Channeling Organic

By Laurie Demerit


Organic food and beverages are increasingly available in a variety of purchase channels and as new channels emerge, conventional channels are experiencing declining sales. For the purpose of understanding who buys what, where, we have broken down findings on sales channels by core, mid-level and periphery consumers.

The intensity and meaning of organic varies depending upon segment. For example, core consumers have the expectation that the organic food they buy was grown and cared for with intent to take care of the land and the recipient’s health; while for the periphery, organic may simply mean something “new” with only vague health benefits. Core consumers are likely to ascribe a high personal value to organic and are willing to pay a premium for it, while periphery consumers may be willing to pay only slightly more, and only in certain categories, such as organic milk for their children.

The most popular channels for purchasing organic food and beverages are grocery stores (fairly uniformly across wellness segments) and natural foods stores (though differentially favored across wellness segments). Overall, consumers who purchase organic food and beverages rely heavily on a few channels: grocery stores, natural foods stores and, to a lesser extent, supercenter or discount stores and farmer’s markets.

Perhaps not surprisingly, core consumers are much more likely than the other segments to buy organic food and beverage products at natural foods stores. The core consumer is more passionate both about organic products as well as the experience of shopping for organic, and wants to buy organic at a channel considered “authentic.” Additionally, the core consumer wants to meet like-minded consumers and employees and seeks this element at natural food stores.

Mid-level consumers are more likely to shop for organic at supercenters or discount stores. This segment is increasing its use of supercenters for food purchasing and it is likely that this channel will continue to grow.

Interestingly, periphery consumers who buy organics are more likely to do so at farmers’ markets than their core and mid-level counterparts. A large portion of periphery wellness consumers assume all produce purchased from farmer’s markets is organic. Those with only minimal involvement in a wellness lifestyle tend not to concern themselves with learning about organics. To them, “organic” is less of a formal definition for the way food is grown than a synonym for healthy, which they also associate with purchasing directly from growers.

Because core consumers purchase more organic than the other segments, it is not surprising that even some of the smaller channels are frequented most often by them.

Number of Channels Shopped for Organics
When it comes to purchasing organics, core consumers utilize more channels than other consumers. Half (51%) of core consumers use at least two channels for organic, compared to 39% of mid-level consumers and only 21% of periphery consumers. Furthermore, only 10% of mid-level consumers and 3% of periphery consumers use three or more channels to purchase organics, while 17% of core consumers buy organics in three or more channels. Despite all the lip-service by consumers regarding one-stop shopping, most consumers are increasing their use of a variety of channels. This trend is caused not only by increased product availability, but by consumers seeking different experiences depending upon the shopping occasion.

Grocery Stores Losing Organic Sales
Consumers tend now more than ever to shop multiple channels for their wellness products, as they do generally for all products. Grocery stores are beginning to lose consumers to a myriad of other channels. We examined the use of specific channels by shoppers who regularly shop grocery stores for wellness products and asked them where they buy organic products (Figure 1).

Figure 1. Where are consumers buying organic foods and beverages?
(Based upon past 30- day purchases.) Source: Wellness 2005 Survey (n = 751)

This data shows the “destination” for sales are lost from the grocery channel. Because we begin with consumers who already shop grocery stores on a regular basis for wellness products, these are not consumers who have rejected grocery stores as a legitimate venue for meeting their wellness needs. Moreover, organics are readily available in grocery stores and do not require shoppers to go elsewhere to find them. Thus, any choice of channel other than a grocery store represents a lost sale to the grocery channel.

The reason for focusing on grocery for this analysis is that it has traditionally sought to be the one-stop shopping destination for shoppers, but it has recently failed to live up to this promise. Now under attack on two fronts, caught between Wal-Mart and other mass discounters on one side and specialty retailers on the other, the venerable grocery channel has been forced to redefine itself.

The share of organic buyers staying with grocery stores is still considerable, at 57%. and it comes as no surprise, that the only serious competitors are natural food stores (22%) and farmer’s markets (10%). However, there is erosion of the grocery channel share to other channels. Research shows a decline from 64% in 2000 to 57% in 2005 (Figures 2 and 3).

Figure 2. Organic purchase channel chosen by regular wellness grocery store shoppers, 2005.
Source: Wellness 2005 Survey (n = 315)

Most appear to have taken their business to natural food stores. Although it appears as though the farmers’ market channel has decreased, this is partially the result of seasonality (the 2000 study was fielded in summer; the 2005 study was fielded in winter).

Figure 3. Organic purchase channel Chosen by regular wellness grocery store shoppers, 2000.
Source: Healthy Living 2000 survey (n = 476)

Organic is a wellness category in which grocery stores should be able to hold their own since it plays to the channel’s strengths. That the grocery channel has failed to stem the flow of customers looking for organics is a clear indication that consumers’ needs are not being met.

In pointing to consumers’ needs we are not suggesting that grocery stores need to stock more organics. Part of the problem is that consumers don't always expect conventional grocery stores to carry or properly handle organics. The experience shopping at traditionally designed and managed grocery stores is enough to lower consumer expectations of finding high-quality organics and does little to justify the higher price charged for them. Under these conditions, consumers will shop elsewhere.

Manufacturers and processors can assist grocery retailers by creating in-store experiences that leverage the attributes that differentiate this category. For example, point of sale materials and merchandising tactics that detail narratives of the place where the food was grown, the people who raised or created the food, and the ingredients or the processes the product was put through. These narratives need to connect on an emotional level with the consumer since the organic category is driven as much by what the products mean to the consumer as what they do to the consumer.

Laurie Demeritt is President and COO of The Hartman Group, a consulting and market research firm specializing in the analysis and interpretation of consumer lifestyles. She can be reached at laurie@hartman-group.com.