Organic Beverages - May 2007
by Marcia Mogelonsky Contributing Editor
May 6, 2007
The
organic beverages market is experiencing significant growth, especially in the
dairy segment. Consumer concerns about food integrity, government organic
standards and the availability of organics in mainstream channels will help
fuel organic product expansion.
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Almost
60% of the organic beverages market comprises non-dairy beverages ranging from
organic carbonated beverages to organic juice, tea and, in the case of Just
Energy’s recent launch, energy drinks. |
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Sales
of organic beverages through food, drug, mass merchandisers and the natural
supermarket channel topped $1.3 billion in 2006, according to Mintel
International. This impressive figure represents a 97% increase since 2001 and
indicates the extent to which organic beverages have become an important part
of the American market basket.
A number of factors have propelled the organic beverage market, from general
concerns about the safety of the food supply to personal worries about
antibiotics and growth hormones in milk. In fact, sales of organic milk
comprise the major bulk of the category and make up the sub-segment in which
growth has been the greatest. However, sales of other organic beverages have
also increased.
Defining and Understanding the Market
Organic products are defined as those grown without use of synthetic pesticides
or fertilizers and containing no genetically modified organisms (GMOs). Thus,
because the term “organic” refers to growing methods, not to processing or any
other steps that follow, it is possible for a product to be made with organic
ingredients and to contain other ingredients such as artificial colors or
flavorings. It is possible, therefore, for a beverage to be made with organic
fruit (fruit grown under organic conditions) and also contain non-organic
ingredients such as flavorings or colorings.
Vying for consumer attention are products classified as “natural,” but not
necessarily organic. Natural products must contain no artificial flavorings,
colorings, additives or other ingredients, but they can be made with mainstream
(instead of organically grown) ingredients, as long as the mainstream
ingredients are not artificial. Labeling of natural products is not as
consistent, nor is the natural label controlled by the government, as is the
case with the organic label.
Consumers are often left to consider rather tricky questions. For example, is a
processed food product made with organic ingredients and artificial flavorings
healthier than a natural food product made with conventionally grown crops or
animal products, but with no artificial color, preservatives or flavorings?
Choosing between organic and natural beverage products may also depend on cost.
While both natural and organic products tend to cost more than conventional
products, in many cases, the organic product can be more expensive than the
natural product. Consumers must choose whether or not they want to spend more
based on whether or not the organic guarantee is more important to them than a
guarantee of “no artificial ingredients.”
“Food Fears” Govern Many Purchase Decisions
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Organic
energy beverages from Guayaki promise to be healthy energy providers, in such
flavors as EmpowerMint, Raspberry Revolution and Traditional Mate. Yerba Mate
contains 196 active compounds, including 24 vitamins and minerals, as well as
15 amino acids. |
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Foodborne
illness outbreaks seem to be an almost daily headline, and consumers’ concerns
about E. coli, salmonella and other diseases affect their purchase decisions
when it comes to choosing organic over mainstream products. Such was the case
when the outbreak of foodborne illness traced to spinach in California was reported in 2006.
When the outbreak was first noted, fingers pointed toward a grower of organic
spinach, and the political side of the organics market came to light.
Anti-organic proponents pointed out that organic food—grown with “natural and
organic fertilizers” and without the benefits of “modern, scientific”
fertilizers and pesticides—ran a higher risk of contamination, since the
organic material used to grow the foods could contain animal manure or other
bacteria-laden matter.
However, the widespread contamination of spinach goes beyond that one grower,
and the FDA cannot identify any one specific farm or processor as the source of
the E. coli. This suggests a larger issue encompassing ground water, drainage
and contamination. Such outbreaks—and the ensuing confusion—leave consumers in
a quandary about the safety of fresh produce and implants doubts as to whether
organic is truly safer than non-organic. The question is whether the benefits
of eating food grown without chemicals outweigh the risks.
For growers and manufacturers of organic juices and other beverages,
contamination and foodborne illness are major concerns: many organic products
are non-pasteurized and contain no preservatives. Freshness is key to their
success, but consumers may also have to make serious decisions in order to
balance their concerns about the healthiness of a chemical and
preservative-free product with their worries about GMOs and other artificial
ingredients in a more processed product.
The milk industry faces another set of hurdles: the concern about antibiotics
and bovine growth hormones (BGH). Organic milk is produced with neither of
these ingredients and therefore is perceived as a better—and more
expensive—alternative to conventional milk. However, perception and fact may be
challenging this long-held belief: for a number of years, producers have been
moving away from BGH in conventional milk. Currently, a mid-level milk product
that is antibiotic and BGH-free (but not organic) has come to market, providing
consumers with another alternative to organic.
Most Sales Derived from Non-Dairy Products
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For
parents looking to start their children on organic beverages as young as
possible, Parent’s Choice has launched organic baby formula, which promises
17mg of docosahexaenoic acid. |
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Almost
60% of the organic beverages market comprises non-dairy beverages, including
soy milk, but also ranging from organic carbonated beverages to organic juice
and tea. The wide-ranging variety of beverages in this segment demonstrates the
extent to which organic has grown as a manufacturing method.
