There has never been a better time to invest in the expanding natural products industry. Including sales of natural products across all retail and direct-to-consumer channels, this $62 billion dollar industry has almost doubled in size from $32 billion in 2001. Because of the fact that Americans now are becoming more and more health conscious, especially due to scientific research proving that chemicals in food are the cause of many diseases, natural health foods, like organic raw food and organic health food, have become a driving force for the industry.
The natural products industry is mature enough to provide a stable return for investors, but popular enough to sustain nearly double digit growth. This popularity is fueled by the desire for long-term health and the shift to more sustainable and environmentally-friendly business practices. This growth could continue for years due to the relatively small current share of the overall market. For example, food market research shows that the $21 billion organic foods segment represent only 3% of all U.S. food sales.
Individual segments are forecasting continued strong growth. Organic foods, a segment of the overall natural products market, have experienced double-digit growth for the last decade. For the twelve months ending in October 4, 2008, the sales of natural products in conventional food, drug and mass market retailers was $13.4 billion, a growth of 12.2% from the previous twelve months. according to food market research, overall U.S. sales of organic foods was $21.1 billion in 2008 – over 3 percent of total food sales – and will reach $23.0 billion in 2009 according to the Nutrition Business Journal. Additionally, according to the Organic Trade Association, organic food sales are anticipated to increase an average of 18 percent each year until 2010.
This growth is being driven by:
- increased awareness of the value that food and nutrition contribute to long-term health;
- greater awareness about the need for sustainable practices in manufacturing and agriculture; and
- ongoing consumer concern over the safety of the use of pesticides, artificially introduced hormones, genetically engineered ingredients and artificial ingredients.
Significant large companies in this market are:
- Whole Foods Market, Inc. (NASDAQ: WFMI?), the retailer with 275 stores specializing in natural products, organic health food and organic raw food. Started in 1980 in Austin, Texas, this market leader has grown to revenues of $7.9 billion in 2008.
- The Hain Celestial Group (NASDAQ: HAIN), is a manufacturer and distributor of natural health foods and personal care products in North America and Europe. The company markets the popular Celestial Seasonings® line of teas and had revenues of $1.1 billion in 2008.
- United Natural Foods, Inc. (NASDAQ:UNFI) is a distributor of natural, organic and specialty foods and related products including nutritional supplements, personal care items and organic produce in the United States with revenues of $3.45 billion in 2008.
- Green Mountain Coffee Roasters (NASDAQ:GMCR), is a specialty coffee manufacturer and distributor with 2008 sales of $803 million. The company markets the Green Mountain Coffee® and Tully’s Coffee® brands and employs a combined total of over 1,400 employees.
Additionally, investors are being rewarded by the acquisition of natural products companies by larger companies. In 2002, BC Natural Foods purchased Coleman Natural Products, with $150 million in annual sales for an undisclosed amount. In 2006, 84% of Tom’s of Maine, pioneer of natural personal care products was purchased by Colgate-Palmolive for $100 million.
What is Organic?
No industry body has defined the term “natural food.” The FDA tried to define the term in 1991 but gave up saying that it is “very complex.” According to Whole Foods, a food is considered a natural food when it is as close to the natural state as possible, minimally processed and largely or completely free of artificial ingredients and preservatives. Due to the almost virgin state of the product, natural health foods contain the essential vitamins and minerals that the body needs.
‘Organic’ is a labeling term that denotes products produced under the authority of the Organic Foods Production Act. According to the Act, “The principal guidelines for organic production are to use materials and practices that enhance the ecological balance of natural systems and that integrate the parts of the farming system into an ecological whole.”
Additionally the National Organic Standards Board states that “Organic agriculture is an ecological production management system that promotes and enhances biodiversity, biological cycles and soil biological activity. It is based on minimal use of off-farm inputs and on management practices that restore, maintain and enhance ecological harmony. Organic agriculture practices cannot ensure that products are completely free of residues; however, methods are used to minimize pollution from air, soil and water. Organic health food handlers, processors and retailers adhere to standards that maintain the integrity of organic agricultural products. The primary goal of organic agriculture is to optimize the health and productivity of interdependent communities of soil life, plants, animals and people.”
Organic Market Overview
The $21 billion dollar organic foods market was comprised of the following segments in 2008.
Produce; fruits and vegetables 37%
Packaged and prepared foods 13%
Bread and grains 10%
Snack foods 5%
Meat, fish and poultry 3%
Organic products are now sold through nearly 20,000 natural food stores and nearly 3 of 4 conventional grocery stores, as per current food market research. National surveys conducted by the Hartman Group and Food Marketing Institute during the early 2000s found that two-thirds of surveyed shoppers bought organically grown foods. Both organic health food and organic raw food are sold to consumers through natural food stores, conventional grocery stores and direct to consumer markets. Direct-to-consumer markets such as “farmer’s markets” make up 7% of the sales and have grown from 1,755 markets in 1994, when USDA began to track them, to over 4,685 in 2008.
 Rea, Patrick. “NFM’s Market Overview.” Natural Foods Merchandiser Feb. 2009: 1-2.
 “Organic Agriculture: Organic Market Overview.” ERS/USDA Briefing Room. 24 Nov. 2009. United States Department of Agriculture. <http://www.ers.usda.gov/briefing/organic/demand.htm>.
 “NOSB Definition .” Organic Trade Association. 24 Nov. 2009. Organic Trade Association. <http://www.ota.com/definition/nosb.html>.