Executive Summary

Scope and Methodology

Scope of the Report

Report Methodology

Organic Standards

Size and Growth of Market for Organic Foods and Beverages

Rapid Growth Characterizes Market

Comparing Organic Brand Sales Growth to Conventional Category Growth

ES-1: Yogurt/Yogurt Drink Sales: Conventional and Organic Overall versus Organic Brands, 2003

ES-2: Yogurt/Yogurt Drink Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 9/5/2004

ES-3: Cold Cereal Sales: Conventional and Organic Overall versus Organic Brands, 2003

ES-4: Cold Cereal Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 7/11/2004

Still Room to Grow

Consumer Trends Support Continued Growth in Organics

Barriers Include Price, Supply, Standards Integrity

27% of Americans Eating More Organic Foods

ES-5: Categories of Organic Foods Purchases by Those Who Buy Organic

ES-6: Category Share by Percent of Market (Consumer Food Sales)

2004 Organic Sales in U.S. Estimated at $15.4 Billion

ES.7: U.S. Sales of Organic Foods and Beverages, 2003-2004

ES-8: Projected U.S. Sales of Organic Foods and Beverages, 2005-2009

ES-9: Average Annual Growth Forecast by Category, 2004-2008 (OTA)

Market Penetration

ES-10: Total Foods and Organic Foods Consumer Sales and Penetration, 1997-2003 (OTA and Nutrition Business Journal)

Category Growth

ES-11: Organic Food Category Share 2003 (Consumer Food Sales)

Who Owns Organic?

 ES-12: Changing Ownership in Leading U.S. Organic Brands

Market Characteristics

Why Consumers Buy Organic

ES-13: Reasons for Choosing Organic (Hartman Organic Trends Study)

60 Percent of Shoppers Feel Organic Foods Healthier

Supermarket News Survey: Consumers Believe Organic is Healthier

ES-14: Percent Who Agree Organic/Natural Food is Beneficial

Where They Buy: Organics Sell in Natural, Mass-Market Chains

ES-15: Organic Foods Channel Distribution 2003

ES-16: Percentage of Organic Shoppers Who Shop Various Retail Channels / Percent Who Go to Various Retail Channels the Most

The Organic Consumer

Who is the Organic Consumer?

Education Levels Higher for Organic Shoppers

As Market Grows, Consumer Profile Changes

Ethnic Diversity Among Organic Shoppers

Frequency of Use Increasing

Advertising and Promotion Trends

Organic Companies Spend More Advertising Dollars

White Wave Launches $22.3 Million Television Advertising Campaign

Ad Budgets Smaller Than Conventional Foods

Supply Chain

Most Organic Farmers Say They Will Increase or Maintain Volume, Acres in Production

ES-17: OFRF Farmer Survey Respondents’ Plans to Increase or Decrease Volume of Organic Product in Various Production and Market Categories

Distribution Link: Market Leaders Acquire and Grow

UNFI Largest Publicly Traded Wholesale Distributor

Tree of Life Reaches 20,000 Retailers

Retailer Link: Natural Products Retailers

Retailer Link: Mainstream Supermarkets

ES.18: Organic & Natural Private Label Brands in Mainstream Supermarkets

Retailer Link: Club Stores, Mass Merchandisers, Discount Stores

Foodservice Channel

Trends and Challenges

The Organic Future: Challenges

The Organic Future: Trends

Chapter 1: Size and Growth of Market

Scope and Methodology

Scope of the Report

Report Methodology

Size of Market for Organic Foods and Beverages

Rapid Growth Characterizes Market

Cautions for Evaluating Market Data

Comparing Organic Brand Sales Growth to Conventional Category Growth

Table 1-1: Italian/Spaghetti Sauce Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 7/11/2004

Table 1-2: Yogurt/Yogurt Drink Sales: Conventional and Organic Overall versus Organic Brands, 2003

Table 1-3: Yogurt/Yogurt Drink Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 9/5/2004

Table 1-4: Cold Cereal Sales: Conventional and Organic Overall versus Organic Brands, 2003

Table 1-5: Cold Cereal Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 7/11/2004

Table 1-6: Milk/Soymilk Sales: Conventional and Organic Overall versus Organic Brands, 2003

Table 1-7: Milk/Soymilk Sales: Conventional and Organic Overall versus Organic Brands, 52 Weeks Ended 9/5/2004

