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ORGANIC FOOD INDUSTRY
GREW UP IN A DECADE

At a trade show here recently, it was apparent how the $10 billion organic foods industry has come of age in barely a decade.

Many of the now-dominant companies struggled to gain acceptance among consumers who were slow to try the handful of food items available in the industry's infancy.

In contrast, hundreds of companies were featured at the Natural Products Expo, and everything from organic beef meals to cheese snacks, custards and salad dressings were available for sampling.

Start-ups even had organic pet food on hand, which analysts say might be the next big growth segment, since many people think of their pets as children anyway, and organic baby food is also a big seller.

Now the industry is poised to receive its biggest stamp of approval yet, when the U.S. Department of Agriculture officially sanctions the organic label starting Oct. 21.

The label means that only food companies that buy certified organic supplies, grown without synthetic pesticides, hormones and genetically modified seeds, can use the organic label on their products.

"It will give consumers confidence," said Katherine DiMatteo, executive director of the Organic Trade Association. "Organic on the label will now be a truthful claim."

The regulatory regime adds the latest pillar of support to an industry that's growing 20 percent or more per year.

TOFU TO PIRATE'S BOOTY

What might be harder to remember is that many of the dominant companies now in the field were barely existing a decade ago.

Industry-leader White Wave started out making tofu in bathtubs in 1977. It took nearly two decades for the company to come up with Silk, the refrigerated soy milk that rocketed sales to $180 million.

This year the company was sold to Dean Foods, the top U.S. dairy company.

This type of story has recurred time and again in the fast-growth industry, transitioning from its birth as an alternative cultural impulse to a mainstream product segment.

Along the way, profits, consolidation and capital became front-burner issues, since they created economic sustainability.

Stephen Kaczynski, senior vice president of merchandising at Wild Oats Markets Inc., the No. 2 natural food supermarket company based in Boulder, Colorado, said the change was welcome.

"It was a dysfunctional industry," he said. "Now it's turning into a business."

Although $10 billion in sales is still small in relation to the $460 billion Americans spend on groceries, 68 percent of U.S. consumers have tried organic food, according to SPINS, a market research group.

The biggest selling natural food segments are dairy and milk substitutes, fresh produce and snack foods. Wild Oats says a low-fat snack, Pirate's Booty, is one of its top-selling products across the entire chain.

REPEAT BUYERS A CHALLENGE

SPINS said many consumers are trying products for the first time, but only 50 percent repeat their natural foods purchases and 25 percent buy organic again. One barrier is the cost because organic products are more expensive than mainstream grocery items.

Getting consumers to buy the products more than once will be the industry's challenge, but that may be easier now that companies like Heinz, a brand people recognize, have launched organic ketchup.

In the meantime, the founders of the organic food movement, who began farming organically three decades ago, are finding it harder to stomach the industry's evolution to the mainstream.

David Cole, who owns Sunnyside Organics farm in central Virginia, has seen both worlds, as a former AOL technology executive now building a small web of organic businesses.

"It really reminds me of what happened in the PC industry," he said, "when the idealists said the big companies sold out."

Like the farmers, the geeks at the periphery of the growing personal computer industry were left behind.

Written by: Samuel Fromartz, Planet Ark


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