It wasn’t long ago that organic food was just called, “food.” In the first half of the 20th century, people cultivated, harvested and consumed locally grown produce. No advanced knowledge was required to understand the ingredients they were eating. But in the years since, the food industry has transitioned away from whole local products and replaced them with processed foods that are cheaper, more durable and commoditized. Many thought this was a good thing, and decades have passed since this transition.

What few realized was that the industrialization process of mass producing food would result in products that have unknown human health costs and open many questions on the safety of these modified ingredients. The delocalization, homogenization and productization of food has created a marketplace with considerable opacity into our food supply.[1] This lack of transparency has led many to demand organic, local and less-processed food along with increased regulation.

Natural and organic food items have become more popular despite higher grocery costs, because consumers have become more aware of the risks of eating treated or processed foods and prefer to purchase more items with ingredient transparency. Natural product sales in retail continue to grow significantly faster than the retail sector at large — likely crossing over the $100 billion threshold in 2015 compared to 2014 figures below.


Source: Natural Foods Merchandiser, 2015 Market Overview

 When specifically focused upon organic food sales, consumer demand has grown by double digits every year since the 1990s, rising from $3.6 billion in 1997 to over $39 billion in 2014. A recent Consumer Reports survey shows that 84% of American consumers have purchased at least one organic food item.


Source: Organic Trade Association

Given the size of the market, this trend has very quickly evolved from niche, specialty health food and supplement retailers of years past, to a large and growing part of the consumer staples basket. As a result, many industries have been impacted, and large traditional companies have responded to the trend.

Food Retail

Supermarkets such as Whole Foods ($WFM) and Sprout’s ($SFM) have long been associated with natural and organic shopping. In fact, just last month at an investor conference, John Mackey, co-founder and CEO of Whole Foods said, “We think natural and organic foods have entered into the mainstream … we’re very proud Whole Foods is contributing to helping America become healthier, and we now have lots of new competition and copycats in the natural and organic sector.”

What was once considered premium has trickled down to the masses. We are now living in a world where Costco ($COST) outsells Whole Foods in organics, Wal-Mart ($WMT) is exceeding its own goals for buying local, and McDonald’s ($MCD) is contemplating adding kale to its menu.[2]

“It’s been widely documented that some retailers are changing store configurations and dedicating more space to fresh and organic foods as they go mainstream.”[3]

Simple Truth, Kroger’s ($KR) private-label brand for natural and organic foods, reached $1.2 billion in sales in 2014 after just 2 years on shelves.[4] The brand promise is simple, natural or organic products free from over 101 artificial preservatives and ingredients.

As the retail price spread between conventional packaged food offerings and the natural or organic product alternative has narrowed, consumer demand has increased — particularly in food staples like milk, eggs, fruit and vegetables.

Packaged Foods

Large food companies are trying to tap into this growing segment to combat declining sales of traditional packaged and processed foods. In 2014, General Mills ($GIS) bought Annie’s, the maker of natural pastas and macaroni for about $820 million, betting that a bigger presence in the natural and organic food aisles will energize a business sapped by sagging consumption of breakfast cereals. While Kellogg ($K) and Campbell Soup ($CPB), among others, have introduced or made large investments in launching new sub-brands of organic food products.

ConAgra ($CAG) recently purchased Blake’s All Natural, a small natural and organic frozen meals company that has seen high double-digit growth, in response to the overall frozen food market that has lagged behind the rate of inflation for the past 4 years as unit volumes have fallen. Dollar sales of frozen juice, chicken and pizza are all down since 2009, according to Nielson, and sales of frozen meals fell 3% to $8.92 billion from 2009 through 2013 according to Euromonitor.[5]


The consumer movement towards natural and organic food extends well beyond our desires at the grocery store. In fact, home gardening and cooperative farm shares are on the rise. Millennials are leading the trend with a 63% increase in food gardening from ’03 to ’13 as cited by Scotts Miracle-Gro ($SMG) in an investor presentation (December 10, 2015).

Organic food production is not keeping up with demand. Supply shortages are one of the greatest challenges facing the industry today. Despite continued growth in production, handlers are not able to keep up with demand. Organic food sales currently make up 4% of total food sales while acreage devoted to organic agriculture is less than 1% of total U.S. croplands. An opportunity exists to alter the supply / demand imbalance for organic produce.


Source: Organic Trade Association


Clearly, the pendulum is swinging back towards natural and organic food with double digit growth rates likely for the foreseeable future. As concerns about foodborne illnesses, pesticides, fertilizers, genetically modified organisms (GMOs), growth hormones, antibiotics and general environment ramifications of the modern industrialized food ecosystem increase, consumer focus upon what’s inside what they eat is certain to rise. Consumers will continue to increase the natural and organic product mix in their shopping carts.

How will the struggling icon foods brands like Tyson ($TSN) or Kraft Heinz ($KHC) evolve their offering in this new landscape? To better track mentions of the theme, AlphaSense has developed a smart synonym for “Organic Food” to help identify the companies being impacted by this growing trend.

1. Institutional Investor, It’s Time for Finance to Go Organic, Dec 5, 2015
2. Dow Jones News, How can big food compete against fresher rivals — Big Issues in food report, July 12, 2015
3. Campbell Soup ($CPB), Investor Day Transcript, July 22, 2015
4. Dow Jones News, What If We All Bought Organic?, March 17, 2015
5. Dow Jones News, ConAgra Buys Blake’s All Natural Foods., May 12, 2015