Organic Growth Spurt Ending

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The wave of organic packaged foods may have crested at mainstream retailers.

Organic foods and beverages are pulling back from startling growth levels in recent years and settling into a small niche space at mainstream retailers, food industry executives and analysts said.

The recession put a halt to the double-digit sales growth organic foods saw earlier last decade. But even when the economy improves, organics are not likely to rebound to such lofty heights as consumers and retailers now have other priorities for spending and shelf space.

“It’s hard if you are a big company to do things that move the needle in that space,” said Greg Pearlman, managing director and head of the U. S. food and consumer group for BMO Capital Markets . While Pearlman expects 2010 to be an active year for deals in the food industry, he did not see a big play for manufacturers in the organic space.

Health and wellness is still expected to be a big trend in the food industry, analysts and executives said at the Reuters Food and Agriculture Summit in Chicago. But that interest will be spread across items like those with lower sodium, reduced calories and even a focus on removing allergens from food.

Growing, but more slowly

Organic sales are still growing, but the pace has slowed sharply.

During the 52 weeks ending Feb. 20, supermarket sales of packaged foods and nonalcoholic beverages with “organic” claims rose 1.9 per cent to $4.4 billion, according to Nielsen data. That compares with an 11.7 per cent increase the prior year, and increases of 24.5 per cent in the period ending in 2008 and 29.1 per cent in the period ending in 2007.

Mainstream consumers are finding benefits similar to those they seek in foods that fall short of U.S. government standards for the “organic” label.

“We’re seeing a lot of conventional companies fighting back with ‘organic light, ’” said Michael Swanson, analyst at Wells Fargo.

He noted milk that is free of artificial hormones is one product that consumers will buy that is less expensive than organic milk, but which still gives a benefit sought by consumers.

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