Are organic food PL prices opportunistic?

Articles
May 22, 2012

Are organic food PL prices opportunistic?

Supermarkets appear to push the limit on private-label organic food prices as demand grows - and that could diminish consumer access.

The wave of organic food and beverage popularity enables supermarket chains to capitalize on private label opportunities within the sector. 

Organic food and nonfood dollar sales jumped 9.5% in 2011 to $31.5 billion, reported the 2012 Organic Industry Survey by the Organic Trade Association.  Of that figure, food and beverage sales were up 9.4% to $29.22 billion—a growth pace twice the 4.7% sales rise of conventionally produced items.  Organic food sales now account for 4.2% of all U.S. food sales, up from 4.0% in 2010.

The self-limiting nature of organic food production (costly processes, limited land) will keep organic food prices high, especially as demand increases, in our estimation at The Lempert Report. Therefore, organics will remain largely unaffordable to the average consumer.

People who aspire to buy organics will continue to look to private label for budget-friendly access.  Yet price-comparison checks we conducted in East and West Coast supermarkets suggest these consumers will score spotty success because:
•    As expected, both branded and PL choices are priced well above conventionally produced products.
•    On some organic items checked, the price differentials between brands and PL are insignificant. This suggests retailers use brand prices as a high umbrella and push their already high PL margins to the limit where they feel they can, rather than aiming to keep a consistent savings percentage between brands and PL.
•    PL organic prices at most of the mainstream chains we checked were higher than those of Trader Joe’s, which typically sells its own brands.
•    Retailers don’t yet have a full range of PL organic choices.

We compared organic brand and PL prices on ten items—one gallon of milk, one box of snack bars, one pint of salad dressing, one pound of spaghetti, one dozen large eggs, 5 ounces of pre-cut salad, one pound of frozen peas, one loaf of fresh wheat bread, 12 ounces of salsa, and one pint of olive oil.

We visited Whole Foods, Safeway, Ralphs and Sprouts and Trader Joe’s stores on the West Coast, and Acme and ShopRite stores on the East Coast.  Our aim was to discern some general trends, rather than call out specific item prices at individual retailers.

A few examples:
•    Only Trader Joe’s had PL organic choices of every item. Whole Foods had nine. The rest of the chains had between two and seven items.
•    Price differentials varied widely—
Narrow gap: One chain priced a dozen large eggs (brand) at $4.69 and PL at $4.49; another priced 12 ounces of salsa (brand) at $3.79 and PL at $3.59. 
Wide gap:  One chain priced a pint of salad dressing (brand) at $5.99 and PL at $3.49, and a loaf of fresh wheat bread (brand) at $4.99 with PL at $2.99.
•    Trader Joe’s was priced the lowest of all the chains on eight of the ten PL organic foods we examined; three chains beat Trader Joe’s prices on PL organic milk, and one chain beat it on salad dressing. 
•    Whole Foods PL organic prices were the same as Trader Joe’s on milk and wheat bread, and were within 30 cents or less on eggs, snack bars and frozen peas.