Will the Economic Bust Stifle Organic Food?

By Samuel Fromartz

When the commodity boom and rising food prices took hold last year, optimists argued that this might cause people to switch to organic and sustainable foods, because the premium was no longer so high compared with mass market fare.

I was skeptical of the argument then, and even more so now. There are ample signs that consumers are cutting back in the face of a slumping economy and if anything, downsizing to discount retailers that skew towards cheaper food. Sales of Spam are growing. The more committed organic food shoppers will always be there, but much larger number of dabblers are scaling back, unable to see the real value above the cost. 

At Whole Foods, which has built a business on sustainable, organic and high quality perishable foods, sales growth is at a historic low, leading the company to cut back on new store openings and eliminate its quarterly dividend. Executives are emphasizing its value products, many sold under the 365 store brand, and trying to shake its Whole Paycheck image.

I can see why they are concerned. I was shopping in the Whole Foods store in Denver last Sunday in the middle of the day, before heading up to the mountains with the family. Last year, when I was in the same store in Cherry Creek on the exact same weekend, I recall it was bustling. This year, there were fewer shoppers, the aisles sparse.

In contrast, the Whole Foods Markets in Washington, D.C., are still crowded on the weekend to the point of discomfort. But DC or New York City -- where a high number of shoppers don’t drive at all -- might be the exception.

In an interview in May, Whole Foods CEO John Mackey pointed out that people were driving less, which meant fewer trips to the store. What shoppers seem to be maintaining, or even increasing, are buying trips to discounters -- hence the single-digit sales gains at big box retailers like Costco. (Wal-Mart, which has cut food prices in the face of the slowing economy, is also doing well, though I don’t view them in the same retail universe as Whole Foods. Costco likely has greater overlap).

Whole Foods is not unusual on the retail landscape since many companies are experiencing a sales slowdown, or worse. But the more interesting question is what this means for all the grass-fed beef ranchers, artisan cheese makers, organic produce farmers and even organic dairy farmers. Are their products now viewed as a “luxury” that must now be economized out of the family budget? Is this a road bump in the real food movement, or a more fundamental end of the road?

Right now, I’d argue it’s a road bump, though it's uncertain how long or how big the series of bumps will be. The length, depth and vast impact of this current credit-infused economic downturn is unknown. The wisest assessment I’ve heard is that no one knows, because the financial engine of the economy -- banks, insurance companies, mortgage companies, and the like -- keep surprising on the downside with ever increasing credit losses. If the finance companies don’t know the depth of their losses, evident by the repeated quarterly write-offs they take, how can anyone pretend to know when the worst will be over? Or to put it in simple turns, how can anyone predict how large the mortgage bust will be and what will be left when it's over.

This is a horrendous climate for any company but look at the long-term trends. I’ve repeatedly stated that organic foods, sustainable foods, farmers’ markets, and the like, are not a fad. They have only been growing against a troubling drumbeat of news about food safety and health. There is ever growing awareness about rising obesity, tainted food, and what we’re actually putting down our gullets. This supra-economic food trend is evident in everything from the nutritional information now demanded on New York City menus to the fear of imported food from China. Cheap, we know, has a price, and more than a few of us are unwilling to pay it regardless of our shrinking family budgets.

Do you think the questions about where food comes from, how it’s produced, and what it’s doing to our bodies, or more importantly, our kids bodies, will suddenly disappear because we are now more budget-conscious?

You can actually make a convincing counter-argument that values become more important in tough economic times. You jettison the superfluous in favor of what’s really important -- and for some, that might be humanely raised meat rather than premium cable-TV. If you must economize, you might peruse 101 Cookbooks for a great tofu or soba noodle recipe rather than throw in the towel and buy industrially raised meat or pesticide-laden foreign farmed shrimp. 

Local foods present a good case. As consumers grow more concerned about the economy and the foreign provenance of foods, local will become more pertinent. Just as in 9/11, when restaurant sales dipped in favor of home-cooked meals, local food might well see a long boom in the face of growing economic pressures. In tougher times, sure, people want to economize but they also huddle closer to one another, want to connect to and help their local communities, and support their farmers. Community provides solace, and what better way to define community than around food.