Mintel reports that sales of organic non-dairy beverages amounted to $757
million in 2006, and the market grew 69% since 2001, demonstrating the extent
to which organic beverages have expanded. While the market has been on an
upswing, there have been some “bumps in the road” including the issue of
supply. As demand for organics increases, the organic industry faces the
problem of finding enough organic-certified land on which to produce the crops
needed. As a result, many of the organic ingredients are currently being
obtained from off-shore growers, adding cost to the final product and slowing
production.
The decline in sales in the market is also linked to a decline in sales of soy
milk. The soy market has been declining since 2005, in part because soy has
become a “mature market” rather than an upstart, and soy products are easily
found in traditional channels as well as natural supermarkets. Also
contributing to the demise of soy sales has been a lack of definitive,
medically proven news about the health benefits of the product. While it had
been hoped that soy would serve a number of wellness issues, the current
research allows the product to carry only one health claim, which pertains to
soy and heart health.
New product launches in the non-dairy beverage category have increased steadily
since 2006, with 298 new products brought to market in 2006 in the U.S.
alone—more than four times the number launched in 2001, according to Mintel.
The range of new organic products runs the gamut from coffee to smoothies and
from water to carbonated beverages. Among the latest entrants are products made
with some of the newest ingredients such as acai berries (as in Better World
Shaman Smoothies Acai Berry Adventure) as well as beverages with new organic
twists on established flavor and ingredient notes (for example, new organic
coffee, tea and hot chocolate).
Organic Dairy Products: Strong and Steady Growth
Sales of organic dairy beverages (milk, half and half, and drinkable
yogurt/kefir) increased 156% between 2001 and 2006, per Mintel. This
substantial increase is due primarily to consumers’ desire for milk from cows
that did not receive bovine growth hormones (BGH) or antibiotics. On the supply
side, dairy farmers have increased the size of their organic herds to meet this
demand, and retailers have begun to make private label organic milk more widely
available.
More than a third of consumers purchased organic milk in the past two years,
according to a survey conducted by Mintel in 2006. About a quarter of
respondents choose organic milk because they believe it tastes better than
non-organic milk, but the major driving concerns about choosing organic deal
with the issue of growth hormones and health. More than half of respondents
(56%) believe that organic milk is healthier than non-organic milk, and 52%
choose organic because they are worried about BGH.
Consumers have been concerned about BGH in milk for a number of years, and the
fear of the potential effects of growth hormones has been a major contributor
to the burgeoning organic milk market. While it is true that organic milk is
derived from cows that were not given antibiotics or BGH, there are other milk
products on the market that can make the same claim that are not produced by
organically raised cows.
In the milk industry, the cost difference between organic, natural and
mainstream products is significant: the price difference for a half-gallon of
milk can range from about $1.69 for a mainstream product to a dollar more for a
BGH-free conventional product, to two or even three dollars more for the
equivalent organic version. Consumers who buy organic milk primarily because it
is free of BGH and antibiotics would likely move to natural or BGH-free
conventional milk products because of the lower price, leaving the organic milk
market to consumers who have motivations for buying organic beyond the hormone
issue. Considering the rapid growth of the organic milk market over the past
three years, such a move to another type of milk would have a major impact on
the organic dairy market.
Unlike organic non-dairy products, there has not been a major flurry of new
products on the organic dairy side. Mintel reports that just 47 new products
debuted in the U.S. in 2006, down from the 58
new items launched in 2001. A host of new store brand organic milk products has
come to market, indicating the extent to which the store brand side of
retailing has been following successful strategies of its branded counterpart.
Such major chains as Winn Dixie, Kroger and Safeway all now sell organic store
branded dairy and soy products. Other new launches have focused on the growing
drinkable yogurt and kefir market.
New products include those aimed at adults, such as Lifeway Foods Greek Style
Kefir, as well as those for children, including Lifeway’s Probugs Organic Whole
Milk Kefir (which comes in flavors definitely intended for the younger set:
Orange Creamy Crawler and Sublime Slime
Lime).
The Future of Organic Beverages: Up and Down
As
more consumers worry about the integrity of the food supply and continue to
seek out foods they consider to be healthy for themselves and their families,
the market for organic products will expand. Three forces aid this substantial
growth: rising consumer concern about the integrity of the food supply;
governmental standards that clearly define the meaning of the term organic; and
greater availability of organic food through mainstream channels.
Among the new entrants into the organic marketplace is Wal-Mart. In 2006, that
company announced its intention of selling an extensive line of organic
products, ranging from milk to fruits, vegetables and packaged foods.
Supermarkets, too, are increasing their lines of both store brand and branded
natural and organic products.
There is some concern that organic food and beverages, which have seen their
growth taper off between 2005 and 2006, are not as interesting to mainstream
consumers as has previously been thought. Some retailers, discouraged by lower
than anticipated sales of organic alternatives to mainstream products, have
discontinued carrying such items as Prego and Ragu organic tomato sauces and have
voiced concern that organic is a fad, rather than a long-term trend.
While organic milk may have established itself as an essential product because
it is BGH-free, competition from non-organic, BGH-free milk may take sales away
from the fastest growing segment of the organic beverages industry. Sales of
Silk organic soy milk, on the other hand, may continue to be strong as
consumers who drink soy beverages may be likely to reach for Silk instead of
non-organic soy milk. This is not because of the inherent organic factor, but
because Silk is a ubiquitous product in the refrigerated dairy case, as
convenient to buy as any other dairy product.
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