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Organic foods have a reputation for being pricier than their conventionally grown counterparts. Private-label goods, much to the growing delight of recession-pinched shoppers, have their own reputation as a cheaper alternative to the name-brand stuff. Now, according to a recent Wall Street Journal report, these two seemingly contradictory categories -- the Odd Couple of the grocery store -- are beginning to cozy up together.
Organic, on the house (brand)
Private labels are no laughing matter for cash-strapped shoppers. Grocery heavyweights such as Wal-Mart (NYSE: WMT ) are expanding their lower-priced house brands, while Kroger (NYSE: KR ) has illustrated great success with its own version.
The WSJ pointed out that last spring, SUPERVALU (NYSE: SVU ) doubled its own Wild Harvest organic brand from 150 items to more than 300 items. Safeway (NYSE: SWY ) made a splash when it started selling its own O Organics brand to other retailers. And if you've ever set foot in a Whole Foods Market (Nasdaq: WFMI ) , you're probably aware of its 365 Organic Everyday Value line.
This trend isn't surprising. If farmers and companies that provide related goods don't offer lower-priced merchandise, many organic-leaning consumers with budget constraints will switch back to conventional products, even if they'd rather not.
Good news and bad news in organics
Organic groceries, which used to enjoy heady annual sales increases of more than 20%, grew by a mere 4.6% in the year ended June 13, according to one market research firm the WSJ cited. Organic production often demands more labor- and management-intensive techniques, leading to costlier food than more conventional goods with industrialized production. If consumers are unwilling to pay enough for suppliers to turn a profit, their stinginess could eventually drive many of these operators out of business.
In organic goods' favor, however, consumers are paying more attention to where food comes from and how it's produced. In just one example, the new film Food Inc. may help raise awareness of the benefits of organic goods, and encourage more people to make moral, sustainable choices about what they eat. (Chipotle (NYSE: CMG ) (NYSE: CMG-B ) , which has its own Food with Integrity program, helped spread the word about the documentary.) However frivolous it may sound in recessionary times, I think grocers' expansion of private-label organics signals that many shoppers would rather cut corners elsewhere than give up on healthier, more sustainable food.
Personally, I believe organic goods will enjoy increasing popularity as consumers realize that, like stocks, the things that make food "cheap" or "expensive" go far beyond a price tag. Tight budgets may make organic food a tougher sell, even in private-label form. Still, the growth of this odd combination of categories suggests to me that organics are here to stay. Grocery-store shareholders who enjoy a dose of green in their brokerage statements should be glad that their companies are keeping tabs on changing customer spending, and doing their best to keep pace.