more loyal. They’re looking for these types of products,” says Paul Moore from the OTB (pictured right with Jeppe Dahl Jepperson). “If you don’t have it on shelf, you’ll lose.
“People overlook the opportunity. It’s not until you actually start regarding it as not just organic carrots or organic milk but organic as a total category. That’s when it starts to make sense. That’s where Denmark have started to make that leap.”
“For retailers, it’s very simple. If you do it right, you’ll get a competitive advantage,” says Jeppe Dahl Jepperson, senior vice president at Dansk Group in Denmark. He says retailers must add “critical mass” to organic offers to move forward and meet targets.
Online is as important as in-store, adds Cottle. Ocado, for example, has 3,060 organic SKUs and almost a 10% share of the organic market. The next widest range in the retailers is Waitrose with 1,200 SKUs. She warns supermarkets to beware acting too late and finding organic consumers have gone elsewhere for a more comprehensive range, like Abel & Cole or Riverford Organic, which have grown by 10.5% in the last year, proving they hold a key place in the market.
Organic sales in indies have also increased this year by 6.3%, according to the Soil Association. “If supermarkets don’t lend more support to it, consumers will find another way of purchasing organic food, as they do in France and Germany, where 50% of the organic market is through independents,” says Cottle.
But there is progress. Last week, Waitrose said in-store sales of organic were up 5% last year while Tesco said they were up 15%, the strongest growth for over a decade. “The popularity of organic food began with fruit and vegetables but we are now seeing customers exploring areas such as grocery, fish and dairy so you can now use organic produce for the whole meal,” says Tesco organic food spokeswoman Tina Moore.
Sainsbury’s and Tesco have also both come out in support of the OTB aims for a better UK organic market. Last year, Lidl also took steps to improve its organic offering when it launched a large organic promotion, similar to the model used in Europe. It featured organic in its in-store magazine, introduced a range of products, and then supplemented that with organic offers.
Suppliers are also moving. Last year there was a decline in organic land in the UK, but Simon Crichton, food, farming and trade team manager at Triodos Bank, says Triodos helped farmers finance 1,185ha of additional organic land in 2016, a threefold increase on the year before.
Soil Association certification also increased 13.5% in 2016, with the amount of land converted to organic in the UK up by 4.9%.
So, can the UK organic market prosper post-Brexit? With the £9m funding, consumer demand and the current growth in the market, no matter what Brexit throws into the mix, Moore says it absolutely can.
“All it needs is for one retailer in the UK to go gung-ho on organic,” he says. “And that will break the market open.”
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