Organic Foods: Reaching for the converted

Suddenly everyone wants organic food, and supermarkets are already gearing up to meet the increased demand.

Organic foods are suddenly big business and every major supermarket is making its push into the sector. Organic bread, milk, pizza, chips, coffee, sandwiches, beef, lemons and even gin (though not yet the tonic) are finding their way onto the shelves, often in special sections occupying prime front-of-store retail space. This, believe analysts, is the food market's prime growth area for the next year or two ahead. Competition is acute and no one can afford to be left behind.

As the market for organic food and drink in the UK rises towards the pounds 1bn-a-year mark, Tesco, Waitrose, Sainsbury's, Safeway, Asda, Iceland and Marks & Spencer are all rolling out significant organic initiatives that will increase product choice and turnover.

This October, Sainsbury's will be taking 20 per cent off organic groceries and increasing its organic range to 500 products in its 80 top stores - compared with just 10 products in 1986 - while a core of 50 products will be in all its 416 stores in the UK. This reflects the increase in its organic sales to pounds 2.5m a week, a 30 per cent increase since January.

Waitrose, which has been in the organic market continuously since 1983, and currently holds the title as the leading supermarket in the organics field, already has 500 product lines, and boasts the highest organic sales penetration in the UK through its 117 branches. And it is about to launch an organic home-delivery scheme, offering fixed-price salad, vegetable, fruit or mixed content boxes for nationwide delivery.

"The resurgence in organic started three years ago," says Waitrose agronomist Alan Wilson. "People are simply becoming more aware of how their food is sourced and want to know where it comes from, and demand will only grow as society becomes more food literate. Our organic grocery sales have tripled in the last year, with baby foods now reaching 50 per cent. Twelve per cent of out total fruit and vegetable sales are organic as are 10 per cent of our dairy lines. Our customers can now buy nearly everything in organic."

The strength of Marks & Spencer in foods has always been in sandwiches and ready meals, and this is its main focus as it adds 100 organic products to its range, nearly quadrupling its size. M&S famously got out of the organic market in the early Nineties, but it says the market is "a lot stronger now" and expects it to stay that way.

Asda is starting from a rather lower base - until September, only 96 of its 229 stores contained organic products. Now they are being introduced into every store in the country. "All the main food areas are represented," said a spokesman. "Over half of our organic sales are in fruit and veg but we want to spread into other grocery products and we will extend organics into our own label next year."

Iceland is also making a major foray into organics with 50 "everyday" products such as bread, milk, frozen chips, pizza and digestive biscuits to be brought into its 763 stores by Christmas.

"We are probably behind on organic food," concedes managing director Russell Ford. "But we aim to catch up with a vengeance next year. We see this as very, very important, the major growth area in the food business."

Iceland's problem has been that most of its customers are unable to pay hefty price premiums - which, its research shows, typically run at 50- 60 per cent. "Our customers told us they wanted organic food but they couldn't afford it," says Ford. "So our policy is to charge little or no organic premium - no more than 10 per cent more than the non-organic equivalent. We believe that customers should be able to eat natural food, and simply having it on shelves does not do that - it has to be affordable."

But what does all this enthusiasm for organic food by multiple retailers mean for growers and producers? Competition for supply is every bit as acute as that for customers, and most organic food on supermarket shelves has to be imported to meet demand - 70 per cent on average, mainly from Belgium, Holland, Denmark (for dairy products) and other EU countries.

But there is room for the UK's organic farmers to do well, too. Wheat, milk and fresh vegetables all win premium prices at the farm gate - in some cases as much as double the conventional price. The demand is also giving record numbers of farmers the confidence to commit to the three- year organic conversion to organic.

Simon Tomlinson, chairman of both the Organic Livestock Marketing Co- operative and the Organic Milk Suppliers Co-operative, says that suppliers will have to stick together if they are to balance growth in supply and demand - and therefore maintain prices - over the long term. The alternative is a "devastating slump" a few years ahead that could knock the organic movement into reverse.

Stores such as Waitrose, Sainsbury's and to a lesser extent Safeway have made long-term commitments and agreed prices with the organic co- ops for years ahead, giving much-needed stability to the market. Waitrose's Organic Assistance Scheme gives suppliers who wish to convert to organic production both financial help and a guaranteed market, and Sainsbury's deal with OMSCo guarantees 29.5p a litre for organic milk for a rolling five-year period as production rises from 30 million litres in the current year to 155 million litres in 2003-04. Waitrose and Sainsbury's are also directly supporting both salmon farmers in Orkney, and English apple growers through the difficult conversion period.

However, Tomlinson fears that some new entrants into the organic market, who find the limited volumes of produce are already committed to established players, threaten to leave producers high and dry. "A lot of buyers are offering high prices for scarce product, but the danger is that they will fragment the marketing efforts of producers."

Low-price retailers such as Iceland, Tesco and Asda bring another kind of danger, Tomlinson believes, by using low prices to fuel demand too far in advance of supply, creating an unreal market that will ultimately let down consumers. "You have to use the price mechanism or the product will simply run out by 9am every morning," he says.