Retail ‘channel shifting’ has been a striking feature of the global organic landscape in recent years, with major retailers taking a much bigger share of organic sales in parts of Europe and North America.
The subject came up for discussion at last month’s Biofach Congress, where a trio of industry figureheads were asked by Natural Products Global about the effects of this on the health of the wider organics industry.
Downward price pressure
Laura Batcha, CEO of the Organic Trade Association, gave a US perspective. She cited a rather startling statistic to show how real a phenomenon this has been. “In 2005 the natural channel – specialist national and regional chains and independent health food retailers – accounted for 70% of organic dairy sales. In 2018 mainstream grocery accounted for 70% of the volume”. The most obvious downside to this shift, which has also been seen across most organic categories, is downward pressure of farm gate prices – the prices farmer get for their crops and produce.
But Batcha says there’s a “flipside” to the channel-shifting trend. “It goes both ways. You really have to look at each retailer’s buying policies to be able to judge the effect. But one important upside is that the trend is creating much wider access to organic foods in the US market.”
Double-edged sword
Amarjit Sahota, founder of London-based analyst Ecovia Intelligence, agrees that the trend is a double-edged sword. “On one hand you could argue that the major retailers coming in to organics leads to downward pressure on prices, and squeezes the margins of legitimate businesses that have been developing this market for 20 to 30 years. But on the other hand we would not have the $97 billion industry that we have today if the supermarkets were not there.”
“I do agree that in some countries – Sweden, Denmark, Austria and Switzerland, for example – supermarket domination is formidable, sometimes commanding 80% or more of sales. But at the same time the big retailers are investing significantly in organic. So I tend to see this more as a success story – the more companies that come on board, the better it is for the organic movement.
“Just as our organic system thrives with diversity, I think the health of the organic market is also dependent on the diversity of retail outlets”
Diversity of outlets is key
Dr Helga Willer of the Swiss-based organic research body FiBL said the key issue was diversity of retail outlets. “If one type of outlet were to take over everything we would have a problem. Just as our organic system thrives with diversity, I think the health of the organic market is also dependent on the diversity of retail outlets.”
Natural channel bounces back
Talking specifically about the impact on specialized natural products retailers of the growing supermarket presence in organics, Batcha said: “In the US we saw a big shift towards involvement of the supermarkets around eight years ago. In the first few years after the large national chains got on board with organic it did create trouble for the natural channel. But in the last few years we’ve seen the natural channel doing a really good job at learning how to adapt and create their own innovation and re-differentiate against these large retailers. And is now it’s a great, healthy part of the mix again.”