Domestic organic retail sales has grown by 50% in the past two years.
Domestic organic retail sales has grown by 50% in the past two years. Mike Knott

Tasting the organic market

ORGANIC is the new black, with consumers demanding organic alternatives on everything from honey, canned goods, cosmetics and even clothing. Right through the downturn, the organic industry showed remarkable resilience as consumers proved they don't mind paying a premium for products that have been through the rigour of independent certification.

Figures show that the domestic organic market is experiencing a boom, with domestic retail sales growing by 50% in the past two years, from $623 million to a healthy $947 million. And in 2010, retail sales are expected to pass the $1 billion mark.

The figures, from a newly released report, reveal that 91% of Australians say chemical-free produce is important to them, while more than six out of every 10 households now buy organic on occasion, up from 40% in 2008.

So how can entrepreneurs get a slice of the organic pie?

A rapidly growing sector

The Australian Organic Market Report 2010 is the second report by the Biological Farmers of Australia (BFA). Released late August, it recorded 2,986 certified organic operators - three quarters of which are primary producers, which represent 1.6% of Australian farming operations.

The independent research was undertaken by the University of New England in Armidale, NSW. Its report is interesting fodder for entrepreneurs considering a foray into the organic market, as SMEs try their luck by launching new organic brands every year. In fact, there has been a rise of almost 8% in applications for certifications in the past three years.

It's not surprising. The BFA report reveals that organic products are no longer simply sold at the local farmers' markets. In 2009, 92% of organic sales were made via store-based retailing, with supermarkets now bagging 60% all of organic sales, with more than 500 organic lines in some larger retailers. And that figure looks set the rise, with all the major supermarket brands - Coles, Woolworths, Aldi and IGA - attempting to match the accelerating consumer demand for organic, the report found.

And while the organic sector holds just 1% of total market value, it still represents a big opportunity for operators able to meet the stringent quality controls as the market continues to grow.

Antonette Golikidis, board member on Australia's largest certifier – Australian Certified Organic (ACO), says that both retailers and consumers are crying out for organics. Females remain the primary purchasers.

"There's a widening uptake of organic products assisted by improved availability, increasing affordability and greater understanding of organics," she says.

"More people are opting for the emerging healthy organic lifestyle. Larger supermarkets are expanding into organic products, so organic is no longer an overly expensive or inconvenient option for everyday families."

Doug Haas, board member of the BFA, says the group has witnessed the extraordinary development of the organic industry from a mostly small, niche market to one that has matured into a thriving, competitive industry now accessible to mainstream consumers.

Even hugely successful household brands see the opportunities that organic status can garner, with Sanitarium brand Weet-Bix even launching an organic spin-off of the famous brand.

But there are opportunities for start-ups wanting a slice of the market, with the report revealing an under-supply of products in some sectors.

Where the growth lies

Entrepreneurs considering entering the market need to know that the BFA report revealed that the best performing categories included essential oil production, which grew 155% in the past two years alone, thanks to the ever-growing cosmetics sector. The food sector also has a strong following, with organic egg sales growing by 75%, while the milk and dairy sector grew sales by a combined 35% during the same period.

It also revealed that 70% of organic consumers buy organic fruit and vegetables at least once a week, with health and a concern for the environment the most common reasons for consumers to turn to organic. Organic cooking ingredients such as canned goods, meat and dairy items are also enjoying strong growth.

Most first-time organic consumers opt for fresh produce, although emerging markets are making an impact on consumers, with organic honey producers doubling their exports in the last two years. The organic cosmetics sector is also set for growth as consumers seek out natural products, while there are also reports that large high-end hotel chains want to stock signature organic products.

However, while the organic market presents a number of business opportunities, entering the market can be a costly and time-consuming process.

Money doesn't grow on trees

Holly Vyner, general manager of BFA says those considering entering the market need to do their homework.

"People can't expect to necessarily make their fortune in the organic market even though the market is growing into the mainstream at a rapid rate. It's important to research your market thoroughly and depending on the type of product you may need to invest in significant amounts of marketing to educate on the benefits of buying your product as opposed to the non-organic equivalent," Vyner says.

However, the BFA predicts the market will triple in size over the coming few years, she says.

The long road

But gaining certification is no walk in the park. Organic business owners to have been through the certification process agree that it's a tough road.

Certified organic linen producer Jenny Ower says her ecoLinen brand has been a long time in the making. It took months to follow the required processes and submit documentation to identify the flow from seed to sheet.

"It's an expensive process because of all the steps and auditing that has to occur along the way. But we are unique in the organic industry and the quality of our product and the fact that we are certified keeps us unique. And consumers are looking for brands they can trust," Ower says.

Elizabeth Barbalich of certified organic skincare brand Antipodes agrees.

"It's hard to get supply of raw materials. Antipodes has just had its ninth product approved, which has taken months to get approval and revise formula to meet very stringent standards."

Although it has taken longer to become established, Ower says her brand has a strong marketing proposition as a result of the certification her product has achieved.

"We're certain of what we are buying and selling. Our point of difference is substantial from our competitors."

ACO board member, Golikidis and director of baby products brand Little Innoscents agrees.

Being organic gives her brand an edge. Little Innoscents is stocked at more than 500 stores nationally, but she warns that you need a thick skin to get into the market.

"A lot of people will turn to organic when they have a health need. A lot of people have to weigh up the price. It's a big stretch for non-believers who see your product retailing at $15 as opposed to $6," Golikidis says.

But for consumers turned on by organic, it's a strong selling proposition, agrees Sally Simond of certified organic brand miniOrganics.

"The rest of the world holds Australian organic products in high regard and that integrity and authenticity of every component is vital. Therefore, my recommendation would be to go that extra mile and create products which meet the stringent standards of certification," Simond says.

But the higher cost of organic produce continues to prove a barrier to entry for some. The BFA report found that 81% of respondents rated price as the primary roadblock to increased purchasing of organic food. Most consumers spend just 10% or less of total household expenditure on organic, however a small group of committed organic shoppers say they spend 50% or more on their household food spend.

But as supermarkets continue to expand their organic range, prices will come down, Golikidis says.

"Larger supermarkets are expanding on organic products, so organic is no longer an overly expensive or inconvenient option for everyday families. And there are opportunities within the market, as long as you're prepared to do your homework on where your brand will fit in the market."

 

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This article first appeared onSmartCompany.com.au, Australia’s premier site for business advice, news, forums and blogs.

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