Redwood Investments, LLC

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Newton, MA 02458

Tel: (617) 467-3000

Fax: (617) 581-6677

Growth Themes - Healthy Living and Organic Foods

November 1, 2013

The third and final installment of our series on growth themes focuses on Healthy Living and Organic Foods, an industry for which Redwood forecasts continued strong growth over the next few years.  This category has already grown significantly in popularity in the United States over the past decade and now accounts for an estimated $26.3 billion in US industry sales volume.  The trend is being driven by growing awareness of the benefits of healthier eating habits, an aging population and rising healthcare costs.  Healthy and organic foods are also easily accessible; both large food manufacturers and new niche entrants have increased the choices available to consumers. The result is an increasing adoption rate, confirmed by a recent Piper Jaffray survey indicating that the percentage of American households purchasing organic food has risen from 50% to 61% in just the last year. 

 

Distribution

Both specialty companies like Whole Foods Market (WFM) and entrenched large scale food retailers are investing significantly to address increased demand for the category. While Whole Foods has grown its store base from 275 to 350 since 2008, recent consumption growth has been driven in large part by the proliferation of natural and organic products at conventional retail outlets like Wal-Mart and Costco. In fact, respondents to Piper Jaffray’s survey indicated that Wal-Mart has replaced Whole Foods as the preferred retailer for organic food nationwide. 

 

Education and Adoption

Historically, there has been a correlation between education levels and a consumers’ likelihood to purchase natural and organic food. One small specialty retailer, Natural Grocers by Vitamin Cottage (NGVC), has been capitalizing on the opportunity by offering exclusively organic products, targeting a middle-class consumer with lower price-points and conducting in-store educational programs. Their recent strong sales performance is testimony to the size of opportunity.

 

Proliferation of Choices

Large food manufacturers like J.M. Smuckers (SJM), Hershey (HSY) and others are now competing in this category and have transformed their product portfolios to include  healthier and organic food offerings. Focused manufacturers like Annie’s (BNNY), Hain Celestial (HAIN), Boulder Brands (BDBD) and others have successfully built healthy and organic brands from scratch and are creating strong business franchises in this rapidly expanding space.  This industry is no longer a fringe niche and with broader consumer demand and large company offerings, the category has now become mainstream.

 

GMO Labeling

Both Maine and Connecticut have recently passed legislation addressing the food labeling of Genetically Modified Organisms (GMOs). While the timing and ultimate outcome of the food industry’s regulatory environment is unclear, it appears that the U.S. consumer has begun to demand more information about food ingredients and their potential health risks.  These efforts, if successful, could further accelerate the adoption of healthy and organic foods for mainstream America.

 

Redwood expects robust demand for healthy and organic food to continue to grow over the coming years.  Healthy and organic food is increasingly accessible in both specialty and conventional stores and there are countless choices for the growing numbers of health-conscious consumers.

 

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