For a year that started out rather rough, 2010 could end up marking a significant turnaround for the U.S. organic industry. “Overall, we are definitely seeing an upswing in sales growth,” Christine Bushway, executive director of the Organic Trade Association (OTA), told NewHope360. “Our member companies seem to be doing very well right now.”

After more than a decade of double-digit growth, sales of organic products stalled considerably in 2009 and early 2010. According to OTA estimates, U.S. consumers rung up $26.6 billion in sales of organic foods, beverages and non-food products in 2009. “That represented 5 percent growth from the previous year—which is still healthy growth,” Bushway said. “But compared to the growth the U.S. organic industry had been experiencing, it felt like falling off a cliff.”

Over the course of 2010, however, the U.S. organic industry has been able to pull itself back up, Bushway said. “We are looking at getting back to double-digit sales growth by the end of 2010.” Organic categories doing particularly well include beverages, fruits and vegetables, and even dairy—which experienced a sales decline in 2009. “Organic dairy has come back really well this year.”

Greg Badishkanian, a research analyst at Citi Investment Research who follows the natural and organic industry, is also reporting strengthened sales velocity in both natural and organic. 

“We believe sales momentum at the retail level within the natural/organic food industry remained strong during November and early December,” Badishkanian wrote in a Dec. 15 analyst note. “This is an encouraging sign, in our view, given continued volatility in other discretionary segments such as leisure. We believe that inventory levels at retail are low and have led to higher-than-normal out of stocks, which have negatively impacted sales. Even with these issues, we believe overall sales growth is still around the robust levels seen in 3Q and October.”

UNFI up, Whole Foods up, Hain up

A survey of companies involved in the manufacture or sale of organic products confirms that sales expansion improved in the latter half of 2010.

United Natural Foods Inc. (UNFI), the largest U.S. distributor of natural and organic products, reported on Dec. 8 that its net sales for the first quarter of its 2011 fiscal year (ended Oct. 30, 2010) spiked 19 percent to $1.05 billion compared to the same period last year. This was UNFI’s first time breaking the $1 billion quarterly sales mark.

In November, the Hain Celestial Group—a a manufacturer of numerous leading natural and organic brands, including, Earth’s Best Organic, Health Valley and Imagine—also announced strong first quarter fiscal year 2011 results, with net sales increasing 12 percent to $258 million. Whole Foods Market, one of the largest retailers of organic products, reported a 15 percent sales spike for its 2010 fourth quarter (ended Sept. 26), with revenues reaching $2.1 billion for the quarter.

Other organic companies on the rise, too

Smaller organic companies are seeing improvements, as well. “The market has been trending better for us,” said Addie Pobst, an import coordinator for the organic produce company CF Fresh. “Third quarter sales were very strong, up 30 percent over 3Q 2009.”

Fourth-quarter sales at CF Fresh have been weaker, mostly due to the short harvest of organic potatoes caused by an exceedingly wet growing season and continued competitiveness in the Washington apple market. “We anticipate that sales will pick up again in the early months of 2011 as domestic apple volumes begin to thin, and especially once the South American import season begins,” said Pobst, whose company sells the Viva Tierra brand of organic fruits from Chile and Argentina. “Domestic pear volumes are down, so we expect Argentine organic pears to be in high demand when they begin arriving in February.”

John Foraker, president and CEO of Annie’s Inc., told NewHope360 that his company is also experiencing improved sales growth, but at even higher levels. “Annie’s has seen very strong sales growth over the last year and, in particular, the last three to four months,” said Foraker, whose company sells a growing range of natural and certified organic snacks and meal component products. “Over the last nine months year to date, we are up about 25 percent, and over the recent three months, growth has been closer to 30 percent.”

Parents, higher-income groups drive expansion

Just what is fueling organic sales growth? Citi Investment Research’s Badishkanian attributes the recent improved sales performance to several factors, including “improved sentiment among higher-income consumers and increasing willingness to pay more for natural [and] organic products due to health benefits” associated with these products.

In a statement accompanying Hain Celestial Group’s recent earnings report, the company’s president and CEO, Irwin Simon, also attributed improved consumption trends to growing consumer awareness of the positive health attributes associated with natural and organic products. “Even with a tough economy, consumers are committed to eating healthy foods and maintaining healthy lifestyles,” Simon said.

Parents, who have long held the keys to organic product consumption, continue to play a pivotal role in the sales expansion of these products. According to a recent consumer survey conducted by the OTA and Kiwi Magazine, 41 percent of parents reported buying more organic foods in August 2010 than during the same time the previous year. The survey also found that parents buy organic because they see organic products as being healthier and addressing concerns over pesticide, hormone, antibiotic and artificial ingredient consumption by children.

Annie’s Foraker attributes his company’s sales success to the fact that its products are targeted to families. “A large part of our business is devoted to households with children age 3 to 7,” he said. “Growth is coming from a blend of increased sales velocity on existing items, as well as by strong performance from innovation.”

Predictions for 2011

With the economy slowly improving but unemployment still at record levels and state governments running out of operating cash, predicting how organic will fare in 2011 is difficult.

Still, the OTA’s Bushway remains optimistic that organic sales will continue to go up. “People increasingly understand that they have to take responsibility for their own health,” she said. “As they become more educated and understand the connection between food and health, organic consumption and sales will continue to increase.”

One area where Bushway sees opportunity for growth is in certified organic meat. “We are seeing growing demand for organic meat but not enough supply,” Bushway said. “As we start to see more [organic meat] processing facilities come on line, we could see sales growth in that area.”

“It's hard to predict 2011 at this point,” added Pobst of CF Fresh, “but it does seem that overall the organic produce market is on the rebound.”

For a deeper, category-by-category dive into the U.S. organic industry, see Nutrition Business Journal’s 2010 Organic Report, which features sales data from the Organic Trade Association.