Should retailers be worried about the slowdown in organic produce sales growth? It would certainly seem that after many years of double-digit sales gains for organic produce, the current 4.9% increase signals reasons for concern. But a deeper dive into the world of organic produce by the Southeast Produce Council (SEPC) at its recent Southern Innovations event shows there is more to the story.
SEPC teamed up with data insights companies IRI and 210 Analytics to bring clarity to the changing organic produce market. “Organic produce has been a shining star in a challenged perimeter for several years now,” said David Sherrod, president and CEO of SEPC. “We are encouraged by the study results to see that there is still ample opportunity and consumer interest for organic to drive continued growth for produce for the country, and the Southeast specifically.”
Sherrod is referring to organic produce’s continued status as an impressive growth driver. Over the past five years, organic produce has added $1.6 billion in sales. While representing just 7.1% of produce sales, organic produce drove 38.6% of new dollars for the category during the 52 weeks ending July 14, 2019.
“Organic continues to punch significantly above its weight,” said Sherrod, who notes that “gains may be clocking in at just under 5%. But without it, fresh produce sales would look even flatter.”
Organic also improved unit sales (up 4.6%) and volume sales (up 4.9%).
Importantly, many categories contributed to the sales gains, which typically means more stable case growth during instances such as a safety recall or changing diets. Within organic produce, 14 out of the 15 categories that have sales in upward of $100 million per year grew dollars over the 52 weeks ending July 14, 2019.
A Cause for Concern?
But what about the slowdown in growth to just below 5%? Is there reason for concern? As organic produce is becoming a greater dollar amount, growth rates will come down from a simple math-based perspective, which is why the industry should look at growth percentages and absolute dollar amounts.
New dollars peaked in 2016, when organic produce added $415 million. Since that time, absolute new dollars have declined $200 million over the latest 52 weeks. In other words, the growth percentage is indeed down due to lower gains, but as Sherrod points out, this is where the rest of the story comes in. “It’s important to look at organic produce in a broader context to accurately understand performance. During the double-digit-growth years for organic, total produce sales were up 3%-4% also. Currently, all of produce has slowed to just 0.9% growth, so organic is still five-folding total gains.
“Fresh organic produce can’t win on its own,” Sherrod continues, “particularly as many shoppers dip in and out of organic depending on the item, a sale or the occasion. For fresh organic produce to win in double digits, total fresh produce needs to be strong also.”
The study pointed to the top five items generating 48.5% of all sales—a much higher share than the top five items in conventional (39.5%).
“Berries, apples, carrots, bananas and tomatoes are organic powerhouse categories and important gateways to organic produce engagement. Organic produce shoppers are very valuable to retailers. When shoppers buy organic produce, their total store spend is 1.47 times higher than average. This is why many banners and channels have added these to their assortment in recent years. This also means measuring sales becomes harder as dollars have shifted from the traditional and specialty channels to places like limited assortment, drug, convenience, online and dollar stores,” said Sherrod. “Additionally, for several of these categories the price differential for organic has come down over the past few years, which means lower dollar gains.”
But the good news is that household penetration is strong, at 62%, and the study identified a number of exciting up-and-comers that can be ways to grow sales among medium and heavy organic produce buyers. The top items driving growth include organic tangerines (up 114%), asparagus (up 53.2%), Brussels sprouts (up 47.3%) and kiwis (up 35.5%).
Stay tuned for the second installment of our two-part organic produce research series by 201 Analytics’ Anne-Marie Roerink later this week.