Analysts projected strong growth will continue for natural and organic products in the food, dietary supplement, and personal care markets during a keynote panel discussion at Natural Products Expo East in Philadelphia, PA, on Sep. 29.

In 2021, the U.S. natural and organic products market grew at a compound annual growth rate (CAGR) of 7.7%, to $272 billion, according to Carlotta Mast, senior vice president of New Hope Network. While that’s a slowdown from the growth seen in 2020 when consumers were cooking at home more often and clamoring for nutritional products for immune health, the outlook still remains positive.

“Across all retail outlets, natural sales are outpacing the growth of all other categories,” said Kathryn Peters, executive vice president at SPINS. “What’s even more promising is that on top of sales, the amount of products with natural and wellness related claims are growing in launches as well. Over 60% of brands launched in the past year are wellness-oriented. Consumers want more natural, healthy alternatives and brands are answering with more options.”

Wellness products continue to widen the gap in growth rates compared to all other CPG products, according to Nick McCoy, managing director at Whipstitch Capital, suggesting that natural and organic growth is a trend that will outlast COVID-19.

Online Shopping Scales Back, Private Label Booms

The pandemic accelerated online buying. However, purchases have scaled back significantly when it comes to natural and organic products, according to Peters. In the past year, she said, brick-and-mortar sales contributed to 83% of the growth generated in the natural and organic market.

While online sales growth is returning to pre-pandemic levels, online shopping for natural products is still outpacing other categories. The share of natural products purchases made online over a 12-week span ending in August was 9%, while online spending on all other products over the same time period amounted to 5%.

“While everyone was originally racing to get online, brands are now realizing that they need to rethink their strategies and go with an omnichannel approach,” Peters said. However, certain groups are still shopping online at high rates. Thirty-five percent of consumers between 18 and 34 years old, 35% of African-American consumers, and 32% of consumers with children under the age of 18 are still grocery shopping online at least once weekly.

Consumers are turning to private label products due to inflation, and experts predicted innovation will need to drive national brands.

“Private label has grown about 50% faster than national brands, and once retailers try it, they’re often coming back for more and more. This will force us to continue to innovate on the national brand side, and result in a rising tide,” Peters said. “We’re seeing lots of introductions of private label products doing well, especially in areas such as plant-based alternatives.”

Regenerative Agriculture Sets a New Paradigm

While the sales of organic products slowed down in 2021, industry experts are wagering that the regenerative agriculture movement will bolster newfound interest in products that are cultivated sustainably, and drive organic sales for years to come.

Regenerative agriculture includes organic farming practices, but also accounts for building back topsoil, managing biodiversity and water, carbon sequestration, fair trade principles, and more.

A handful of certifications for regenerative agriculture practices were only just recently launched, but this way of differentiating products will lead to a tide-change in foods, beverages, dietary supplements, and personal care products, according to Mast.

“As consumers are beginning to understand what ‘regenerative’ means, and how these practices can improve the health of our planet, it will be an important area to watch in the years ahead,” she said.

Economic Resilience

While the National Bureau of Economic Research has not declared the current economic downturn a recession, it’s still important to account for areas where inflation is most acute, according to McCoy.

With fuel and shipping among the most heavily-inflated areas of the economy, items that are a low cost by weight are experiencing the glut of the 10.5% average increase in food costs this year.

The average retail price (ARP) of vitamin and mineral supplements on the other hand, which have a high cost by weight, have seen less price increases despite high demand and supply chain issues, McCoy noted.

Further, “ARP growth is bigger in mass market outlets compared to natural retail channels which have higher standards about price hikes, and are doing everything they can to not take their prices up,” he continued. “However, sales and promotions across the board aren’t as deep.”

While a majority (57%) of consumers are feeling pressure or stress due to inflation and the rising cost of goods, and a similar number report changing their grocery shopping behavior as a result, 24% of consumers report spending less money on vitamins, minerals, and supplements, Mast noted. 

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Consumers are less interested in a product that touts the absence of certain components which they perceive as unhealthy (25% in 2021 vs. 35% in 2016), and are more interested in a product that is defined by the presence of specific ingredients or nutrients (27% in 2021 vs. 17% in 2016).

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Winning Today’s Consumer

While inflationary pressures are affecting consumer perceptions of products, shoppers on average are still willing to spend their dollars in ways that adhere to their personal values, Peters said.

Some top trends include putting people before profits, sourcing ingredients in a socially-responsible manner, using heritage ingredients, and more. Claims centered around mission-driven statements are especially popular in products launched at Expo East, according to Mast.

Looking beyond mission-driven attributes, the foundational elements of what consumers perceive as a “healthy” product are also shifting, according to the panelists.

Consumers are less interested in a product that touts the absence of certain components which they perceive as unhealthy (25% in 2021 vs. 35% in 2016), and are more interested in a product that is defined by the presence of specific ingredients or nutrients (27% in 2021 vs. 17% in 2016), Peters said.

Specific diets are less in vogue these days, as people instead seek out healthier alternatives across all types of foods and beverages. “Most Americans don’t follow any specific diet. While things like the keto, paleo, and Mediterranean diets have historically been an important growth driver, people today are simply focused on finding good food that makes them feel good,” Mast said.
 
Experiential conditions, such as mood, energy, weight management, and gut health, are topping the charts as issues consumers are most interested in addressing, according to Mast.

McCoy broke down a number of strategies brands can employ which he called “rising tides,” defined as practices a brand can use to improve sales without any additional overhead.

Four key areas he noted were sustainability, supporting diversity, tapping into consumers’ self-awareness, and broadening one’s consumer base.

In terms of self-awareness, McCoy pointed out that alcohol consumption rates have significantly decreased since the onset of the COVID-19 pandemic. “Mental health is a very big component of self-awareness, and beyond that which is diagnosed, everyone has some level of mental health awareness,” McCoy said. “People are incorporating more mental health routines into their food and supplement choices, and it is a big rising tide.”
Typically in recessions wages for low-income households tend to decline, McCoy noted, but on average, low-income household wages are still increasing. Affordability will become even more important in broadening a base of consumers willing to try new products.

“Over the past couple of years, the lowest income is showing the fastest increase in demand in wellness products,” McCoy said. “Lower-income consumers are also over-indexing in buying products that are sustainable as well,” he noted, especially with products making claims about animal welfare, organic, sustainable packaging, and plant-based.