Big Business and Organics

July 29, 2003

But now, more companies are wielding the clout of their big brands to secure shelf space in the organic section of mainstream supermarkets.

Until recently, the market for organic products had been almost exclusively in boutique health-food stores and the Whole Foods Market Inc. chain. While U.S. sales of organic foods have nearly doubled over the past five years to $11 billion, they still amount to only about 2% of the $485 billion Americans spend on food in stores. Nevertheless, the long-term growth potential is getting hard for large food makers to ignore. "We're betting on the future," says Robin Teets, a Heinz spokesman. "We wanted to be there when it does start to take off."

Generally, organic-food stores, both small independent shops and big retailers, aren't rushing to carry organic-food items from the big mainstream companies. The big health-food supermarket chain Whole Foods, for example, doesn't carry Tyson's organic chicken.

Bob Goldin, executive vice president of the Chicago consulting firm Technomic Inc., predicts a slow, cautious rise for big-brand organic products. "None of the mainstream companies have made a big push" for organic foods, he says, partly because they don't want to undermine their nonorganic flagship products. "While these are different products, there's a risk of causing consumer confusion," he notes.

Some food companies encourage retailers to display their organic items in the health-food aisle, far from the regular version of their brand, says Karen Brown, senior vice president at the Food Marketing Institute, a Washington group. One reason: Companies may worry that by displaying their regular and organic items side by side, it might prompt consumers to question the quality of their nonorganic food. Other companies, though, want their organic products sitting next to the standard version, reinforcing the association with a brand shoppers know and trust. "They're still feeling it out," Ms. Brown says. "There's no hard-and-fast rule on this."

Some consumers are turned off by efforts to give an organic product the imprimatur of a household name. Beth Ritchey, a 24-year-old investment representative in Chicago, says she isn't "a hard-core organic person," buying organic foods only occasionally. But she says she wouldn't buy big-name organic foods, such as organic chicken from Tyson, the huge Springdale, Ark., poultry processor, because she doesn't trust many large food concerns. Besides, she says, scanning the tofu offerings in the organic section of a Dominick's supermarket, owned by Safeway Inc., Pleasanton, Calif., "I'm willing to pay more to support the smaller companies."

Big-brand organic products seem more likely to prosper if priced below established organic brands. Tracey Zemitis, 31, of Santa Monica, Calif., says she generally distrusts big food companies but can't deny their organic offerings are sometimes cheaper than the small organic brands she normally buys, such as Seeds of Change. Few big-name organic products have made their way to her grocery store, though she is keeping an eye out for them. "I can't buy organic all the time. It's noticeably more expensive," she says.

In some cases, the difference in price between an organic product and its conventional counterpart is significant. Heinz Organic Ketchup costs about 30% more per ounce than their nonorganic variety. McCormick & Co.'s Gourmet Collection Organic Oregano, available nationwide, costs about $4.99 for a half-ounce jar, 52% more than the $3.29 price on its regular gourmet oregano selling in a Chicago grocery store.

Tyson is betting consumers are willing to pay more. In the past six months, Tyson has brought its Nature's Farm organic brand into Kroger Co. stores and other supermarkets in the Northeast. The Tyson logo sits directly above the quaint farmhouse on the package. In conventional stores that stock organic chicken, it typically is the only brand offered.

And it is more expensive. At a Giant Eagle store in downtown Pittsburgh, boneless breasts of Nature's Farm sell for $5.99 a pound. Conventional, private-label chicken breast runs $4.99 a pound. Tyson declined to disclose sales for the organic product, but says it is expanding its availability throughout the region.

The economics of organic foods are a change for big food producers, which rely on economies of scale in processing and distribution to offer low prices. In the organic market, such savings are often dwarfed by the high cost of producing organic food. Organic feed costs nearly twice as much as conventional grain. Tyson's organic chickens can't be processed if they become sick and are treated with antibiotics. "Add all that up and you have one high-priced bird," says Harold Heinze, director of marketing for Tyson's fresh-chicken division.

Write to Jay Krall at jay.krall@wsj.com⁴

Updated July 29, 2003

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