Capitalizing on Organic Trends: Lessons for Lawn & Garden

Strategy and Advisory, Retail and Consumer Products

Organic product adoption represents a significant and persistent shift in consumer behavior. In 2014 alone the market for organic goods in the United States grew 11%.1 The emerging purchasing power of organic-focused millennials and growing awareness of organics among others dictate that consumer brands execute a strategy around organics.

Growth trends within more mature organic sectors hold lessons for those in less mature ones: higher growth and profits have gone towards those firms who captured early organic adopters. As adoption trends upward and begins to move towards mainstream consumers, growth rates slow and profit margins decline.  Furthermore, growth rates in less mature sectors could accelerate faster due to higher overall consumer awareness of organics.

Top Organic Sectors

The most mature organics sector is Food and Beverage. According to the Organic Trade Association (OTA), sales in the organic Food and Beverage market were responsible for 92% of total organic market sales in 2014.2 Organic Food and Beverage revenue has grown to more than $32 billion, up from $1 billion in 1990.3

Organic Food and Beverage products are available in nearly 20,000 natural food stores and nearly three out of four conventional grocery stores.4 The organic grocery market is maturing and margins are coming down. In May 2015, Whole Foods announced the launch of a less expensive chain of stores targeting younger, price sensitive organic customers.5  Many lessons can be learned from Food and Beverage, in particular customers’ points of entry, adoption rates, and adoption ceilings.

Consumer Entry - Lessons Learned from Food and Beverage Industry

The proliferation of organics in Food & Beverage is representative of a trend across the product categories with high organic adoption rates: consumer concerns around safety and health perceptions drive organics adoption. Specifically, we observe that fewer degrees of separation from product preparation to end use, as well as the type of end use (i.e. ingestion or absorption in the body vs. superficial contact) lead to greater consumer demand for organic certification. In Food & Beverage, produce has long been the strongest driver of revenue for organics (1/3 of the total organic market or $12 billion), and dairy and meat are growing rapidly.11

We consider these products to be point of entry products for consumers new to organics. We anticipate a similar trend in the way consumers adopt organic in other categories. For example, in the Lawn & Garden market we expect the most adoption momentum from those products that go directly onto edibles–insect and weed control, soil, and plant food. Among those concerned with food, child and pet safety, there is a surge in awareness of the impact of chemicals.

The expected uptick in adoption here, as well as in other organic sectors, stems from millennials aging, resulting in an upsurge in purchases around the home (like gardening products). As millennials continue to account for an increasingly significant percentage of purchases, they will drive growth of organics across categories.

Considerations to Firm Entry

As companies consider introducing organic products to a market, they should be mindful of four key industry characteristics: Adoption Rates, Industry Ceiling, Customer Point of Entry, and Build or Buy Decisions.

Adoption Rate
Is your firm aware of the organic consumer adoption rates in your industry and sector? This can drive your organization’s strategic roadmap for establishing and growing a position in the market. Having knowledge of historical adoption rates is the first step towards anticipating a future trend. Social media listening and understanding online influencers can also help predict future adoption rates. In a 2012 study, Nielsen found “92% percent of consumers around the world say they trust earned media, such as word-of-mouth and recommendations from friends and family, above all other forms of advertising.”12

Ceiling
Has your firm estimated the ceiling for organics in your industry and sector? Most industries will encounter a ceiling on the percentage of total sales attributable to organic products. Estimating this ceiling will allow an organization to right-size it’s investment to organics product endeavors.

Customers Point of Entry and Motivations
Has your firm assessed the behaviors and interests of organic customers in its industry? In addition to individual safety and health concerns, organic purchases are motivated by social pressure and environmental concerns. Products addressing more than one of these purchase stimuli provide the greatest opportunity to convert consumers into organic shoppers. Research around the product point of entry and consumer motivations should guide a firm’s organics introduction strategy.

Build or Buy Decisions
Has your firm considered which, if any, organic products exist in its sector and whether you can or should compete? It will be important to establish a strategy for entry into the organic space. Across categories, factors like product efficacy, big brand association (or dissociation), and price have varying degrees of importance for organic shoppers. In order to be successful in launching organic products, an organization will need to consider whether investment in research and development or acquisition of existing products will best deliver on these factors.

Sources:

1. http://www.ibtimes.com/organic-food-us-sales-jump-record-number-producers-1884845

2. http://www.foodproductdesign.com/blogs/trending-foods/2014/05/food-for-thought-organic-sales-grow-to-35-billion.aspx

3. http://www2.qsrmagazine.com/articles/features/122/organic-1.phtml

4. http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx

5. http://www.npr.org/blogs/thetwo-way/2015/05/07/404921579/whole-foods-launching-lower-cost-stores-geared-toward-millenials

6. http://www.fas.org/sgp/crs/row/R42772.pdf

7. http://www.usatoday.com/story/news/nation/2014/02/05/stateline-textile-industrysouth/5223287/

8. http://www.textileworld.com/Articles/2015/June/Global_Organic_
Textile_Standard_Facilities_Increase_18_Percent_In_2014)

9. http://www.foodproductdesign.com/blogs/trending-foods/2014/06/food-beverage-industry-poised-for-growth-in-2014.aspx

10. http://www.wolframalpha.com/

11. http://www.qsrmagazine.com/health/local-vs-organic

12. http://www.nielsen.com/us/en/press-room/2012/nielsen-global-consumers-trust-in-earned-advertising-grows.html

For More Information, Please Contact:

Capitalizing on Organic Trends: Lessons for Lawn & Garden

Strategy and Advisory, Retail and Consumer Products

Organic product adoption represents a significant and persistent shift in consumer behavior. In 2014 alone the market for organic goods in the United States grew 11%.1 The emerging purchasing power of organic-focused millennials and growing awareness of organics among others dictate that consumer brands execute a strategy around organics.

