Retailers Key to Driving Organic Market Growth

The Soil Association's market report for 2014 shows a 4% rise in sales of organic products, a welcome return to growth for organic devotees.

The performance by type of product has been well documented. Sales of eggs were up by 16%, yogurts by 14%,chicken by 8%, and milk by 3%.Veg sales were down 2% as were sales of red meat and sausages, which dropped by 6%.

The strongest sectors for organic produce are dairy, which accounts for 28% of all spending on organic foods, and baby foods where over half of all sales are organic.

Attention has been drawn to the role of brands in driving growth. Yeo Valley sales are quoted as being up by 13%, and there is talk of good performances from Rachel’s yogurts, and Green and Black chocolate.

Less well documented is the pivotal part that retailers play in the fortunes of organics.

Milk growth is being powered by sales in Aldi and Lidl, which jumped by 410% and 166% respectively. And sales of fruit and vegetables were propped up by these two retailers both of whom now stock organic variants. Aldi claims that their organic offer saves shoppers 30% versus prices in bigger supermarkets. Ocado, the online grocery retailer saw sales grow by 14%, broadly in line with their overall sales trends. Riverford Organics, the online box delivery service posted an 8% growth in the year to May 2014, taking their sales to £44.4 million, and Abel and Cole, also in the box business,  reported sales of £65 million, which according to owners Wm. Jackson represented “strong growth”.

Conversely, mainstream supermarket performance was patchy, with the best results coming from Waitrose, up 3.5%

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What this all may suggest is that the organic label on its own is not enough to guarantee a secure future. Sales success seems to be down to a combination of operating in the right categories, choosing a strong and committed retail partner, and ideally, building a powerful brand where being organic is just one aspect of what makes the consumer want to pick it off the shelf.

Riverford and Abel and Cole - The Contrasting Styles of Guy Watson and Keith Abel

The two big names in organic veg boxes have been in the news recently, but their messages could not be more different.

Guy Watson has been explaining that the price of Riverford’s produce is typically 20% less than the supermarket equivalent and that whilst this means low margins (typically 3-4%), he is not overly bothered because this pricing strategy fits with his values of good food, good farming and good business at affordable prices.

Keith Abel’s coverage was all about Keith and how since his return to Abel and Cole two years after he sold it to private equity firm Phoenix netting about £20 million in the process, the business has grown and profitability been restored.

Both companies are of a similar size. Riverford claims to deliver about 47,000 boxes a week, and grew sales by 2.4% to £39.5m in the year to April 2011. Abel and Cole, according to the Sunday Times article of 12^th December, claims to deliver to over 50,000 households a week. It had reported sales of £36m in the year to August 2011, up from £28.7m, and made an operating profit of £1.5m.

The two companies might operate in the same market and be similar in size but the philosophies of their founders are very different.

Keith Abel would probably take great offence if accused of being cash driven despite his windfall from the sale to Phoenix, and despite admitting to the Ecologist in June 2011 that one of the reasons he came back to Abel and Cole was because “they offered me a great package”. Even his barrister friend Jeremy Hall quoted in the Sunday Times said that “Keith likes making money”, although he did qualify the comment adding that he possesses a “strong moral compass”.

Nevertheless, the sudden burst of publicity seems tied into the wish of Lloyds bank, current backers of Abel and Cole in which Keith Abel still owns a 20% stake, to sell the business in the next twelve months on the back of an improved company performance.

By contrast, Guy Watson, in a piece posted on the Riverford website just a day after the Sunday Times Abel interview, says that he would never sell his company to venture capitalists, that he is uncomfortable about "unbridled capitalism", and that whatever the future shape of Riverford it must involve people "who are intimately involved in determining its success”.

Does it matter whether one founder of a business is driven more by wealth and another more by values? Possibly not.  In the case of veg boxes customers perhaps only worry about the quality of the food and reassurance that produce is appropriately farmed or grown.

I would guess though that any customer who trades the convenience of shopping for what they want when they want it for downsides of veg boxes like being tied to a delivery day, never being quite sure what they will contain, and having to polish up cooking skills because something unfamiliar has turned up, might be deeply interested in the whole ethos of a company and those who work in it.