Organic growth can be tough to come by in a recession. But what if we're talking about organic foods: Can these good-for-you products trigger substantial investment gains?
The organic food sector has delivered extraordinary growth in the past several years, with $16.7 billion in sales in 2006, 20.9% year-over-year growth, and 2.8% market share among all foods. The Organic Trade Association forecasts continued strong results, with 18% annual growth projected through 2010. Organic coffee alone reached $1 billion in sales last year, with specialty producers including Green Mountain Coffee Roasters
But carrying wholesome products will take you only so far. Whole Foods Market
In a recent study, it was reported that the number of consumers who think that organic products are good for them has actually dropped to 45% from 54% in the past two years as consumers react to organic prices, which can be as much as double those for "regular" products. It's not the first time that folks have wondered whether organic products are here to stay or just a trend (even though sales have risen at a double-digit pace the past nine years). Will consumers be able to afford organic products if the economy continues to falter?
Organics for everyone
One reason for Whole Foods' recent troubles could be the increased competition in retail organic sales. Wal-Mart
Wal-Mart shoppers who are looking for good buys may pass on organic food in a tough economic environment, but it's not clear if health nuts will be willing to go to "mainstream" products to save a few bucks. These folks are acclimated to the high price of organic products and aren't likely to succumb to price pressures for staples such as milk, fruits, veggies, and meats. Recently, there have been articles about growing your own food, with Seattle (of course) leading the way in urban farming. While that may work in the summer, in most places, growing your own food won't necessarily work long term (and even the most die-hard tree hugger isn't going to buy a cow to produce hormone-free milk).
More organic growth?
The Hain Celestial Group
With projected double-digit growth in the organic sector for next several years, organic food producers and retailers are an interesting play in the market. However, as competition and prices continue to increase, pure plays such as Whole Foods and Hain Celestial Group certainly will have their work cut out for them to produce substantial organic growth.
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