Conventional retailers are sourcing more natural and organic brands

Dive Brief:

Natural and organic products, including many emerging brands, are increasingly showing up in conventional supermarkets, according to Project Nosh.
Kroger and Ahold Delhaize recently began stocking boxes of Banza chickpea pasta, while Walmart has added yucca fries, baked chicken empanadas, baked beef empanadas and sweet plantain slices from Neilly’s Foods, provider of frozen Afro-Caribbean and Hispanic inspired items. Walmart also brought on a line of paleo-diet friendly breads from Base Culture.
Target, meanwhile, has added gluten-free Brazilian cheese bread snacks from Brazi Bites to its shelves, Hannaford has signed on with Emmy’s Organics and its line of packaged coconut cookies, and Costco began trialing a dehydrated snacking cheese from Moon Cheese.

Dive Insight:

Recent data shows that conventional stores are leading sales growth in the natural products channel. According to Natural Foods Merchandiser, conventional retailers account for 44% ($61.5 billion) of natural and organic food sales last year, while natural products retailers account for 39% ($54.4 billion). In terms of growth, conventional stores saw sales increase at more than twice the rate of natural competitors in 2016 — 10.2% versus 4.3%.

It’s no secret conventional grocers have stepped up their assortment of natural and organic products in recent years. What’s probably not as widely known is their leading market share in the channel. Indeed, looking over NFM’s previous market overview reports, conventional retailers overtook specialty retailers in 2014 and have continued to increase their share each year while growing sales at double-digit rates.

What’s behind this accelerating growth? Numerous factors, it seems. Prices on natural and organic products are coming down as suppliers have scaled and as retailers compete for shoppers in an overcrowded industry. Private label brands like Kroger’s Simple Truth have also come into their own, offering low prices and an ever-widening selection of all-natural items.

Consumer demand is also growing among key demographics. Millennials account for 52% of all organic shoppers, according to research from the Organic Trade Association. That’s significant because the group’s earning power is growing, and because more and more millennials are becoming parents — a life change that’s triggering increased spending on organic food, personal care items and more.

On the manufacturing side, natural and organic brands are scaling up, and at the same time mainstream brands are coming out with more natural and organic line extensions. Large suppliers are also incorporating more natural ingredients and eliminating artificial ones. Many fresh chicken producers have phased out hormones and antibiotics in their birds, while cereal makers have done away with artificial colors and flavors.

As competition continues to heat up in the grocery industry, retailers are looking to emerging and local brands to provide points of differentiation for stores. A decade ago, chickpea pasta and Brazilian cheese bread snacks would rarely, if ever, be seen on shelves of a conventional supermarket. But these days, with consumers’ tastes growing increasingly sophisticated as they reject legacy brands, companies like Kroger, Walmart and Target want to offer unique alternatives in high-growth categories like snacks, dairy and deli.

Another motivating factor here is Whole Foods. The Amazon-owned retailer has cut ties with numerous small brands as it centralizes its buying efforts. Some in the industry see this as a betrayal of the company’s founding principles, while others acknowledge the decision will likely increase profits for Whole Foods and new owner Amazon. In any case, competing grocers see an opportunity to distinguish themselves from the specialty chain.

Consider the case of yogurt maker AtlantaFresh. Founded in 2009, the company caught the eye of Whole Foods buyers, scoring a loan from the retailer along with distribution in 180 stores across 20 states. However, as outlined this week in the Atlanta Jewish Times, Whole Foods recently cut ties with AtlantaFresh, noting the supplier wasn’t meeting its metrics for profitability. This was devastating, owner Ron Marks told the publication, considering Whole Foods was by far his largest account.

But Whole Foods’ loss may be other retailers’ gains. Marks said he’s in talks with Publix to expand from 30 stores to 400, and will begin supplying to 120 Kroger stores within the next few weeks.