Organic Foods October 2010

Key themes What impact has the economic downturn had on sales of organic foods ? Are consumers’ making a distinct choice between different kinds of ethical purchasing e.g free-range, locally sourced, organic What are consumer’s main reasons for buying organic food? What are the main barriers to purchase? What role are stakeholders in the organic food category playing to try to restore sales growth to the category? © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Summary Faltering sales of organic foods Between 2008 and 2009, value sales of organic foods decreased by 11% to reach £1.4 billion. The organic food market is forecast to decrease by a further 4% in 2010 Organic foods have also increasingly faced greater competition from other categories with an ethical positioning such as fair-trade, free range and locally sourced food items Category performance The recession has not favoured sales of fruits and vegetables as food price inflation put pressure on the category in 2009 Organic milk has been one of the few products in the organic dairy category to have experienced value sales growth Consumers have traded down to cheaper cuts of meats in order to cut costs, with price being an important purchase consideration in the meat category Consumer attitudes to organic foods While half (57%) of all consumers who buy organic foods have maintained the same level of purchase, just over a quarter (26%) of them claim to be buying more organic food and drinks The environmental benefits of organic foods and farming are one of the key reasons that committed consumers are buying organic food The issue of price remains the singular most cited reason for consumers not buying organic foods as they do not feel they are not worth the extra cost © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Internal Market Environment Faced with the financial pressures of the economic downturn, consumers have become more frugal in their spending habits Organic foods compete head to head with other food items that have an ethical positioning Consumers are attaching significant importance to value-for-money, and this features more prominently in their purchasing decisions Consumers are scrutinising food labelling more closely, as more rigorous government regulations for food manufacturers require all food product ingredients to be clearly listed © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Broader Market Environment With the current tough economic conditions, cost-conscious consumers have looked for ways to cut down on their personal expenditure Growth prospects in the organic food category are encouraging as ABs are set to experience the fast growth in the next five years Food prices have been pushed up by rising commodity costs. Cereals and bread have been particularly hit by rising wheat costs Younger consumers aged 16-34 are more likely to consider the organic status of the food they are eating, and consider this to be an important purchase consideration 4 © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Strengths and Weaknesses The economic downturn has seen consumers cut back on their purchases of organic food Price remains the key barrier to purchase for consumers as 78% of consumers do not buy organic foods as they feel they are not worth the extra cost Just over half of all consumers (58%) do not feel that organic food is any better for them than non-organic food NPD in organic food has been in decline, compared to 2008 levels Organic foods face competition from other food products with an ethical positioning e.g. locally sourced, free-range and fair trade Contradictory studies about the benefits/or non benefits of organic food risk leaving consumers confused about the category, and risks alienating them Just over half (52%) of all consumers have bought organic food and drink products in the last year A quarter of consumers are buying more organic food and drinks now compared to a year ago Marketers should do more to promote the provenance of organic foods, as well as highlighting the higher welfare standards they adhere to ABs are the most engaged in the organic food category, and in the next five years, their numbers are set to increase by 8.7% The organic food category has received a boost after securing £2 million of funding from the EU to promote the category Concern for the environment is one of the overriding reasons consumers buy organic foods © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Who’s Innovating ? Percentage of new food launches with a ‘green’ positioning, 2008-10* Environmentally friendly packaging has overtaken organic as the top green positioning for new product launches The pasta category received the highest number of organic product launches between 2008 and 2010, followed by vegetables The organic food category is primarily made up several independent brands that have launched new products as well extensions of existing products Source: Mintel GNPD

UK Retail value sales of Functional Foods, 2005-10 Market Value Between 2008 and 2009, value sales of organic foods decreased by 12.3% to reach £1.4 billion. The organic food market is forecast to decrease by a further 4% in 2010 Consumers have become more frugal when shopping and are looking for more value for money because of the increased financial pressures on them Organic foods have also faced greater competition over the last two years from other categories with an ethical positioning such as fair-trade, and food products with named provenance UK Retail value sales of Functional Foods, 2005-10 Source: Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Forecast sales of organic foods, by value, 2005-15 Market Forecast Forecast sales of organic foods, by value, 2005-15 Source: Mintel Mintel forecasts that value sales of organic foods will decrease by an estimated 7% between 2010 and 2015 to reach an estimated £1.4 billion 8 © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

UK retail sales of organic foods, by type and value, 2006-10 Segment Performance UK retail sales of organic foods, by type and value, 2006-10 Source: Mintel The recession has not favoured sales of fruits and vegetables as food price inflation put pressure on sales in 2009 The organic dairy category has experienced a mixed performance in the last year; however milk has managed to outperform other organic food categories. Sales of organic eggs and meat, poultry and fish have experienced the largest sales decline between 2008 and 2009 compared to other organic food and drink categories Parents have continued to embrace organic baby food, which has helped the category to remain resilient despite the economic downturn. 9 © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Brand Communications and Promotions Main monitored media advertising expenditure on organic foods, 2007-10* * till September 2010 Source: Nielsen Media Research/Mintel Above-the-line spend by the major organic food producers dropped by approximately 134% between 2008 and 2009 as consumers cut back on their organic food purchases Brands used price promotions to drive volume sales as they faced increased price promotion from non-organic food ranges © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

The Consumer: Food issues Price remains the dominant issue for consumers when they are doing their grocery shopping Despite tougher economic conditions, consumers who have bought organic food in the last year still feel that an ethical positioning for food items is an important purchase consideration Consumers who have not bought ethical food or drink items in the last year, attach less significance to ethical issues as price is the key consideration for them when buying food Overall, a fifth of consumers consider whether a food or drink item is organic to be an important purchase consideration Importance of food and drink issues for consumers when deciding what to buy in the last 12 months, August 2010 Base: 2,000 internet users aged 16+ Source: Toluna/Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

The Consumer: Organic food purchase habits Purchasing habits of organic food and drinks, August 2010 Base: 1,047 internet users aged 16+ Despite the pressures of the economic downturn and the negative effect it has had on sales of organic food, just over half of consumers claim to have bought into the category in the last year Men appear a bit more sceptical about organic foods, and are less likely to be buy into the category Consumers buying more organic foods have embraced the organic movement, and see it as a way to ensure that food production does not result in long term damage to the environment Source: Toluna/Mintel 12 © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

The Consumer: Attitudes to organic food Agreement on statements about organic food and drink, August 2010 Base: 1,047 internet users aged 16+ The environmental benefits of organic foods and farming are one of the key reasons that committed consumers are buying organic food The promotion of the environmental benefits of organic foods will be included in the marketing communications planned to start in late 2010 Two thirds of consumers would buy non-organic products if the organic product they sought was not available, with just under a fifth looking to buy the product from other sources like farmers markets Source: Toluna/Mintel 13 © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.

Reasons for not buying organic foods Agreement on statements about organic food and drink, August 2010 Base: 953 internet users aged 16+ The issue of price remains the single most cited reason for consumer not buying organic foods The confusion surrounding the health benefits of organic foods has not abated. Just under two thirds of consumers feel that their diet is healthy enough, and so do not need to buy organic foods The promotion of organic and other ethical food products should be part of any government environmental policy to help drive sales Source: Toluna/Mintel © 2010 Mintel International Group. All rights reserved. Confidential to Mintel.