WHEB Commentary

Tim Dieppe

You Are What You Eat


Consumers are putting their money where their mouths are. Or at least they are taking more care in choosing how they spend money on what goes into their mouths. That is one way of interpreting the latest data from the Soil Association which shows that sales of organic products in the UK rose by 4% in 2014, in a year when consumer spending on food declined by 1%. The fact is that organic sales remain a small part of the market in the UK, with just 1.3% share of supermarket sales, so most consumers are not interested. However, 56% of baby food spending is organic, suggesting that parents care more about their babies’ mouths than their own. The next biggest category is yoghurt where 8% of sales are organic.[1] Care for what goes into your mouth may be the motivating factor for most consumers, but arguably care for the environment is an even stronger reason to pay up for organic products.

 

apples

It is not just in the UK where sales of organic products are growing. According to data from Organic Research Centre, sales of organic foods in Europe rose by 6% in 2013, and the share of organics has continued to rise in 2014.[2] The market share in the US and Germany is 4%, somewhat higher than in the UK.  The Organic Trade Association claims that sales of organics in the US rose by 11.5% in 2013 – the fastest growth rate in five years.[3]

It is our belief that consumers will continue to care more and more about the environmental and health impacts of their purchasing. Part of this is driven by increased availability of products, and partly by increased information and awareness.  With this in mind, we recently initiated a position in United Natural Foods, the leading distributor of natural, organic and speciality foods and non-foods in the US and Canada. The company operates more than 30 distribution centres and has acted as a key facilitator in broadening the distribution of natural and organic foods throughout North America.

United Natural Foods recently acquired Tony’s Fine Foods which broadens their product offering and enhances their competitive position. They now have 80,000 different stock items to distribute, up from 40,000 ten years ago.[4] The company has a 12% share of the natural and organic market in North America, and we believe that they can continue to gain share through product range expansion, better distribution, and selective acquisitions. Compound sales growth between 2009 and 2014 was 14.5%,[5] well ahead of market growth rates.

You are what you eat – or perhaps more provocatively – your baby is what she eats! Consumers are what they eat, and are increasingly spending with this in mind. This is a trend that has a long way to run as we shift towards a more environmental and health conscious society.

 

[1] Financial Times, 25th February 2015, p4. http://www.ft.com/cms/s/0/c9cd66a2-bb9f-11e4-aa71-00144feab7de.html?siteedition=uk#axzz3SlpG2C00

[2]http://www.organicresearchcentre.com/?i=articles.php&art_id=759&go=Information%20and%20publications

[3] https://www.ota.com/what-ota-does/market-analysis

[4] Source: Oppenheimer research. 24th February 2015.

[5] Source: Company information.

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