Many Brands Sell Both Natural and Organic; Some Are All-Organic

Table 1-8: Top Natural & Organic Foods Manufacturers, 2003*

Still Room to Grow

Consumer Trends Support Continued Growth in Organics

Barriers Include Price, Supply, Standards Integrity

27% of Americans Eating More Organic Foods

Table 1-9: Categories of Organic Foods Purchases by Those Who Buy Organic

Table 1-10: Category Share by Percent of Market (Consumer Food Sales)

2004 Organic Sales in U.S. Estimated at $15.4 Billion

Table 1-11: U.S. Sales of Organic Foods and Beverages, 2003-2004

Table 1-12: Projected U.S. Sales of Organic Foods and Beverages, 2005-2009

Table 1-13: Average Annual Growth Forecast by Category, 2004-2008 (OTA)

Market Penetration

Table 1-14: Total Foods and Organic Foods Consumer Sales and Penetration, 1997-2003 (OTA and Nutrition Business Journal)

Factors Influencing Growth

Mainstreaming of Organic

 

Chapter 2: Organic Standards

What is Organic?

Organic is a Production Method

Natural is Not the Same as Organic

Research Often Combines Organic and Natural

Vegetarian is Not the Same as Organic (and Vice Versa)

Organic Means  . . . .

National Organic Program Structure

Labeling Guidelines for Organic Products

Table 2-1: Allowed Organic Labels

Use of USDA Organic Seal

Fines for Illegal Use of Organic Label and Seal

Global Market Resources

The National List of Allowed and Prohibited Substances

Development of Organic Standards: Bumpy Road

Continuing Challenges to Organic Integrity

Organic Certification

Organic Means Certified Organic

USDA Accredited Certifiers

NSF Acquires Quality Assurance International

Certification of Imported Organic Products

Certification Process

Certification Costs

Who Gets Certified?

Retail Certification

Whole Foods First National Chain with Organic Certification

Retail Certification Doesn’t Mean It’s All Organic

Penalties for Non-Compliance

National Organic Standards — A Success Story?

Thirty-One Percent of Shoppers Attentive to Seal

OTA Director Says Standards Are Better for Consumers, Farmers

National Campaign for Sustainable Agriculture Makes Recommendations to USDA

In Some Areas, Interpretation of Standards Still Poses Challenges

Integrity, Education Remain Essential

 

Chapter 3: Categories and New Products

Fruits and Vegetables Lead the Market

Pesticide Contamination Boosts Organic Produce Sales

Table 3-1: Most Contaminated Fruits and Vegetables (2003)

Table 3-2: Least Contaminated Fruits and Vegetables (2003)

OTA Estimates $4.34 Billion in Fruits And Vegetables in Consumer Market

Table 3-3: Organic Food Category Share 2003 (Consumer Food Sales)

Table 3-4: Category Share by Percent of Market (Consumer Food Sales)

UPC-Coded Produce and Salad Mix Are Hot Items

Table 3-5: Ten Largest Organic Categories (in millions of dollars)

96 Percent of Organic Consumers Buy Organic Fresh Produce

Value-Added Produce Items Top Sellers for Big Organics

Grimmway, Driscoll Add Organics

Mid-Size Farms Wholesale Nationally, Operate Locally

Small, Local and Regional Organic Gaining Attention

Big and Small Organic Coexisting

Organic Fruits and Vegetables Also Frozen, Canned and Dried

Table 3-6: New Products: Fruits and Vegetables (Total SKUs: 64)

Organic Milk and Dairy Foods

rBGH, Pesticides of Concern to Dairy Shoppers

New Flavors, Packaging, Processing and Marketing Add Appeal

Private Label, Foodservice Expanding; Aurora Dairy to Focus on Market

Horizon Owns 76% of Single-Serve Milks in Natural Foods Stores

Stonyfield Will Enter Fluid Organic Milk Market, With H.P. Hood

Organic Ice Cream Market Growing

Smaller and Regional Dairies Also Expanding

Growing Organic Cows

USDA Data on Organic Dairy Cows

Table 3-7: Organic Dairies Established Across the United States (2001)

Cornell to Research Transition to Organic on Dairy Herds

New Products: Organic Dairy

Table 3-8: New Products: Organic Yogurt and Yogurt Drinks (22 SKUs)

Table 3-9: New Products: Organic Milk (9 SKUs)

Table 3-10: New Products: Organic Dairy Case (11 SKUs)

Table 3-11: New Products: Organic Cheese (51 SKUs)

