Organic Produce Proves a Fertile Garden for the Food Sector

Food companies revamp operations and marketing to meet organic produce demand

Organic fresh produce sales reached $5.6 billion in 2018, according to the Organic Produce Network and Nielsen. That’s 43% of total produce growth, even though organic comprises just 10% of total produce sales. In comparison, total grocery-store growth hit just 2% last year.

“What’s especially interesting about the 2018 numbers is an impressive two-thirds of all produce commodity groups increased organic sales year-over-year, which indicates this is not an isolated incident,” Matt Seeley, chief executive officer of the Organic Produce Network, told Produce News. Organic sales are shifting to more mainstream consumers across products, with prepackaged salads generating the highest sales in 2018 ($1.12 billion, up 5.3%), followed by apples ($393 million, up 6.4%), carrots ($340 million, up 3.5%), strawberries ($298 million, up 1.9%), lettuce ($252 million, up 3.5%), and tomatoes ($204 million, up 0.8%). Other categories with growth potential include onions, bell peppers, watermelon and mandarins, because they are underrepresented in organic sales.

This booming consumer desire for organic produce is changing the way retailers, wholesalers, distributors and farmers offer fresh fruits and vegetables. From product selection, to marketing, warehousing, logistics and even what farmers grow, the trend is causing companies in the food sector to expand and update their operations to keep up with demand, which is expected to continue growing.

Who’s Buying Organic and Why

Consumers increasingly favor organic because they want nutritious, clean food that is good for their health and the environment. Produce is the entry point into organic, particularly for families and Millennials, according to the Organic Trade Association’s 2018 Organic Industry Survey. Millennials are now the largest consumer segment in the United States, and organic producers are focusing on them because this generation’s beliefs fit well with organic production and positioning. As Millennials become parents, the industry expects them to buy even more organics.

Consumers of organic produce tend to shop for groceries less on price and more on quality of the fresh produce department. Eighty percent of consumers say freshness is their main concern, followed by selection of organic vegetables and fruit.

Depending on the consumer group, individuals have different buying preferences for organic food. The Balance-Small Business offers a good summary of consumer types, from those who are just beginning to experiment with organic to hard-core purchasers who’ve bought organic produce for years. Newcomers to the category offer the greatest opportunity but are the hardest to lure due to the higher prices and confusion over what “organic” really means. Educating customers on the difference between “natural,” “fresh” and “organic” helps. Promoting products with the U.S. Department of Agriculture’s organic seal can clarify which products are organic, justifying their higher prices.

Developing and Marketing Organic Produce

Companies in every segment of the organic supply chain are capitalizing on the trend and often work together. Packer.com notes that producers, distributors and retailers are branding, packaging, cross merchandising, and selling organic produce in new ways, including:

  • Snack-sized greenhouse vegetables, such as cocktail cucumbers and small specialty tomatoes
  • Pouch bags of fruits, from apples to grapes
  • Convenience items such as wrapped microwaveable potatoes
  • Specialty items like rainbow baby carrots
  • Larger packs of items, including two-pound clamshells of organic strawberries

The emergence of baby potatoes as a new organic product that spans the supply chain is a perfect example. Tasteful Selections, in Bakersfield, CA, is a potato grower, processor and shipper. Since it opened its doors in 2010, it has seen double-digit growth every year, including 30% growth in 2018. “We built a new facility in 2015 and we have expanded every year since,” said Bob Bender, president and chief executive officer. “We are going to double the size of the facility in 2019 and we expect to double our volume in the next three years.” Tasteful Selections has worked with retailers on new retail options. Baby potatoes, which are known as creamers, represented 1% of the retail potato market in 2010. Today it is about 15% and it’s expected to expand another 60% during the next six years to 25% of potato sales by 2025. Bender acknowledges that organics sell at a premium and says that is necessary because growing costs are higher, mainly due to reduced yields. “It’s worth it because the premium we get does offset the extra costs,” he says.

Most retailers now feature organic produce. Ready-to-eat, prewashed and packaged produce continue to be in high demand, according to Laura Batcha, CEO of the Organic Trade Association. “More varieties of prepared and pre-cut vegetables, such as cauliflower, peas, broccoli and carrots, make it easier for consumers to get meals on the table, while packaged and prepped items such as zucchini noodles are also now marketed,” she says.

Consumers want greater variety within a category, too, such as multiple varieties of apples, including Honeycrisp, Fuji, Piñata and Pink Lady.

For wholesale buyers of organic produce, it may help to not only understand what retailers’ customers now demand, but then to also explore pricing for specific produce items. For organic foods, this means determining ways of pricing higher quality foods in a competitive manner to draw more consumers toward the product. Likewise, consumer marketing managers can interview consumers about which organic produce they buy and why they buy them, and can create methods to educate more consumers about their health benefits.

New Equipment and Logistics Needs

Rising demand has distributors and shippers of organic produce scrambling, too. C.H. Robinson, which markets and distributes fresh organic and conventional produce, built year-round solutions, including facilities, to address the expanding categories. “We have had to build organic expertise within our business for all verticals,” says Michael Castagnetto, vice president of global sourcing at Robinson Fresh, a C.H. Robinson business brand. Providers like C.H. Robinson are opening, enlarging or retooling facilities for organic handling, manufacturing and processing. Among the equipment they need are storage shelves and containers to separate organic from conventional produce. Storage boxes must be clearly labeled for organics, noting their contents and origin. Companies also must keep records of organic inventory separately and show that organic inventory is kept apart from other goods in a warehouse. Such separation and recordkeeping is important, too, for trucking companies and third-party logistics providers.

Despite these challenges, organic produce poses significant opportunities for distributors in Illinois and the Midwest, and across the country. Los Angeles-based distributor Heath & Lejeune revised its original business model to become a full-line wholesaler of organic fruits and vegetables. The business went from representing a few small organic farmers in 1981 to becoming a leader in the sector. It consolidated loads and sent them to trading partners across the country. As national retailers got into organics and organic production has grown, the company took its place as a major multi-area shipper, including business in Mexico, South America and New Zealand. It grew its warehouse operations to employ 75 workers and several dozen loading docks, loading hundreds of trucks each day. The company believes the growth trend will continue, with organic dominating conventional produce soon, although it does not believe traditional produce will go away.

International May Be Next for More Organic Suppliers

Heath & Lejeune is not the only food company to see opportunities for organic produce across international borders. The global organic market has reached $97 billion in size. The biggest consumers of organic, agriculture-based foods are the United States, followed by Germany, France and China. Such international countries can be an important outlet for U.S. organic producers, providing greater profit margins than domestic markets. Among European countries with the greatest demand are:

  • The French organic market, which grew 18% in 2017
  • The Swiss, who spent the most on organic food ($327 per capita in 2017)
  • Denmark, which had the highest organic market share (13.3% of the total food market)

The Global Agricultural Information Network believes that the boom in organic food will continue in the European Union. In fact, it has doubled in the last decade—prompting U.S. exporters to reach a record estimated $45.3 billion in European sales in 2017. U.S. suppliers export many kinds of organic produce to Europe, including apples, carrots, lettuce, grapes, tomato sauce, coffee and pears. Beyond Europe, the top export markets for U.S. organic producers are Canada, Mexico, Japan, Taiwan, South Korea, Hong Kong, China, Guatemala, United Arab Emirates and the Philippines.

Indeed, from Illinois fields, to city-based distributors, to grocery shelves around the world, organic produce is in great demand, and suppliers that adjust their operations to accommodate it can tap into this new source of business.

The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever.