What is the role of food retailers in the organic food market? Do they follow the consumer trend for organics like the food producers, or are they more proactive?
Compared to food producers, supermarkets have a far more direct relationship with consumers and clearly have an important role to play when it comes to increasing the sales of organic food. They have been extremely important for the fast growth of sales of organic food in recent years, particularly for fresh foods. The large supermarket chains are responsible for 50 to 75 per cent of organic food sales in Europe, and according to the Soil Association’s Organic Market Report 2014 , British supermarkets Sainsburys and Tesco are jointly responsible for 57 per cent of total organic food sales in the United Kingdom. Many consumers who do not exclusively eat organic or who are not willing to visit specialty shops, regularly buy organic products from supermarkets. Their lower prices and better availability are driving demand, and whilst the size of their organic food sales is still relatively small, the impact is large.
Price pressure
Pressure on price is a vicious cycle. In general, supermarkets are accused of squeezing farmers for lower prices. But because many farmers (including organics) depend on the procurement of the retailers, they have little bargaining power and hence the supermarkets can then dictate prices. On the other hand, lower prices will increase demand and therefore supports the existence of organic farmers. The market has to find a balance between making organics accessible and ensuring that producers get an adequate return to cover the additional costs related to organic farming methods. Triodos Research is aware of this sensitive issue and carefully assesses the approach of supermarkets in this respect.
The food retail stars in our universe
Most food retailers have introduced their own brand organic product lines that are highly successful. But there are two companies that really shine. The first is Belgian food retailer Colruyt, which established an organic supermarket chain called Bio-Planet. There are 11 Bio-Planet stores in Belgium, but customers can order online and also pick up orders from more than 300 Colruyt and Okay stores. The second company is Whole Foods Market. It’s the largest retailer of natural and organic foods in the United States, as well as the country’s first national certified organic grocer. It has a huge emphasis on fresh produce and gourmet food, own bakeries, a coffee corner, a restaurant, and more.
Triodos Research expects the trend of more food retailers and supermarkets adding organic food to their product range to continue, thus further encouraging consumer demand.
Note: The issues explored in this article are relevant for sustainable investments on the stock market. Triodos Bank believes that our socially responsible investments are a powerful means of promoting our values and working for greater sustainability, while enabling us to offer a complete range of attractive investment options to customers who choose to invest on the stock market.