In an interesting case in Petaluma, California (about 90 minutes north of San Francisco), an inventive non-profit called Petaluma Bounty started an urban organic farm and a series of community gardens to produce food for low-income people. Now it is gleaning fruit from trees growing in people’s backyards -- 20 tons of it that would have rotted on the ground -- and distributed it to food pantries. This work connects locally produced organic food with a larger social mission in tough economic times.

So sure, in a tough economy, consumers will scale down and look for ways to save money. They might cut out superfluous purchases, like the $4 afternoon latte, $5 chocolate bar, or grass-fed T-bone steak. They might spend more at big box discounters. More recent dabblers in organic and sustainable foods -- who don’t really get the compelling reasons for buying this food -- may decide it’s an unafforable luxury.

But the worst mistake retailers and sustainable foods companies can make right now is too lose their sense of their mission and alienate the core customers who do get the argument, who do find real value in this food and who are economizing  in other areas of the household budget in order to buy it.

These core shoppers, many of who are young, well educated, but on tight budgets, are looking for ways to save money too. Who doesn’t like a sale for organic or grass-fed ground beef or a 79 cent can of organic black beans? But they are not going to economize at the expense of deeply held values. The case for sustainable food is simply too strong. They might look for more affordable options, but they are not jettisoning their deeply held values.

Neither will the smarter companies in this business as they batten down the hatches and ride out the storm. They will stand out from the perhaps less-committed companies who got in, like so many companies nowadays, for a touch of the green aura. Those wannabes will be the first to exit, concerned about a shrinking consumer base and fears about fading fads. Let them go. They never understood what this was all about in the first place, which is about changing the food we eat and the way it's produced.

Those values -- and the trends driving them -- will be around long after this shake out is over.

Comments

[Organic George]

I had a discussion in March with a big wholesaler and I asked him where is point when food buyers say, the food is to expensive.

He told me that he did could not make that call, however he did have a name for when prices do get to high.

"Insult Pricing'

I think supermarkets will have to make a choice sooner that later about whether they want to keep their current margins or try to keep market share.

[Janet]

I think you're right. People are complaining about gasoline prices and, to a lesser extent, food prices, but they also are mindful of the endless series of food recalls (a new meat recall just occurred Thursday) and food safety concerns. People who have had their eyes opened to the better quality of local food aren't likely to abandon it, when there are still manicures, electronic gadgets and other luxuries to scrap. And while Whole Foods' growth may have plateaued, increasing competition from grocery chains and even the discounters could be part of the reason. In short, I, for one, wouldn't write off organic as a fad.

[Lorie]

UGH! SPAM?! More Americans are consuming SPAM?!

And to think I was cutting out on eating pork already!

That is just so sad. I just hope that more people would realize that it is not as important to have a greater *quantity* of food over the *quality* of what goes into one's body..

I mean, you may get fed for now with that can (after can, after can) of Spam, but then, in the long run, you might be spending more for that heart bypass..

It's not just about the industry itself, folks. Wish I could say that things were better here in the Philippines. I mean, at the very least, you guys go for SPAM when it's economic crunch time. Here, my countrymen go for instant fried noodles, sardines, and crushed rice grains (boiled, of course) when there's nothing left to eat.

Spam here is a luxury. I was actually at the prices here on our shelves. Around $2.50? Eep. I'm glad I turned vegan, of sorts! Heheh.

Wupz, sorry for the ramble..

[ollie]

Being an optimist or a pessimist can also depend on where you live. In Ireland, many of our convnetional cattle have a more organic life than many (but by no means all) US 'organic' ones.

That said, organic beef and milk in (southern) Ireland comes from animals that are even more grass fed than our conventional ones, so these producers have far more of a buffer against the rising cost of inputs.

Maybe the point is that if the production of organic is more at the natural end of things anyway, it will be more able to cope with rising fuel prices (which define the other input price rises). It may sound a bit cruel to say it, but 'it will all come out in the wash'. Farmers will simply have to use less agri-industrial inputs as the prices soar (e.g. 60% synthetic fertilizer price increase in 12 months in Ireland)

All of this impacts on the consumer.

There is a balance between the farmer price and the customer price, but it is true to say that if farmers don't get the price, they won't convert to organic. (This in turn keeps the price of organic up!)

(I have sth more detailed on organic farmer futures on my own blog, http://olivermoore.blogspot.com and go to the 'read these' section in the top left, where there is a post called price of organic food)