Perhaps small operations are less at risk from Walmart than once
thought?
Organics fail to yield cash crop for food giants
15.oct.06
Advertising Age
Stephanie Thompson
http://adage.com/article?article_id=112509
NEW YORK -- It's been enthusiastically embraced by marketers, blessed
by Wal-Mart and touted as the holy grail of growth for an industry
desperately in need of it. But after a stupendous start, organic foods
are, according to this story, looking suspiciously like a sensation
sizzling out.
Organics are a $14 billion business with a brisk growth rate, but they
account for only 2.5% of total food sales despite hundreds of millions
spent by major marketers in the past 12 months to make them mass. Some
marketers are spending more to introduce organic versions of mainstream
foods than they are earning from sales of organics, as consumers balk
at paying double the price for organic versions of their favorite
products. It's all mounting evidence that the trend, like the low-carb
craze before it, is hurtling toward a crash.
One Midwest grocery executive who recently discontinued Campbell's
Prego organic pasta sauce and Unilever's Ragu organic sauce due to low
sales, and who predicts the same fate for Kellogg's organic cereals,
was quoted as saying, "Most of my consumers couldn't care less. I see
this going the same way as low-carb."
After an expensive flop with its Carb Options line, Unilever this year
introduced Ragu organic pasta sauce with $20 million in advertising,
only to see it wither on the vine. An executive close to the company
said Unilever has failed to sell enough to cover its marketing outlay
for the brand and has been forced to "scale its organic strategy way
back" as a result. By next year the brand will be limited to -- at most
-- 15% of traditional grocery stores, mainly those that cater to
upscale clientele interested in organic products.
Others, such as Kraft, are not willing to abandon the organic market
just yet, given the fact that the segment saw sales growth of 16.2% to
$14 billion last year, according to Nutrition Business Journal. But
that number still represents less than 3% of food sales -- and some 41%
of total organic-food sales are from commodity fruits, vegetables and
meats.
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