MIAMI BEACH, Fla. — Interest in organic produce is on the rise in Asia and the Middle East, while growth in North America is leveling out, according to a panel that convened Jan. 10 at the Global Organic Produce Expo.
Alexis Carey, international trade manager for the Organic Trade Association, described several overseas markets as great opportunities for organic produce suppliers in the coming years.
“There’s a really high purchasing power in the Middle East, for lots of reasons,” Carey said. “A lot of these people have disposable incomes. This is a huge market. The (United) Arab Emirates, Dubai especially, this is a key market, and now is a really good time to get into that market. Organic is kind of just kicking off there, and I would say this is not a market to be forgotten, it’s not a market to be overlooked.
“The healthy lifestyle focus there is booming, and so definitely something to watch for in the next 5-10 years,” Carey said.
Charlie Xu, sourcing director for China-based Shanghai Win Chain Supply Chain Management, noted that organic produce is segregated from conventional in stores there, and he said markups on organic can be 40-50%. Organic produce is only an option for high-income consumers there currently, but Xu indicated the country is a big opportunity for produce suppliers in the coming years because of its growing middle class.
Randy Riley, the director of produce merchandising for Kroger, noted that the category is in a much different place in the U.S.
“The complete opposite is happening here in America as this category becomes more mature and the rate of growth is starting to flatten out across many retailers across the country,” Riley said. “I think there’s still a customer base that’s not experiencing this item or is not engaged in organic in some way, shape or form, so we will continue to target them, and I think we’ll continue to see some nominal growth, but it will be interesting how it plays out.”
While Riley noted growth has slowed, he described organic as much more important than just a fad or trend.
“It’s a way of life,” Riley said. “When you survey a vast amount of customers, they’ll tell you that there’s other reasons why they’re engaging in organics, and it’s faith, it’s trust, it’s better wellbeing of the mind that they’re providing their family with something of better nutrient value, or whatever the case may be. It’s not always about health or sustainability. There’s other triggers in one’s mind on why they engage in that offering.”
Kroger sees its organic selection — particularly through its private label Simple Truth — as an element that sets it apart from competitors.
“We don’t view organics as an enhancer to our profitability — that’s not why we’re in the business of selling organics,” Riley said. “It’s a point of difference for Kroger ... When you think about walking into a Kroger store, all we’re trying to do is inspire the customer to believe that we have high-quality products at affordable prices ... To hear that there’s a 40, 50% spread on organics in some markets (around the world) is just mind-boggling to me, but that’s not sustainable in America ...
“We look at things by an individual basis and what it’s going to take to sell through that case, through the register, and apply a price point to it that will do that,” Riley said.
Pricing and promotion
Kroger’s pricing methodology for organic produce revolves around three elements: where is your price in comparison to your competitor, what is your spread to the conventional counterpart, and what is the markup based on the cost from the supplier. The retailer doesn’t have a goal to price organic at a certain premium, Riley said.
“We don’t look at it through that lens because then you potentially price yourself out of the chance to sell through the product, and then you have a domino effect of other problems,” Riley said. “What we try to do is we say what’s going to attract the consumer to shift from conventional to organic or what is the satisfactory price to the consumer to get them to purchase more. The unique thing about this subject is there’s not an answer that stretches across every item in the category. Customers respond differently on certain items that we consider to be elastic, other items that are not. And they’re not unique to organics — they respond the same way as they do to the conventional items.
“We know berries are very elastic — the better price you put on them, the more you sell through the register — and so we have a process for those items that differs (from), let’s say, green onions or cucumbers — doesn’t matter what price you put on it, you’re essentially going to sell the same amount,” Riley said.
Kroger promotes organic produce items regularly, sometimes with items alongside their conventional counterparts, and sometimes on their own. The company has had some success experimenting with price points in various points in an effort to encourage trial among shoppers who aren’t in the organic space or who aren’t heavily in the organic space, Riley said.