Future of Organic Products: Brands or Private Labels?

Retailers are very successful with private labels because they offer organic products at competitive prices. In some cases, the organic products are even cheaper than conventional ones.

12 Nov 2010 --- Retailer private labels are capitalizing on consumer demand for organic foods. New research finds that private labels are showing healthy sales increases in the current business climate, whilst some brands are reporting sluggish growth.

In its upcoming report on the Global Market for Organic Food & Drink, Organic Monitor finds the lines between brands and retailer private labels are becoming increasingly blurred. Private labels are leveraging organic values and winning consumers by marketing products at competitive prices. Organic brands are having to re-invent themselves, with many adopting new values to broaden consumer demand.

The organic food industry has been built by brands that have crossed over from specialist to mainstream retailers. However, retailer private labels are becoming prominent in every geographic region. In the U.S., O Organics is becoming the leading brand of organic foods. Launched by Safeway in 2005, the private label now houses over 300 certified organic products and exceeds US $400 million sales.

Retailers are very successful with private labels because they offer organic products at competitive prices. In some cases, the organic products are even cheaper than conventional ones.

Some argue that large food retailers are taking advantage of the ‘organic’ brand without making any of the associated investment. Indeed, the industry has been built by certification agencies and pioneering brands; the same logos and brands that are slowly disappearing in supermarkets and mainstream retailers.

Sluggish market growth rates and rising consumer price sensitivity have popularized retailer private labels. Private labels for organic foods are most evident in Germany where they have been introduced by discounters, drugstores, supermarkets as well as organic food shops. In most product categories, private label products are outselling branded products of organic foods.

Increasingly crowded retail space is making many brands re-invent themselves. Being organic is no longer good enough as organic foods have become ‘commoditized’ in the marketplace. Some, such as Green & Black's have positioned themselves as ethical brands. In the U.S., Organic Valley has positioned itself as a sustainable brand that supports family farms. It has also adopted a brand extension strategy, expanding from organic dairy to several product categories. Its success has made the co-operative the largest organic food enterprise in North America, reporting US $520 million sales in 2009.

Pioneering brands are re-inventing themselves to widen consumer appeal. However, retailer private labels are also evolving with some transcending traditional boundaries. The O Organics private label has expanded from Safeway retailers into foodservice outlets in the U.S. It has also developed an international presence, marketed by numerous food retailers in Latin America, Asia and Africa.

With increasing commoditization of organic products, there is growing pressure for leading brands to differentiate themselves. Organic Monitor sees successful brands as those that can adopt new values to expand their consumer base. Those that do not maybe confined to specialist retailers, the same channel where many organic brands have worked hard to expand from.

The evolution of the organic food industry is a major theme of the upcoming Sustainable Foods Summit, taking place in San Francisco on 18-19th January 2011. The summit will discuss the role of brands and retailer private labels, bringing together Safeway (O Organics), Organic Valley, Earthbound Farm, Honest Tea, Equal Exchange and other leading brands.