Table 3-12: New Products: Organic Ice Cream And Frozen Dairy Desserts (20 SKUs)

Organic Bread and Grains

Whole Grains Better for Carb-Conscious Dieters

Lundberg Family Farms Leads in Organic Rice

Bread Makers Offer Low-Carb Options

Cereals for Healthy Kids, Healthy Adults

Cereals Sell in Multiple Channels

Table 3-13: Organic Cold Cereal Growth: Natural Supermarkets

Table 3-14: Organic Cold Cereal Growth: Mainstream Supermarkets

Organic Pasta, Pasta Meals

Wheat-Free Diets Inspire New Products

Table 3-15  New Products: Organic Bread (57 SKUs)

Table 3-16: New Products: Organic Cereal (34 SKUs)

Table 3-17: New Products: Rice, Pasta, Other Grain Products (60 SKUs)

Organic Meat, Poultry and Fish

Bovine Disease Scare Increased Demand for Organic

Limited Supply Has Affected Availability of Organic Meat

High-Quality Natural Meats Sufficed For Many

No Animal By-Products

OTA Estimates 30% Growth in Organic Meat

Grass-Fed, Humane Labels Gaining Prominence

Petaluma Poultry: First Certified Organic Chicken

Organic Valley Says Growth Could Triple

Applegate Farms Launches First Organic Deli Meats

Dakota Beef Largest Organic Beef Company

USDA Study Shows Organic Feed Supply is Adequate for Livestock

Fish Standards Controversial in 2004

Table 3-18: New Products: Organic Meats, Poultry, Fish (33 SKUs)

Organic Snack Foods and Chocolate

Frito-Lay Jumps In With Salty Organic Snacks

More Options in Snack-Food Ingredients

Organic Cookies, Crackers Are Trans-Fat Free

Table 3-19: New Products: Organic Snack Foods — Chips, Pretzels, Popcorn, Cookies, Crackers (144 SKUs)

Table 3-20: New Products: Organic Snack Foods — Nuts and Seeds (21 SKUs)

Snack Bars Go Organic; Clif Bar Says It’s The Right Thing To Do

Table 3-21: New Products: Organic Snack Foods — Snack Bars (37 SKUs)

Healthy Chocolate

Protecting Songbird Populations with Organic Chocolate

Wide Assortment of High Quality Chocolate

Experimenting With Sizes

Fair Trade Designation Enhances Organic Chocolate

Table 3-22: New Products: Organic Snack Foods — Candy and Chocolate Candy (55 SKUs)

Organic Beverages

Organic Fruit Juices Offer Purity for Kids

Organic Orange Juice Comes With or Without Pulp, Calcium

Table 3-23: New Products: Organic Beverages — Fruit Juices and Drinks, Vegetable Juices and Drinks, Sodas (104 SKUs)

Consumer Awareness Building in Organic Tea

Davidson’s Converts Entire Line to Organic

Single-Serve Bottled Organic Iced Teas

Medicinal Teas and Traditional Flavors

Celestial Seasonings Has Few Organic SKUs

Table 3-24: New Products: Organic Beverages — Tea (233 SKUs)

Organic Coffee Benefits from Environmental Concerns

18.7 Million Pounds of Coffee Certified as Fair Trade in U.S. in 2003

Price Premium Less Daunting in Specialty Coffee Market

Table 3-25: New Products: Organic Beverages — Coffee and Hot Chocolate (65 SKUs)

Organic Beverages — Wine and Beer

Organically Grown and Organically Processed or Made With Organically Grown Grapes

Global Market and Marketing Opportunities for Organic Wines

Slower Growth Than Other Organic Segments

Organic Beer

Table 3-26: New Products: Organic Beverages — Wine, Beer, Liquor (27 SKUs)

Organic Beverages — Dairy Alternatives

Soy Rules

White Wave Leads Soymilk Category

Organic Dairies Add Soymilk

Flavors Make Soymilk Palatable and Popular

Silk No. 1 in Chocolate Milk Segment

Organic Soy Means No GMOs

Dairy Alternatives — Other Than Soy

Packaging Innovations Add New Options

Table 3-27: New Products: Organic Beverages — Dairy Alternative Drinks (56 SKUs)

Organic Grocery: Packaged, Processed and Frozen Foods

Baby Foods Are Organic Point of Entry

Table 3-28: New Products: Organic Grocery — Baby Foods (14 SKUs)

