1. 1 ©2008 Mintel Group. All rights reserved. insight + impact Organic Food Presented by David Jago, Mintel FDIN, May 2008

2. 2 ©2008 Mintel Group. All rights reserved. insight + impact Issues in the Market  Rising health and ethical concerns - have been the fulcrum for the development of the market  Supply limitations on UK organic products - is restricting market growth  Expanding the repertoire of organic food products purchased - will be the catalyst for market growth  Greater scientific evidence to back up organic nutritional claims - will provide further marketing opportunities

3. 3 ©2008 Mintel Group. All rights reserved. insight + impact Market in Brief  Mintel estimate: total retail food market in 2007 is £1.5 billion, having increased by 70% since 2002  Fruit and vegetables is the largest sector accounting for 34% market value  but dairy products have risen 111% since 2002  Organic food competes with other foods with provenance and production values for the burgeoning green £  e.g. Fair trade, higher animal welfare, MSC  There is a shortage of supply of British organic products  due to a shortage of organic grain and insufficient British producers converting to organic products  “Organic food is healthier than standard food”  according to new EU funded research by the University of Newcastle, which has given scientific backing to a long-held consumer perception

4. 4 ©2008 Mintel Group. All rights reserved. insight + impact Internal Market Environment  Consumers are looking to eat naturally healthy foods  Consumers are looking for foods with provenance or production value  Foods with production values create points of differentiation & equate to higher prices  Environmental concerns, especially climate change, have rocketed up the consumer agenda  With food scares and intensive food production consumers are questioning the origins of their food

5. 5 ©2008 Mintel Group. All rights reserved. insight + impact Broader Market Environment  Increased numbers of AB consumers is a positive step for the development of the organic market  Higher disposable income and more likely to pay more for organic food  More likely to purchase a larger repertoire of organic food products  An EU-funded study delivered a big boon for the Organic market in October 2007, when it concluded scientifically that organic food was healthier  2009 will see the introduction of an EU standard logo for organic food

6. 6 ©2008 Mintel Group. All rights reserved. insight + impact Strengths and Weaknesses  Continuing strong economy and affluent population  Expanding product range and wider availability  Consumer interest in healthy eating and cooking  Growing interest in provenance & production values  Huge growth potential  Awareness & understanding of the organic logo rising  More scientific studies substantiating the nutritional benefits of organic  Supply problems – lack of available British products  Demand outstripping supply  Lengthy conversion time is a deterrent to entry  Competition from other health/premium sectors  Competition from other ethical foods  Expensive in comparison to conventional foods

7. 7 ©2008 Mintel Group. All rights reserved. insight + impact Market Size Source: Mintel Retail value sales of organic food, by sector, 2002-07  Organic food is growing:  Rising health & ethical concerns  Increased product choice and availability ... most growth is coming from the existing consumer base buying more..  …but new customers are entering the market..  Demand is growing; some sectors are under- supplied, restricting volume growth

8. 8 ©2008 Mintel Group. All rights reserved. insight + impact Organic growth Fruit and vegetables are the biggest sector. – Organic status enhances its healthy positioning Dairy has been the fastest growing sector – Organic dairy products competes on price with conventional product thanks to strong brands (e.g. Yeo Valley), NPD, and wider availability. Source: Mintel Retail value sales of Organic food, by sector, 2003-07

9. 9 ©2008 Mintel Group. All rights reserved. insight + impact Brand communication Main monitored media advertising expenditure on organic food, January 2003- July 2007* Source:: Nielsen Media Research/Mintel  Advertising expenditure in the organic foods market has traditionally been relatively low due to the large number of small producers supplying the market.  Sector spend is propped up by consistent spending from a small handful of companies with a well established-presence in the organic market.  Current level of under-production in organic foods is a disincentive to growth in advertising, since promotion would stimulate a demand that cannot be served. £ m

10. 10 ©2008 Mintel Group. All rights reserved. insight + impact Channels to Market Sales through organic boxes have boomed Multiple grocers now offer their own box delivery scheme

11. 11 ©2008 Mintel Group. All rights reserved. insight + impact The Consumer – Consumption Habits 2000 Internet users aged 18+  Women more concerned about health and ethical issues.  ABs more concerned about health and have higher disposable income.  Consumers in London are key: due to their affluence and the concentration of retail outlets outlets stocking organic food. Source: Ciao/Mintel Propensity to purchase Any* Organic Food, September 2007 * net of any organic product (see report)

12. 12 ©2008 Mintel Group. All rights reserved. insight + impact The Consumer – Consumption Habits  Those consumers who purchase a wide range of organic products are also most interested in locally sourced products….  … and the growing popularity of locally sourced products may encourage farmers not to put their land under organic conversion, and restrict the growth in organic food. Source: Ciao/Mintel The Competitive Arena, September 2007 1,415 internet respondents aged 18+ who buy organic food

13. 13 ©2008 Mintel Group. All rights reserved. insight + impact Motivations for purchase Consumers were asked: “Why do you buy organic food?”  Health is the dominant motivation for purchase  Taste and health are stronger motivations for purchase than ethical considerations.  Promotional activity is a key route to attract new consumers into the market  Opportunity to develop usage around special (family) mealtimes. 1,415 internet respondents aged 18+ who buy organic food

14. 14 ©2008 Mintel Group. All rights reserved. insight + impact The Consumer – Consumption Habits Motivations for buying organic by age group, September 2007  Younger consumers are motivated to buy through green issues and when on promotion.  Older consumers are more motivated by health, taste & quality.  New research from the Newcastle University verifying organic’s health claims should provide a more compelling motivation for this age group to purchase. 1415 internet respondents aged 18+ who buy organic food Source: Ciao/Mintel

15. 15 ©2008 Mintel Group. All rights reserved. insight + impact Source: GB TGI/BMRB/Mintel Consumers and price...  Note growth in % consumers prepared to pay more for organic food  Organic premiums fit with familiar “good, better, best” pricing patterns  But environmental concerns may be more important

16. 16 ©2008 Mintel Group. All rights reserved. insight + impact Forecast Retail value Sales of organic food, 2002 - 2012 Mintel forecasts that the UK organic food market will soar past the £2bn mark……..  Its ready association with health will keep the market growing  Organics will dovetail with the premiumisation trend  Growing environmental concerns, especially climate change, will come to the fore  Scientific back up of nutritional claims (University of Newcastle, October 2007) will boost the market, and possibly ignite active government promotion of organic produce Source:Mintel

17. 17 ©2008 Mintel Group. All rights reserved. insight + impact A complex issue... Organic food, food sourcing, sustainability, “food miles”, carbon footprints, Fairtrade, local, natural… –Highly complex issues often in conflict

18. 18 ©2008 Mintel Group. All rights reserved. insight + impact A closing thought... What will be the impact of the growing trend towards “more natural” and “additive-free”? Source: Mintel GNPD  25% of all UK food intros are now labelled as “additive free”  Versus nearly 9% labelled as organic UK food launches by on-pack claim

19. 19 ©2008 Mintel Group. All rights reserved. insight + impact And finally... Opportunities in targeting younger consumers? –Make organic more relevant to them e.g. via environmental wellbeing and animal welfare –Through more organic impulse snacks for child self-purchase Opportunities in targeting C1C2 consumers –Potential for “value” organic food lines? Organic food: –Naturally healthy family food? –Or scientifically-proven to offer enhanced nutritional benefits?

20. 20 ©2008 Mintel Group. All rights reserved. insight + impact David Jago Trends & Innovation Director, Mintel djago@mintel.com 0207-606-4533 For more information: www.mintel.com