Organic Food

1. Organic Food Presented by David Jago, MintelFDIN, May 2008

2. Issues in the Market • Rising health and ethical concerns - have been the fulcrum for the development of the market • Supply limitations on UK organic products - is restricting market growth • Expanding the repertoire of organic food products purchased - will be the catalyst for market growth • Greater scientific evidence to back up organic nutritional claims - will provide further marketing opportunities

3. Market in Brief • Mintel estimate: total retail food market in 2007 is £1.5 billion,having increased by 70% since 2002 • Fruit and vegetables is the largest sector accounting for 34% market value • but dairy products have risen 111% since 2002 • Organic food competes with other foods with provenance and production values for the burgeoning green £ • e.g. Fair trade, higher animal welfare, MSC • There is a shortage of supply of British organic products • due to a shortage of organic grain and insufficient British producers converting to organic products • “Organic food is healthier than standard food” • according to new EU funded research by the University of Newcastle, which has given scientific backing to a long-held consumer perception

4. InternalMarketEnvironment • Consumers are looking to eat naturally healthy foods • Consumers are looking for foods with provenance or production value • Foods with production values create points of differentiation & equate to higher prices • Environmental concerns, especially climate change, have rocketed up the consumer agenda • With food scares and intensive food production consumers are questioning the origins of their food

5. BroaderMarketEnvironment • Increased numbers of AB consumers is a positive step for the development of the organic market • Higher disposable income and more likely to pay more for organic food • More likely to purchase a larger repertoire of organic food products • An EU-funded study delivered a big boon for the Organic market in October 2007, when it concluded scientifically that organic food was healthier • 2009 will see the introduction of an EU standard logo for organic food

6. StrengthsandWeaknesses • Continuing strong economy and affluent population • Expanding product range and wider availability • Consumer interest in healthy eating and cooking • Growing interest in provenance & production values • Huge growth potential • Awareness & understanding of the organic logo rising • More scientific studies substantiating the nutritional benefits of organic • Supply problems – lack of available British products • Demand outstripping supply • Lengthy conversion time is a deterrent to entry • Competition from other health/premium sectors • Competition from other ethical foods • Expensive in comparison to conventional foods

7. MarketSize • Organic food is growing: • Rising health & ethical concerns • Increased product choice and availability • ... most growth is coming from the existing consumer base buying more.. • …but new customers are entering the market.. • Demand is growing; some sectors are under-supplied, restricting volume growth Retail value sales of organic food, by sector, 2002-07 Source: Mintel

8. Organicgrowth • Fruit and vegetables are the biggest sector. • Organic status enhances its healthy positioning • Dairy has been the fastest growing sector • Organic dairy products competes on price with conventional product thanks to strong brands (e.g. Yeo Valley), NPD, and wider availability. Retail value sales of Organic food, by sector, 2003-07 Source: Mintel

9. Brandcommunication Main monitored media advertising expenditure on organic food, January 2003- July 2007* £ m Source:: Nielsen Media Research/Mintel • Advertising expenditure in the organic foods market has traditionally been relatively low due to the large number of small producers supplying the market. • Sector spend is propped up by consistent spending from a small handful of companies with a well established-presence in the organic market. • Current level of under-production in organic foods is a disincentive to growth in advertising, since promotion would stimulate a demand that cannot be served.

10. ChannelstoMarket Salesthroughorganicboxeshaveboomed Multiple grocers now offer their own box delivery scheme

11. The Consumer –ConsumptionHabits Propensity to purchase Any* Organic Food, September 2007 • Women more concerned about health and ethical issues. • ABs more concerned about health and have higher disposable income. • Consumers in London are key: due to their affluence and the concentration of retail outlets outlets stocking organic food. 2000 Internet users aged 18+ * net of any organic product (see report) Source: Ciao/Mintel

12. The Consumer –ConsumptionHabits The Competitive Arena, September 2007 1,415 internet respondents aged 18+ who buy organic food • Those consumers who purchase a wide range of organic products are also most interested in locally sourced products…. • … and the growing popularity of locally sourced products may encourage farmers not to put their land under organic conversion, and restrict the growth in organic food. Source: Ciao/Mintel

13. Motivationsforpurchase • Health is the dominant motivation for purchase • Taste and health are stronger motivations for purchase than ethical considerations. • Promotional activity is a key route to attract new consumers into the market • Opportunity to develop usage around special (family) mealtimes. Consumers were asked: “Why do you buy organic food?” 1,415 internet respondents aged 18+ who buy organic food

14. TheConsumer – ConsumptionHabits Motivations for buying organic by age group, September 2007 • Younger consumers are motivated to buy through green issues and when on promotion. • Older consumers are more motivated by health, taste & quality. • New research from the Newcastle University verifying organic’s health claims should provide a more compelling motivation for this age group to purchase. 1415 internet respondents aged 18+ who buy organic food Source: Ciao/Mintel

15. Consumers and price... • Note growth in % consumers prepared to pay more for organic food • Organic premiums fit with familiar “good, better, best” pricing patterns • But environmental concerns may be more important Source: GB TGI/BMRB/Mintel

16. Forecast Mintel forecasts that the UK organic food market will soar past the £2bn mark…….. Retail value Sales of organic food, 2002 - 2012 Source:Mintel • Its ready association with health will keep the market growing • Organics will dovetail with the premiumisation trend • Growing environmental concerns, especially climate change, will come to the fore • Scientific back up of nutritional claims (University of Newcastle, October 2007) will boost the market, and possibly ignite active government promotion of organic produce

17. A complex issue... • Organic food, food sourcing, sustainability, “food miles”, carbon footprints, Fairtrade, local, natural… • Highly complex issues often in conflict

18. A closing thought... • 25% of all UK food intros are now labelled as “additive free” • Versus nearly 9% labelled as organic UK food launches by on-pack claim • What will be the impact of the growing trend towards “more natural” and “additive-free”? Source: Mintel GNPD

19. And finally... • Opportunities in targeting younger consumers? • Make organic more relevant to them e.g. via environmental wellbeing and animal welfare • Through more organic impulse snacks for child self-purchase • Opportunities in targeting C1C2 consumers • Potential for “value” organic food lines? • Organic food: • Naturally healthy family food? • Or scientifically-proven to offer enhanced nutritional benefits?

20. For more information: David Jago Trends & Innovation Director, Mintel djago@mintel.com 0207-606-4533 www.mintel.com