Woman and son in produce aisle

Tops of 2018: Organic

FMCG and Retail | 12-19-2018

While organic products have been available for decades in the U.S. fast-moving consumer goods (FMCG) industry, they’ve become more accessible than ever in the last few years. Despite this growing popularity, organic products are not necessarily a fad. Sales of organic FMCG haven’t waned, and given sales trajectory across the store, organic appears to be an age-old growth driver that’s here to stay.

While it shouldn’t come as a surprise to hear about the prominence of organic products, it might be interesting to learn that sales continue to outpace previous years. In fact, they now account for more than $21 billion in sales and are up nearly 9% in dollars and 8% in units. And at a time when the FMCG industry overall has experienced flat volume consumption, this growth is huge.  

Gone are the days when organic products catered to a singular or specific audience. Today, organics have hit the mainstream. Not only are organic products boosting our industry’s top-line, they are being purchased more by all generational and age cohorts. That said, some segments of our population are leaning into organic more than others.

Millennials are spending 14% more on organic products this year compared to last, and Hispanic consumers lead other ethnic groups, spending over 13% more on organic products compared to a year ago. Where the average American household is spending just 0.2% more across overall FMCG, the pace of purchasing happening among organic goods is exceptional and is breathing life into otherwise flat or contracting aisles of the store.  

Speaking of the pervasive expanse of the organic product market, it’s important to note that it’s not just food products seeing lift from organic claims. Consumers are taking note of the ingredients, manufacturing process and attributes surrounding their non-food purchases as well. For organic products, sales have been bolstered by double-digit growth among health and beauty care, baby care and even alcohol.

Looking at the highest-earning organic categories in 2018, it’s clear that organic products are ever-evolving, and though we’ve had the “organic” product claim on our minds for years, dissecting it’s sales potential needs to be done with regularity. This year, dairy products have experienced a huge benefit from organic sales—with cows’ milk and chicken eggs alone representing more than $2 billion in sales.

One beverage that’s really emerged in the organic space this year is kombucha. Known only to a niche audience a few years ago, today this probiotic and organic functional beverage is winning the hearts of consumers across America. Organic kombucha has seen more than $412 million in sales this year, a figure that’s up an impressive 42% compared to a year ago.  

Organic products might be here to stay, but their ability to inspire growth isn’t ubiquitous to all areas of the store. For example, when trying to reach milk shoppers, simply slapping an “organic” label on the product and charging a premium isn’t going to guarantee engagement. Organic cows’ milk is the highest selling category among organic FMCG, and having earned more than $1.3 billion in the latest year, there’s certainly plenty of demand out there. But most organic milk sales haven’t seen any lift from a year ago, with organic cows’ milk sales down 2.3%.

One potential culprit to these declines could be the steep price differential between organic and non-organic cows’ milk. Where the average unit price for cow’s milk is $2.59, for organic varieties, the average price skyrockets by 84%, to $4.76 per unit. Despite 7% growth in organic cows’ milk items on shelves, it seems the organic variety may be selling at too premium a price compared to its conventional counterpart.

Almond and lactose-reduced milks have also seen increased assortment of items on shelves compared to a year-ago. But contrary to cows’ milk, organic variants of almond and lactose-reduced milks are sold at average unit prices of just 23%-26% of conventional variants. Understanding how consumers shop the shelf for milk is at the center of diagnosing disparities in growth.

As determined in Nielsen’s 2017 study on Category Shopping Fundamentals, shoppers of the milk category are among the least engaged at the shelf. In other words, when it comes to purchasing milk in dairy aisles, shoppers are highly likely to shop for milk on “auto-pilot.” In other words, they’re not seeking to break habitual routines nor are they paying attention to in-store or product details that influence the purchase decision.

Given the relatively low engagement among shoppers of this category, when it comes to organic milks, the recipe for success is a little more complex. In fact,milk consumers are most likely to pre-plan the brand of milk they buy, above the variety, amount to purchase and amount to spend. Therefore, when it comes to organic milk, the future lies in expanding brand awareness and building brand equity and reputation.  

It’s clear that when it comes to organic products, consumer demand continues to stand the test of time. Organic still sells, and it’s lifting the bottom line of categories across both food and non-food FMCG. But as can be seen in the example of milk, the path to growth with organic label claims often requires understanding the fundamentals that drive category purchasing.

Where “organic” was once famed enough to convert purchases on its own, today it’s often most effective alongside other health and wellness needs or perhaps with greater reliance on factors such as brand reputation. As 2018 winds to a close, we’re left assured that products touting organic ingredients continue to drive outsized growth across the entire store.  

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