Even though estimates of the total organic-foods category range anywhere from $5 billion to $17 billion, that's still a small bite of the nearly $500 billion food business. And while organics can command premium prices, up to 50% more than their non-organic counterparts, the cost of bringing them to market is much higher.
Still, with health concerns hanging over the industry, there's promising data showing an eight-year trend of consistent double-digit growth for organics compared to the 3% annual growth rate for mainstream foods. Moreover, retail customers are demanding products to compete with outlets like Whole Foods Markets-which grew 23% to $3.9 billion last year. Some large chains, like Kroger and Price Chopper, are even doing their own private-label organic brands.
Kraft next month will launch the first national print advertising for the Back to Nature unit it acquired in September 2003, while Campbell is set to unveil organic versions of existing brands.
"Health is probably the most attractive differentiation in the industry right now ... and it's certainly what's driving new product innovations," said Scott Van Winkle, managing director of Boston investment bank Adams Harkeness. Mr. Van Winkle pegs organic sales at roughly $10 billion, a number he said has grown 20% a year for eight years.
Though he said realistically that "we're still talking about 2% of the food industry," he offered that "the big players have to defend their space."
Prudential Securities analyst John McMillin agreed. "Organic keeps gaining and you better be there whether you put your name on it or somebody else's that you've acquired."
Kevin Scott, senior VP-general manager of Kraft's natural and organic division, said Kraft research shows that 15%-20% of U.S. households regularly buy in more than two organic product categories.
Back to Nature has only $10 million in sales in traditional food, drug and mass outlets, making a national advertising investment seem risky. But Mr. Scott said that the expenditure on print ads in May issues of such publications as Rodale's Organic Style, Time Inc.'s Real Simple and Time represents "an investment in what we view as a long-term systemic trend." The agency is Interpublic Group of Cos. Foote, Cone & Belding, Chicago.
Campbell's strategy is to develop organic versions of its own brands. The company's lines are aimed at the "large swath interested in health and nutrition that are looking for familiar brands in an organic format," said spokesman John Faulkner.
Entries into organic broth and tomato juice with its Swanson and Campbell brands in August 2003 have been well received. Campbell is now following pasta-sauce leader Unilever's Ragu, who introduced its own organic variety earlier this year, by introducing Prego Organic this fall along with organic versions of Pace salsas and V8 beverages.
Campbell will attempt to reach into natural and organic channels, whose customers are often wary of large corporate brands, but will also push into mainstream grocery stores. Prego Organic will be supported with TV ads as part of the larger Prego umbrella campaign as well as print. Pace Organic is likely to get print support, Mr. Faulkner said; the brand is handled by WPP Group's Y&R Advertising, New York.