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Natural and Niche: The CPG Trend

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The natural products category is growing fast! Products that were once limited to specialty markets and menus can now be found in pretty much any grocery store aisle or restaurant.

As a matter of fact, plant-based meat is available at Burger King and milk alternatives like oat milk are flying off the shelves.

In 2020, the natural products industry passed $250 billion in consumer sales with a compound annual growth rate of 8% over 10 years, according to the Nutrition Business Journal. In the same time, conventional grocery has maintained 1.6% growth.

natural products industry passed $250 billion

 

For many food and beverage manufacturers, growth within the natural products segment will determine success or failure in the years to come.

 

What’s Natural Food?

There is no universal definition of “natural.”

  • The USDA says natural products contain zero artificial ingredients or added colors and are only minimally processed. Minimal processing means the food product was processed in a way that doesn’t fundamentally alter the product. Any natural food product must be labeled with a statement explaining the meaning of the term natural. You’re familiar with these explanations – they’re often labeled as “no added coloring,” “no artificial ingredients” or “minimally processed.”
  • The FDA says natural means nothing artificial or synthetic has been included in, or added to, a food that would not normally be expected to be in that food.

It is important to note that natural and organic are NOT interchangeable terms. For the purpose of this article, think of terms like organic and non-GMO as a subcategory under the natural food’s segment.

What about Organic Foods?

The word organic indulges federal regulations. When “organic” is on a product’s label, it was made with farming and production practices defined and regulated by the USDA. When buying organic, you’re buying food without toxic pesticides, GMOs, antibiotics, or growth hormones.

In the US, organic is a $55.1 billion market across all retail channels. 

The Organic Trade Association has learned that shoppers value organic foods because…

  • More than 700 chemicals are prohibited
  • There are strong standards that accompany the USDA organic seal
  • Organic agriculture can play a role in mitigating climate change

Produce is the largest organic category, representing 36% of all organic food sales. Dairy and eggs is the second largest organic category, totaling $6.5 billion in sales in 2018.

 

The Growth Story

According to a report from SPINS, across the total marketplace, natural products account for just 10.5% dollar volume, yet are responsible for 29.3% of dollar growth.

Now, throw the pandemic into the mix. What does this mean for these trends and future plans?

“The pandemic has only increased our desire for clean, healthy food,” explains Laura Batcha, CEO of the Organic Trade Association.

Let’s look at the data. We saw sky-high growth in many natural product categories; outshining the already incredible growth of their conventional counterparts.

In the early days of the pandemic, US organic food sales jumped by more than 50%, according to IFT.

 

Category Natural Trend Conventional Trend Time Frame Source
Meat +280% (plant based) +77% WE March 14, 2020 Nielsen
Dairy +477% (oat milk) +32% (dairy milk) WE March 14, 2020 Nielsen
Produce +26% (organic) +21% ME March 31, 2020 OPN Q1 Report

 

Growth Drivers

CONSUMER DEMAND

Before the pandemic, we saw a consumer trend where shoppers preferred to buy from environmentally conscious companies. An Accenture study that found 50% of consumers said they are shopping in a more health-conscious manner and will likely continue to do so.

Empty Shelves Retail Pandemic

When the pandemic hit and restaurant dining rooms closed, people everywhere headed to the grocery to grab their favorite foods, which explains the growth for both natural and conventional products.

Because many shoppers were pantry loading, grocery aisle shelves were nearly bare, compelling many shoppers to grab whatever foods were left – in some cases organic or plant-based alternatives. As product availability has become more consistent, some shoppers have switched back to their historical purchases.

On the other hand, Kathryn Peters of SPINS says that there continues to be “an ongoing shift in shopper thinking when selecting from natural and conventional products … as the pandemic dominates the news and the focus remains on health and well-being, natural products will continue to outperform other products as consumers continue to invest in better-for-you items to eat, to use on their bodies and to maintain their homes.”

 

WELLNESS & DISEASE PREVENTION

When a health crisis hits, it’s no surprise that consumers concentrate on wellness. We saw this with the SARS outbreak, and we’re seeing it again with COVID.

The founder and CEO of Ecovia Intelligence, Amarjit Sahota told Food Navigator, “Whenever there is a food scare or health scare, consumers look at disease prevention and improving nutrition. Organic foods get a sales boost as they are perceived to be healthier and safer than conventional foods.” 

Colin Stewart of Acosta explains that healthfulness is increasingly important to consumers, “as nearly 66% of US adults agree it has a significant impact on their food and beverage purchase decisions.” Research shows about a quarter of people are specifically seeking out food with functional and healthy ingredients. 

 

Threats to Success

While inventory and a wellness focus play beautifully into the hand of the natural product market, there are several factors that may bring caution to putting all your growth resources into this category’s basket:

The short-term shift to eating at home and the search for comfort.

As consumers stocked up, many found themselves gravitating towards the processed comfort foods of their past. It’s true – Pepperidge Farm Goldfish crackers saw sales grow +23%. Kraft Mac and Cheese had factories working 3 shifts a day to meet demand and Chef Boyardee pasta saw sales grow 50%… all in March.

Goldfish Crackers Sale Grocery Retail

“Consumers are stocking up on shelf-stable goods in general and seeking affordable, familiar foods,” confirms Beth Bloom of Mintel.

The long-term impacts associated with the pandemic.

We know from the 2008 recession that as incomes suffer, consumers move away from premium-priced goods.

The Mercaris Special Report on the US Organic Commodity Market cautions that “if 2008 can be taken as an indicator, and US economic activity does not swiftly return, COVID-19 could be a catalyst for significantly weaker organic commodity demand.”

The pace at which the economy recovers will play a large role on the future of the natural growth trend.

 

Celebrate the Success

 

  • Chips and Snacks. This is a natural products category leader! This $3.5 billion segment interests consumers who want a healthier version of their favorite chips and pretzels. Bloom notes that consumers are “looking for lower-guilt snack options that can contribute to health.”

 

  • Plant-Based Meat. Consumers have embraced the plant-based movement. This is a mainstream, natural category. It’s become popular since 60% of Americans are interested in consuming less meat. Sales of plant-based food grew by double digits and a 5x the rate of total food sales in 2019.
    • CPGs in the plant-based category: Impossible Foods, Beyond Meat, Morningstar Farms, Gardein

 

  • Beverages. In 2018, the organic beverage category grew by 13.5% to become a $6.4 billion market. Food Dive says that more than half of American consumers want natural beverage options.
    • CPGs in the natural beverage category: Bodyarmor, CORE Hydration, Bonafide

 

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Conclusion

The pandemic has expedited growth in the natural products segment. Signs point toward that growth continuing as consumers create new (nutritious) habits and focus on their health. 

While price sensitives may increase, there could be a dip in natural food sales as the year progresses. But, don’t rule out the people willing to invest in premium products to advance their health.

What’s next? Keep an eye on the the economy to determine how consumer choices will change in the coming year.