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Feb 01, 2000

Natural Foods

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Category Overview

Natural foods have grown from a small niche market two decades ago to capturing a significant portion of mainstream consumer food sales today. Shopper interest in healthier eating, higher quality foods and the greater availability of natural foods at a variety of distribution channels is expected to spur even higher sales in the future.

Natural and organic foods have grown at an unprecedented rate over the past few years. Sales have increased at least 20 percent a year during the last five years for these products across all outlet types. Specialty channels including natural food stores, health food stores, gourmet specialty food stores and the two major natural food supermarkets, Wild Oats and Whole Foods, control about 70 percent of natural food sales, despite growing interest in these products from mainstream supermarkets.

The bulk of the 70 percent sold through specialty channels is sold through natural food specialty stores that primarily sell only natural products. The proportion of natural foods sold by traditional specialty food stores or gourmet stores is still relatively small (approximately 10 to 15 percent of the total), but is growing as these retailers find more products available and more of their customers requesting them.

Consumer interest in natural and organic foods is at an all-time high, and is still growing. A study conducted by Prevention magazine found that 71 percent of the consumers polled had sought information on organic products. Further, the Food Marketing Institute found that about 60 percent of all consumers used organic or natural products at least once a month.


Natural foods and organic foods have long been freely substituted for each other. While this has never been technically correct, it is a mistake to use the two terms interchangeably with today's more enlightened consumers.

Natural foods are best defined as those that have no preservatives, artificial colors or flavors.

Organic foods have a stricter definition: The product must be manufactured using only organically grown or raised ingredients. The definition of organic will become even stricter and more standardized in the coming months as the federal government is expected to issue guidelines on what can be labeled "organic."

There are also different consumer audiences for the two products and improper terminology usage will undermine store credibility.

Product Variety

Natural foods can no longer be classified as a category. It is, in fact, a fairly large sub-category in every food product in the store.

Within almost every product category the natural and organic segments are growing, often at a faster rate than the total category. For example, in the beverage category natural beverages have grown at an average rate of 52 percent over the past five years. Organic condiments and sauces have increased at an average of 78 percent during the same period.

Overall, organic and natural specialty foods are expected to increase at least 30 percent annually for the next five years.

Sub-categories of the natural food industry such as nutraceuticals, functional foods and food products claiming health or medicinal properties are of primary interest to our aging population and bode well for the future of natural and organic sales.

Merchandising and Promotion

It is imperative to actively promote and merchandise natural and organic specialty foods accurately to an evermore knowledgeable customer base.

In-store signage and product placement should clearly differentiate these two segments. Many consumers seek natural or organic products because they perceive them to be of higher quality than mainstream products. Therefore, your selection should be presented as the highest quality you have available within the category.

Sampling is particularly important for natural products since they need to overcome a past reputation for lack of flavorful taste. Newcomers to natural products need to taste for themselves and find these products are full flavored. Knowledgeable floor personnel must be prepared to answer consumers' questions in order to gain customer confidence and store loyalty.

Experts are divided on whether these products should be displayed in a separate "natural foods" section or be merchandised within their individual categories. The best guide to merchandising natural foods is to evaluate your commitment to the category. If the retailer offers natural and organic foods in every category, then merchandising within mainstream product categories is more efficient. If the natural and organic foods are merchandised in a separate aisle they need to be prominently displayed and clearly designated as a category segment.

Key Factors

Natural and organic foods have grown at 20 percent per year over the last few years.

Seventy percent of all shoppers purchase natural and/or organic foods.

Perceived quality is the number one reason consumers purchase organic or natural foods.

Seventy percent of natural food sales are through specialty distribution channels.

Organic food sales increased from $2.3 billion in 1994 to $5.4 billion in 1998.

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