Demand for fresh-cut organics growing in retail and foodservice

The organic market has experienced growth every year for at least the last 10 years. No longer a fringe movement, organic produce is considered by many shoppers to be a healthful addition to their meals.

There is a small, core group of shoppers who are committed to the organic lifestyle. They don’t shop on price, but make decisions based on health, nutrition and absence of chemicals. But that’s not the core group driving the demand for organics.

“The core isn’t growing organics right now – it’s the mid-level shopper,” Mark Mulcahy, owner of produce consulting firm Organic Options, told attendees at the Produce Marketing Association’s Fresh Summit in October.

The mid-level shopper is most likely to purchase organic products in a grocery and is knowledgeable about health and environment concerns, but is still driven by price and convenience, Mulcahy said. This group presents the biggest growth opportunity as knowledge about organic products increases.

“There is a definite trend to go local and sustainable. They want to leave the earth much better than they got it from us,” said Shawn LaPean, director of dining services for the University of California, Berkeley. “Organic has a huge feel-good emotion.”

“Organic has a very high reputation for delivering good flavor,” said Don Harris, vice president of produce and floral for Wild Oats Markets.

He said markets build their programs around suppliers that provide consistent taste and quality.

Retail

Organic produce was about 5.5 percent of total produce sales, and organics overall accounted for 2.8 percent of retail grocery sales in 2005, according to the Organic Trade Association and U.S. Department of Commerce. But the organic segment grew 12 percent in 2005 and has seen double-digit growth since 1999.

Supermarkets are devoting more space to organics and more space to organic fresh-cut products. Bi-Lo, a regional chain in the Southeast, carries some organic products in each of its 300-plus stores, but varies the space devoted to organic products depending on the store’s location and customer base. About 20 percent of its organic produce is fresh-cut.

“Customer demand for organic product continues to increase. The top items are carrots, lettuces, onions, potatoes (and) salads,” said Terry Sloan, southern region divisional manager of produce and floral for Bi-Lo. “We are conducting store by store reviews to determine the appropriate amount of space to devote to organics in each store.”

“We will be increasing our shelf space of organic produce in the coming year,” said Jim Butera of Draeger’s Markets in Los Altos, Calif. “In the fourth quarter of 2007, we will be opening a new store in Danville, Calif. Organic produce will account for about 40 percent of the total items in the department.”

Butera said fresh-cut organics make up only a small part of the company’s total organic produce, but it will be expanding offerings in 2007. Consumers at the California stores are asking for the same products as the conventionally grown produce, with the most popular items being bananas and berries.

“The demand for organic produce is growing at a rate higher than most anything in the store,” Butera said. “Year-round supply is very consistent and the quality improves each year.”

Distributors are getting into the action, too. Associated Food Stores represents more than 500 independent retailers. The company started an organic program in February 2004 and has seen it grow from 8 to 12 products to between 50 and 60 items, said Dustin Sanders, lead customer service specialist for Associated Food Stores in Salt Lake City.

“Our customers are always asking for new items we should try. We just received the OK to expand the perishable side of the warehouse to accommodate all the new growth,” Sanders said. “We offer two or three organic items each week to place on ad programs. It is gaining ground with our customers and from theirs. We are always searching for new organic items to help it grow. I believe that all our stores are carrying at least two or three organic items, and some of these are the ones that said they would never have requests for it.”

As markets request more organic products, suppliers and processors have to find organic growers to meet their needs.

“We do source some organic products for fresh-cut and frozen processors. And yes, having a dependable, year-round supply for fresh-cut is difficult,” said Eric Gaarde, president of Gaarde Foodsource and Service in Fresno, Calif. “A year ago (January 2006), we went to Chile and Argentina to source organic apples for fresh-cut processing, which was going through a huge growth curve. The South Americans, rightfully so, were thrilled to have all this new interest in their organic fruit but were hesitant to short an existing European retailer (for example) they had established relationships with. We did get some fruit – not enough – and this year we are getting more than we anticipated from Washington state, which may ease the pressure on South American fruit. Too early to say for sure.”

Gaarde said there is more interest from growers, large and small, to convert fields and orchards to organic production.

“I literally just returned from a meeting here in Fresno for growers giving consideration to converting to organic,” he said. “There were probably 75 growers there, representing stone fruit, grape and nut crops. Most of them were large, established conventional growers planning to put part of their acreage into organic production. I would summarize their motives as a desire to address a growing niche market. Some represented the ‘pure organic’ mentality and lifestyle and some are obviously attracted to what they perceive as premium FOBs, but I think the majority are looking ahead, just as they do when planning future varietal introductions.

“How all this plays into the organic fresh-cut arena is a tough question to answer. The organic fresh-cut apple deal seems to keep growing, for our clients at least. Items like fresh organic peaches, plums and nectarines are a real challenge to retailers because of the inherent shrink due to lack of post-harvest fungicides. Fresh-cut stone fruits have been a zone where many have talked about playing but none seem to enter the fray. So the combination of fresh-cut and organic stone fruit will likely require either a) a major pull-through of consumer demand or b) a high-risk investment on the part of a processor.”

Many processors are looking at new varieties to make their products more desirable to consumers. They’re working with seed growers to find fruit that have the best taste, color and sugar content to keep customers coming back and extend shelf life and quality.

“I do intend to spend some time and money this year evaluating flavor characteristics on stone fruits, conventional versus organic,” Gaarde said. “We are developing a database of varietal characteristics utilizing data compiled since 1995 by our sister company, Fruit Dynamics Inc., and I am looking forward to being able to objectively address the claim of some that ‘organic tastes better.’”

As large corporations begin to introduce organic products, there is some backlash from core organic buyers.

“We’ve relied, in the organic industry, on perception for a long time,” Mulcahy said. “As retailers, we have a responsibility to provide our customers with information.”

Foodservice

“However, we are at the discretion of the growers,” said Peter Napolitano, director of dining services for State University of New York, Cobleskill. “We support the local markets whenever possible, and our students agree natural organic produce is most desired. Our issues are availability, quantity and price.”

“I definitely feel that the organic market is growing and the push for growth is due to consumer demand. Today’s consumers are more educated than ever due to the amount of information they are constantly bombarded with,” said Jennifer Gallagher, a chef and instructor at Johnson and Wales College School of Hospitality in Charlotte, N.C. “The demand for organics has had a tremendous impact on the supply of organics. Organic producers are struggling to keep up with demand while staying true to organic farming. Consider the Wal-Mart effect on organic farming. Just meeting Wal-Mart’s demand is daunting.”

Chefs are not always concerned with a year-round supply of organic or conventionally grown products, because menus can change. But Gallagher said restaurants with the same menu items year round should be realistic when considering organic inputs, because it may not be the best decision to rely on organic growers to provide out-of-season produce. And customers will recognize when the produce is not of the highest quality.

“The availability of any product should be taken into consideration when developing a menu, whether you are deciding on soft-shell crabs or organic asparagus. A chef must consider the availability and quality of each item on the menu. Heirloom tomato and fresh mozzarella salad is a wonderful addition to a late summer menu in the Northeast. However, that same menu item in January is not very appealing.”