Twice a month at Madison's Whole Foods store, marketing director Amanda Jahnke Bauer leads a tour of the grocery, pointing out ways shoppers can economize. Buy from the bulk aisles, purchase store-brand items, use coupons, she advises.
"We've been shifting a lot of our focus to value purchases because of the economy," Jahnke Bauer explains. "We know that people in general don't have the money to buy the luxury items they have in the past."
Call it the new reality of organic shopping. After a dozen or so years of double-digit growth, elements in the organic industry are feeling the pressure of rising food prices and a softening economy. National publications like Newsweek and USA Today see a trend.
Whole Foods, the largest U.S. retailer of natural and organic foods, has felt the downdraft. Financial analysts say its overly ambitious expansion policy has hurt the chain's bottom line, which was probably a factor in its decision last week to terminate plans to build a larger store at Hilldale.
To be sure, the old joke about "Whole Paycheck" is vexing for a company confronting consumers looking twice at price tags. Hence, Jahnke Bauer points to the new monthly newsletter, "The Whole Deal," highlighting money-saving tips for Whole Foods shoppers.
"People still want to buy organic, but they're shopping for value," says Eric Newman, vice president for sales at the Organic Valley farmers co-op in LaFarge. As evidence, he points to softening sales in the Organic Valley milk brand, but a spike in sales for organic milk the co-op markets to stores to sell under their own budget labels.
Business remains strong at the Williamson Street Grocery Co-op, but the store is seeing evidence of penny-pinching among customers, says communications director Brendon Smith. More coupons are being redeemed, and sales for grocery "specials" have doubled, he says.
"Some customers say our prices are expensive," says general manager Anya Firszt. "Well, it's not like we're gouging. It's the fact that more of the farmers' costs are being passed on to us."
Firszt makes a good point. The problem, as much as one exists, begins at the supply side of the organic equation. The worldwide demand for corn and soybeans has driven up feed costs for dairy and beef farmers, while higher fuel costs have added to their woes.
"Everything I do costs more money," says Ken Ruegsegger, a sustainable farmer in Blanchardville, who also owns Paoli Local Foods. "My prices have gone up, but not as much as my expenses." He's locked in a struggle with his bank, which has cut off his credit and is trying to foreclose on his 150-acre farm.
At Organic Valley, which has 1,200-plus member-owners, higher commodity prices have prompted 46 dairy producers to leave the co-op, according to Newman. Some have returned to conventional commodity farming to take advantage of those record corn and soybean prices. The co-op has twice hiked its payments to its farmers to offset their higher expenses, Newman reports, which translates to higher prices at the grocery store for consumers.
Food pricing is a delicate balance. How high can you raise prices before you lose a critical number of customers? Some national studies suggest that organic sales are beginning to trail off as consumers return to cheaper conventional produce and meat.
Organic Valley, which has emerged as a national powerhouse in organic sales, has trimmed its growth expectations from 24% to 22% this year, down from 30% last year. A construction project in western Wisconsin has also been delayed, in part as a measure of fiscal prudence.
"You can't grow 20% [annually] forever," Organic Valley CEO George Siemon told The La Crosse Tribune. "I don't ever see it going backwards. It's just a matter of how much it slows down."
Slower growth isn't necessarily bad for Organic Valley's dairy operation, notes Newman. The co-op had been anticipating milk shortages in 2009, but now should find it easier to balance milk production with demand next year - always a crucial concern for selling a perishable product.
Similarly, grocery co-ops like Willy Street should be in a strong position even if organic prices climb higher. Customer loyalty and a belief in the superiority of organic food will play to co-ops' advantage, says Holly Givens of the Organic Trade Association. Members will cut corners elsewhere.
Consumers see "organic food as part of the solution and not part of the problem," she says. If anything, Givens adds, the price gap between organic and conventional farm products is actually narrowing because agribusiness is so dependent on costly petroleum-based farming techniques.
Indeed, her trade group hasn't revised downward its earlier prediction that U.S. organic sales this year would hit $23.6 billion, despite the subsequent bad economic news. Willy Street's performance perhaps shows why. Co-op sales, budgeted at a 4% increase this year, are up 14%, Firszt reports. "We're still holding strong," she says.
As is the organic movement, one could add.
This just in...
Madison's Food for Thought organizers have scored a major coup for next fall's festival: Best-selling author Michael Pollan will be the featured speaker at the Saturday event, Sept. 26, 2009, on the Capitol Square. Look for Pollan, author of The Omnivore's Dilemma and In Defense of Food, to speak on campus the day before.