Flavored Tofu Products Are Newest Soy Foods

Table 3-29: New Products: Organic Grocery — Soy; Meat & Dairy Alternatives (62 SKUs)

Meals & Entrees Tend to Ethnic, Classic Flavors

Table 3-30: New Products: Organic Grocery — Meals & Entrees (34 SKUs)

Wolfgang Puck, Aseptic Cartons Enter Organic Soup Market

Table 3-31: New Products: Organic Grocery — Soups (43 SKUs)

Organic Grocery Goes Gourmet

Table 3-32: New Products: Organic Grocery — Sweet Toppings, Jams & Jellies, Nut Butters (82 SKUs)

Table 3-33: New Products: Organic Grocery — Sauces, Salsas, Gravies (52 SKUs)

Table 3-34: New Products: Organic Grocery — Oils, Salad Dressings, Dips, Mayonnaise (69 SKUs)

Table 3-35: New Products: Organic Grocery — Pickles, Olives, Condiments (59 SKUs)

Table 3-36: New Products: Organic Grocery — Spices, Extracts, Seasonings (142 SKUs)

Table 3-37: New Products: Organic Grocery — Staples (40 SKUs)

Organic Non-Food Categories: Fiber, Pet Food, Personal Care and Cosmetics

Standards Present Challenges

OTA Creates Voluntary Fiber Processing Standards

Organic Foods Production Act Provides For Seafood, Pet Food Standards

Personal Care

Total New Product SKUs

 

Chapter 4: The Marketers

Who Owns Organic?

Table 4-1: Changing Ownership in Leading U.S. Organic Brands

Consolidation — Positive or Negative?

Evaluating Success With Broader Indicators

Current Acquisition Targets

Table 4-2: Top LOHAS Acquisition Candidates

Consumer Values

Figure 4-1: Which Type of Farm Cares More About Safety?

Figure 4-2: Concern About Decline in Number of U.S. Farms

Figure 4-3: Importance of Knowing Whether Food is Produced or Grown Locally/Regionally

Shaping Corporate Identities

Marketer Profile: Earthbound Farm

Marketer Profile: Be Wise Ranch

Marketer Profile: Jacob’s Farm/Del Cabo Cooperative

Marketer Profile: Horizon Organic

Marketer Profile: Organic Valley Family of Farms

Marketer Profile: Stonyfield Farm

Marketer Profile: Straus Family Creamery

Marketer Profile: Clover Stornetta Farm

Marketer Profile: Oregon Ice Cream Co.

Marketer Profile: Aurora Organic Dairy

Marketer Profile: Nature’s Path

Marketer Profile: Lundberg Family Farms

Marketer Profile: Rudi’s Organic Bakery

Marketer Profile: Small Planet Foods

Marketer Profile: Earth’s Best

Marketer Profile: Spectrum Organics

Marketer Profile: White Wave Inc.

Marketer Profile: Eden Foods

Marketer Profile: Amy’s Kitchen

Marketer Profile: Fairfield Farm Kitchens

Marketer Profile: Applegate Farms

Marketer Profile: Wholesome Harvest

Marketer Profile: Dakota Beef

Marketer Profile: Newman’s Own Organics

Marketer Profile: Petaluma Poultry

Marketer Profile: Seeds of Change

Marketer Profile: Dagoba Chocolate

 

Chapter 5: Market Characteristics

Market Perceptions

Organic Foods Perceived as Healthier

Table 5-1: Reasons for Choosing Organic (Hartman Organic Trends Study)

60 Percent of Shoppers Feel Organic Foods Healthier

Supermarket News Survey Confirms Perspective that Organic is Healthier

Table 5-2: Percent Who Agree Organic/Natural Food is Beneficial

Do Organic Foods Have More Nutrients?

New Organic Center for Research Hopes to Prove the Organic Benefit

Market Drivers

Food Safety Concerns

Pesticide Residues in Foods

Genetically Modified Ingredients

Table 5-3: Major U.S. Genetically Modified Crops

Antibiotics and Growth Hormones

Mad Cow Disease

Availability of Organic Foods in Mainstream Supermarkets

Table 5-4: Organic Foods Channel Distribution 2003

Table 5-5: Percentage of Organic Shoppers Who Shop Various Retail Channels/Percent Who Go to Various Retail Channels the Most

Integration or Segregation of Organic Foods?

