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Wednesday, March 18, 2009

Grocery Prices: Organic Foods

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Organic price tags may be hard to swallow

Globe and Mail Update
March 18, 2009 at 8:30 AM EDT

The organic, free-range, hormone-free chicken is a staple of the yuppie cookbook. But the price is becoming increasingly hard to swallow as the reality of tough economic times sets in.
People have been buying and selling organic food for decades. But until recently, most of that activity was done on a local scale for a limited number of customers. In the past decade, organic food has exploded in popularity, evolving into an industry that resembles the traditional grocery model, complete with frozen-food aisles, weekly flyers and rows of cashiers.

The current crisis marks the first time organic retailers will have to face a sharp economic downturn since the industry's boom began. "Organic food has a huge problem," said Marcia Mogelonsky, senior research analyst with Mintel International Group Ltd., a global consumer-research firm. "It's always been premium-priced."

While many Canadians were willing to shell out for organic nachos and macaroni and cheese when times were good, suddenly the cheaper grocery-store brands aren't looking so bad. "It's going to affect us, most definitely," said Linda Wonsel, owner of Natural Earth Organics in Windsor, Ont.

Certain organic items are expected to weather the storm better than others. For instance, consumers will likely remain loyal to products whose non-organic counterparts are widely associated with, or suspected to be tied to, potential health problems. That includes hormone-free organic milk and organic baby food, particularly in light of fears over melamine contamination of goods coming from China.

Households with small children that ate organic before the recession will likely continue to do so, according to Ms. Mogelonsky. "You don't want to feed your kid milk you don't think is safe," she said. "You will buy organic milk even though it's $5 a gallon."

And although consumption of organic meat is expected to drop due to its relatively high price, shoppers who ate organic meat before the economic downturn likely won't switch to traditional meat.

That said, they'll likely eat less of it, according to experts.
Dedicated organic customers will, for the most part, also stick to other staples, including free-range eggs, and organic fruits and vegetables.

But as more consumers look to cut costs, it's also likely that pricey non-necessities will be the first organics to go. The growth of the organic industry has sparked the introduction of all kinds of packaged foods - processed cookies, potato chips, ready-to-eat meals and frozen food. Cost-conscious consumers may no longer be willing to pay a premium for organic snack foods, according to Laura Telford, executive director of Canadian Organic Growers, a national industry association.

"The prepared stuff is going to go first," Ms. Telford said. "[Organic retailers are] not going to go into bankruptcy or anything ... but it is going to be a lean year, more than likely."

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