Growth trends within more mature organic sectors hold lessons for those in less mature ones: higher growth and profits have gone towards those firms who captured early organic adopters. As adoption trends upward and begins to move towards mainstream consumers, growth rates slow and profit margins decline.  Furthermore, growth rates in less mature sectors could accelerate faster due to higher overall consumer awareness of organics.

Top Organic Sectors

The most mature organics sector is Food and Beverage. According to the Organic Trade Association (OTA), sales in the organic Food and Beverage market were responsible for 92% of total organic market sales in 2014.2 Organic Food and Beverage revenue has grown to more than $32 billion, up from $1 billion in 1990.3

Organic Food and Beverage products are available in nearly 20,000 natural food stores and nearly three out of four conventional grocery stores.4 The organic grocery market is maturing and margins are coming down. In May 2015, Whole Foods announced the launch of a less expensive chain of stores targeting younger, price sensitive organic customers.5  Many lessons can be learned from Food and Beverage, in particular customers’ points of entry, adoption rates, and adoption ceilings.

Consumer Entry - Lessons Learned from Food and Beverage Industry

The proliferation of organics in Food & Beverage is representative of a trend across the product categories with high organic adoption rates: consumer concerns around safety and health perceptions drive organics adoption. Specifically, we observe that fewer degrees of separation from product preparation to end use, as well as the type of end use (i.e. ingestion or absorption in the body vs. superficial contact) lead to greater consumer demand for organic certification. In Food & Beverage, produce has long been the strongest driver of revenue for organics (1/3 of the total organic market or $12 billion), and dairy and meat are growing rapidly.11

We consider these products to be point of entry products for consumers new to organics. We anticipate a similar trend in the way consumers adopt organic in other categories. For example, in the Lawn & Garden market we expect the most adoption momentum from those products that go directly onto edibles–insect and weed control, soil, and plant food. Among those concerned with food, child and pet safety, there is a surge in awareness of the impact of chemicals.

The expected uptick in adoption here, as well as in other organic sectors, stems from millennials aging, resulting in an upsurge in purchases around the home (like gardening products). As millennials continue to account for an increasingly significant percentage of purchases, they will drive growth of organics across categories.

Considerations to Firm Entry

As companies consider introducing organic products to a market, they should be mindful of four key industry characteristics: Adoption Rates, Industry Ceiling, Customer Point of Entry, and Build or Buy Decisions.

Adoption Rate
Is your firm aware of the organic consumer adoption rates in your industry and sector? This can drive your organization’s strategic roadmap for establishing and growing a position in the market. Having knowledge of historical adoption rates is the first step towards anticipating a future trend. Social media listening and understanding online influencers can also help predict future adoption rates. In a 2012 study, Nielsen found “92% percent of consumers around the world say they trust earned media, such as word-of-mouth and recommendations from friends and family, above all other forms of advertising.”12

Ceiling
Has your firm estimated the ceiling for organics in your industry and sector? Most industries will encounter a ceiling on the percentage of total sales attributable to organic products. Estimating this ceiling will allow an organization to right-size it’s investment to organics product endeavors.

Customers Point of Entry and Motivations
Has your firm assessed the behaviors and interests of organic customers in its industry? In addition to individual safety and health concerns, organic purchases are motivated by social pressure and environmental concerns. Products addressing more than one of these purchase stimuli provide the greatest opportunity to convert consumers into organic shoppers. Research around the product point of entry and consumer motivations should guide a firm’s organics introduction strategy.

Build or Buy Decisions
Has your firm considered which, if any, organic products exist in its sector and whether you can or should compete? It will be important to establish a strategy for entry into the organic space. Across categories, factors like product efficacy, big brand association (or dissociation), and price have varying degrees of importance for organic shoppers. In order to be successful in launching organic products, an organization will need to consider whether investment in research and development or acquisition of existing products will best deliver on these factors.

Sources:

1. http://www.ibtimes.com/organic-food-us-sales-jump-record-number-producers-1884845

2. http://www.foodproductdesign.com/blogs/trending-foods/2014/05/food-for-thought-organic-sales-grow-to-35-billion.aspx

3. http://www2.qsrmagazine.com/articles/features/122/organic-1.phtml

4. http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture/organic-market-overview.aspx

5. http://www.npr.org/blogs/thetwo-way/2015/05/07/404921579/whole-foods-launching-lower-cost-stores-geared-toward-millenials

6. http://www.fas.org/sgp/crs/row/R42772.pdf

7. http://www.usatoday.com/story/news/nation/2014/02/05/stateline-textile-industrysouth/5223287/

8. http://www.textileworld.com/Articles/2015/June/Global_Organic_
Textile_Standard_Facilities_Increase_18_Percent_In_2014)

9. http://www.foodproductdesign.com/blogs/trending-foods/2014/06/food-beverage-industry-poised-for-growth-in-2014.aspx

10. http://www.wolframalpha.com/

11. http://www.qsrmagazine.com/health/local-vs-organic

12. http://www.nielsen.com/us/en/press-room/2012/nielsen-global-consumers-trust-in-earned-advertising-grows.html

For More Information, Please Contact:

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