Manufacturers Prefer Full Integration

Private Label Organics

National Organics Standards and USDA Seal

Organic Products Fit Mainstream Trends

Organics Packaged for Foodservice

Table 5-6: 2003 Total Organic Manufacturer Shipments by Food Category

Market Barriers

Organic Price Premium

Sensitivity to Price Premium May Vary

Table 5-7: Percent Who Agree Natural/Organic Food Costs More

Small Companies Find Entry More Difficult

Efforts to Discredit Organics

Competing Eco-Labels

Organic Consumer Trends

Who is the Organic Consumer?

Do Consumers Know What Organic Means?

Table 5-8: Responses About Requirements for Foods to Be Called Organic (Unaided)

Organic Users Show Greater Understanding

Figure 5-1: Percent of Consumers Agreeing “Completely/Somewhat” That Organic Foods and Beverages . . .

Organic Industry Must Educate Consumers

Education Levels Higher for Organic Shoppers

As Market Grows, Consumer Profile Changes

Ethnic Diversity Among Organic Shoppers

Cultural Creative Mindset More Telling Than Demographics

Parenthood, Health Turning Points Are Still Gateways

Frequency of Use Increasing

Demographics of Organic Users and Non-Users

Table 5-9: Demographics of Organic Users and Non-Users

Advertising and Promotional Trends

Organic Companies Spend More Advertising Dollars

White Wave Launches $22.3 Million Television Advertising Campaign

Ad Budgets Smaller Than Conventional Foods

Supernaturals Invest in Newspaper, Cable TV Ads

Cascadian Farm, Others Choose Print Advertising

 

Chapter 6: Supply Chain — Field to Table

Producer Link: Seeking the Organic Farmer

OFRF Fourth Annual Organic Farmers Survey Results

Table 6-1: OFRF Farmer Survey:  Plans to Increase or Decrease Volume of Organic Product in Various Production and Market Categories

GMO Contamination Concerns

Organic Trade Association Launches Survey with Iowa State University

Manufacturing Link: Challenges in Multi-Ingredient Processed Organic Foods

Organic Processing Magazine Launched in 2003

Organic and 100% Organic in Processed Foods

Organic Ingredients Sourcing: An Interview with Organic Processing Magazine Editor

Distribution Link: Market Leaders Acquire and Grow

UNFI Largest Publicly Traded Wholesale Distributor

Aggressive Acquisitions, More Space

UNFI First National Certified Organic Distributor

New Foodservice Distribution Channel Through Sodexho

Whole Foods Market is 25% of UNFI Sales

Wild Oats Returns to UNFI

Tree of Life Reaches 20,000 Retailers

New Leadership at Tree of Life in 2004

Smaller and Regional Distributors

Veritable Vegetable

Mainstream Distributor Competition May Increase

Retailer Link: Supernaturals

Whole Foods Market, Inc.

It’s the Food . . . and the Culture

Expansion Plans

Private Label, Artisan Foods

Wild Oats: No. 2

Turnaround Not Yet Fully Evident

New Initiatives to Aid Turnaround

Dell Founder Invests

Oats Founder Launches Discount Natural Foods Stores

Retailer Link: Trader Joes

Table 6-2: Trader Joe’s Shopper Profile (Seattle area)

Retailer Link: Independent Natural Foods Stores and Cooperatives

Vitamin Cottage

New Leaf Community Markets

Earth Fare

Akin’s Natural Foods Markets

Puget Consumers Co-op Natural Markets

Mustard Seed Market

Retailer Link: Mainstream Supermarkets

Table 6-3: Organic & Natural Private Label Brands in Mainstream Supermarkets

Mainstream Markets Face Merchandising Decisions

Retailer Link: Foodservice Channels

Colleges and Universities Lead the Way

Organic Fast Food and Casual Dining

Organic Fine Dining

Retailer Link: Other Distribution Channels

Club Stores, Mass Merchandisers, Discount Stores

Direct-to-Consumer

Farmers’ Markets Are 4% of Organic Sales

Table 6-4: Farmers’ Market Growth, 1994 - 2002

Internet Channel Small, But Not Gone

 

Chapter 7: Conclusion: Challenges and Trends

Challenges for the Organic Industry

Need for Education Persists

OFRF, Rodale Conduct and Fund On-Farm Research

New Nonprofit Seeks to Prove Organic Health Benefits Through Research

Maintaining Organic Integrity

Organic Trends

 

Appendix I: Selected Resources

Appendix II: Acronyms and Glossary