GROWING ORGANIC FOODS A GROWTH INDUSTRY

(Originally published in the Sept. 2001 issue of Business in Calgary magazine)

By John Geary

By definition, organic food is food grown without the use of synthetic chemicals, and in the process, promotes biodiversity, sound environmental practices, good soil health, and low-stress treatment of animals.

Concern about the increasing presence of genetically modified foods, the long-term health effects of chemicals used in food production and fear about animal diseases like Mad Cow and foot-and-mouth appear to be the main motivation behind the recent market growth of the organic or natural food industry.

While there has been a fringe market for organic foods throughout the second half of the 20 century, the market was very small. These days though, organic or natural food is not purchased only by health-food nuts or aging hippies. In fact, statistics combined with observable trends in local mainstream grocery stores and natural food stores would seem to indicate that the business of organic foods forms a growing segment of our food industry.

According to the most recent statistics available from Alberta Agriculture, 71 per cent of Canadians purchased organic foods at least once or twice in the year 2000. Eighteen per cent of the total market purchased organic food regularly, while 22 per cent of the total market purchased it several times.

"Agriculture Canada has the industry pegged at about a $1 billion retail industry," says Rosalie Cunningham, a research officer for Alberta Agriculture, "with about a 15 to 20 per cent annual growth rate.

"The growth numbers for grocery is between two and five per cent annually, so a rate of 15 to 20 per cent makes it very attractive for many retailers."

This growth rate will be pumped up further by organic business from the south. A recent article in the Financial Post reported that the leading natural food store in the U.S., Whole Foods Market, plans to open a store in Toronto this fall. The chain also plans to open 10 large-scale outlets in Canada during the next few years.

For the year 2001, the U.S. State Department ranked organic food as the fourth best agricultural prospects in Canada for American exports and investors.

Growth of the organic food market is apparent in Calgary, where just a year ago, Community Natural Foods opened a second store across from the Chinook C-Train station because its original location on 10 Ave SW was overwhelmed by increasing demand.

"We hit our saturation rate for this store, and it was becoming tough to service the customer," says Frank Sarro, the produce/bulk foods merchandise manager for the original store.

Expansion at Community Natural Foods may not stop there.

"We may go to a third store, but that's a little way down the road, yet," says Sarro. "We want to get a café into the other store first, then do some renovations at the original store."

Smaller local stores, like the Sunnyside Market in northwest Calgary, serve much of the organic food market in Calgary currently.

Sunnyside started up four years ago, to fill the void left when Earth Harvest moved from the area to expand at a different location.

"We've had a slow but steady increase in business since we opened the store," says Linda Grandinetti, one of the co-owners. "The whole natural food industry has increased. We're hearing more and more in the media about the damage herbicides and pesticides do, especially concerning young children.

"Then there are stories about genetically-engineered food, and how safe it is. In 1996, there was none and now we have so much of it on the market, much of which was approved by the government and put on shelves before people even knew about it.

"Now we're starting to hear more about it."

Mainstream grocery stores like Safeway and the Co-op are also moving into the organic market. Aisles of organic food products are now found at selected stores of both chains in the Calgary area.

"More and more people are looking for products that offer the perception of a healthier lifestyle," says Toby Oswald, the vice president of public affairs for Safeway, in Calgary. "It's a trend we saw some time ago, and was one of the reasons we created either special sections in our stores or small stores within our stores, called natural foods markets.

"Those sections are dedicated to natural foods; 'healthier' foods that have less fat and less caloric content; or, they offer food alternatives for specific for special diets, such as lactose intolerant or gluten intolerant diets."

The availability and amount of natural products varies from store to store, depending on space and demographics.

"It is customer-driven, as is everything we sell in our stores, and it does relate back to the demographics. Most market research indicates that purchase of these types of products is more prevalent among people with higher education, a higher income level and smaller families."

Safeway has offered organic products off and on during the past two decades, and there was a time when there might be two or three types of produce that were organic. That has changed.

"Even when we had them in the stores, because of the appearance, quality and price of the products, most of the time they were not that popular with consumers. Now, the number of people asking for it has increased substantially and the quality and variety is better. So where we might have had two or three items, we now have complete sections."

Another aspect that has led to increased sales of organics in mainstream stores is the organic certification process.

"We're more comfortable selling organics now, because there was a time when there were no criteria in place. Now we know when we get a product labelled 'organic' it follows the recognized labelling procedures."

Oswald says the growth in organics has been strong and it looks like it will continue to grow.

Co-op is another Calgary grocery chain that has responded to the growing demand for organic foods.

"We are expanding our natural and organic food sections in different stores around Calgary," says Donna Burn, director of member and public relations at the Co-op Association. "A lot of it is based on demographics, so in the newer communities, which have younger families, we would have a larger selection. "

The percentage of organic sales in the Co-op chain is still small, relative to the overall sales.

"It's probably about one per cent of our sales," says Wilf Harms, vice president of marketing and operations. "But we do realize there is a growing demand for those types of products and we are dedicating more space to organics.

"Probably 10 years ago, we didn't have an area dedicated to natural foods. It's come about in the last two to three years."

Harms says he can see the trend toward natural foods increasing, based on observations at recent food exhibitions and conventions. He does not see a switch to totally organic food at any time in the future, though.

"There will always be someone in the market who won't carry organics, because of higher prices. I think that will force the competition to follow suit."

The increased organic food sales in mainstream grocery stores may become the wave of the future.

"A lot of people would like to get their organic food from a mainstream outlet, mainly for the sake of convenience," says Cunningham.

In the U.S., 49 per cent of organic purchases are made at some type of mass-market outlet.

Farmer's markets offer a third option for organic shoppers. While sales at farmer's markets currently make up about three per cent of the sales in U.S. markets, there are indications that may be increasing locally.

"We have had certified-organic vendors in our market for about eight years, and that number has increased in the past few years," says Jackie Lacey, the Millarville Farmer's Market manager.

Their organic vendors sell fruits, vegetables and some meat.

"We have two vendors who sell organic produce," says Matthew McDonald, manager of Calgary's Crossroads Market. "Mainly fruits and vegetables like strawberries, potatoes, squash and zucchini."