Organic and green products have been the feel-good story of the decade: Good for you and good for the earth, and good for profits as well. But as the recession has entered the plot, it’s worth asking: Is sustainability sustainable?
The short answer: Yes, but only if consumers don’t have to pay extra for it. Organic, a category that generally commands a price premium, appears to have hit the wall. But green products that cost the same as their more environmentally incorrect rivals seem to be better positioned.
Data from Nielsen Co. (which owns Brandweek) show that, in June, sales of organic items began declining. Tom Pirovano, director of industry insights for Nielsen, said the category had done well until then. “We were really surprised at the beginning of the year that organic was continuing to grow,” he said. “In the last few months, we’re really starting to see a bit of slowdown in that growth.” Pirovano said that the difference was that earlier in the year, when gas prices hit $4 a gallon, the stress mostly hit low-income consumers who weren’t predisposed to buy organic items anyway. But “in the last few months we’ve seen big-time layoffs, economic turmoil on Wall Street” which is causing anxiety in the wealthier households that tend to buy organic. After years of double-digit expansion, Pirovano predicts growth for organic will be in the single digits in 2009.
Nielsen’s not the only one detecting a falloff. “Sales of organics have slowed,” said Marcia Mogelonsky, senior research analyst with Mintel, Chicago. “I think the green market will slow because it’s too expensive.”
Not surprisingly, the Organic Trade Assn., Greenfield, Mass., disputes the idea of an organic slump. Barbara Haumann, a senior writer and editor with the association, said that the price parity between organic and non-organic has narrowed over the past year as the price of fossil fuel-based synthetic fertilizers has risen. “If a loaf of organic bread is 10 cents more am I going to quibble?” Haumann said. (Pirovano said it’s hard to make a blanket statement about organic versus non-organic prices since in some categories, like bananas, there’s virtually no difference and others, like beef, there is a lot.)
Price differences aside, some companies that specialize in organic have fared well in this economy—at least until recently. Hain Celestial Group, for instance, saw its top-line revenue grow 22 percent in its most recent quarter ending Sept. 30, while Green Mountain Coffee Roaster’s sales jumped 46 percent for the fiscal year also ended Sept. 30 and Safeway’s O line of private label organics is set to pull in about $400 million this year, $100 million more than last year.
For larger packaged goods companies, though, organic is more of a sideline. Matt Arnold, an analyst with Edward Jones, said the companies he covers—including General Mills, Kellogg and Kraft—don’t have major exposure to the organic market. Instead, most have waded into the category with a few brands, like Kellogg’s Kashi, that aim for organic-minded consumers. “In general, I’d say there are two kinds of people trading up: Those that perceive it to have better health credentials—and those people will stick with it—and then there are others that just trade up without having any strong ethics about it. They’re probably going to trade back the other way.”
The market for green-tinged products is a somewhat happier scenario. While in the past, the category was dominated by pricey small independent brands like Seventh Generation, now heavyweights like Procter & Gamble, Clorox and Church & Dwight have green products on the market. The companies have been careful to keep prices for those items low.
“Very few consumers are ever willing to pay extra or accept poorer performance for environmentally sustainable products,” said Rotha Penn, a rep for P&G. “That’s why our intent is to develop ‘sustainable innovation products,’ which are products that do not require consumers to make any tradeoffs.” As an example, Penn cited Bounty Select-a-Size, a paper towel product that features sheets that are 45 percent smaller than traditional Bounty, but still purport to absorb spills faster than other two-ply competitors on the market.
Tom Vierhile, director of Productscan Online in Naples, N.Y., said that, at least among manufacturers, “green” has become shorthand for saving money.
“Many of these green efforts result in reductions in the use of packaging, lower shipping costs and many other financial advantages,” said Vierhile. “So when companies talk about ‘green,’ they are likely to stay engaged even in an economic downturn since these efforts save money.”