Does Organic Food Taste as Virtuous If It Goes Mass Market?
Coke, General Mills, Kellogg woo consumers loyal to higher-priced organic food
The trickiest but most desirable customers are the ones who want to eat healthy, and more companies are moving to please them. WSJ's Sarah Nassauer reports. Photo: F. Martin Ramin/WSJ
She serves her children organic food. She swears she would never open a can of soup for a toddler’s lunch.
She is Plum Organics’ core customer. And Plum hopes she will buy its new pouches of organic tomato meatball soup with kale and spinach even if it got help from ownerCampbell Soup Co. to make them.
Plum used Campbell research to learn children’s favorites are chicken noodle and tomato and then reworked recipes “in a Plum way,” adding more vegetables, says Neil Grimmer,co-founder and chief executive of Plum. The 8-year-old company’s research and development team in California built on classic Campbell’s formulas from more than 100 years of selling soup. For tomato meatball soup, Plum chopped kale and spinach finely so children aren’t scared away by the “huge leafy greens,” Mr. Grimmer says.
The Plum shopper and others like her are becoming the darlings of the food industry. Food giants such as Coca-Cola Co., General Mills Inc. and Kellogg Co. are looking to the smaller food brands they’ve purchased such as Honest Tea, Annie’s Inc. and Kashi, which sell food perceived as healthy or labeled organic. Their goal: to drive up sales to this desirable, loyal consumer willing to pay up in the name of organic or natural, as sales of soup, soda and cereal stagnate.
These shoppers are easily offended by too much sugar, artificial ingredients or brands that ignore seemingly niche issues like concerns about genetically modified ingredients or artificial food dyes. In the age of social media, one perceived misstep can quickly dent sales. Big companies need to tread carefully to bring in more shoppers without losing the base.
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Last month, Coca-Cola executives met with executives from Honest Tea, a seller of organic, fair-trade and low-sugar drinks bought by Coca-Cola in 2011. At Honest Tea’s headquarters in Bethesda, Md., Coke executives looked at the company’s $134 million in sales last year and its growth plans and said, “Great. How do we double or triple this?” says Seth Goldman, co-founder and chief executive of Honest, who was in the meeting.
Honest Tea’s sales have increased each year since the company started in 1998, says Mr. Goldman. Now Honest Tea is aiming for $500 million in sales in five years, he says.
Honest Tea has played with the level of sweetness in its drinks and has added new products. In 1998 most Honest Tea drinks had 9 grams of sugar, or about 35 calories a bottle and sold well in natural and specialty grocers. In 2003, before being acquired by Coke, the company added another teaspoon of sugar to some varieties, labeling them “Just a tad sweet.” At 60 calories a bottle, “we started to get traction,” Mr. Goldman says. Today, Peach Tea, Raspberry Tea and other flavors are 100 calories a bottle.
Its sweeter drinks mostly come in plastic bottles have sold best overall, while its unsweetened and low-sugar drinks, in glass bottles, sell well in natural and specialty stores, says Mr. Goldman. Just Green Tea, without any sugar, is the company’s best seller at natural grocers like Whole Foods, he says.
Hoping to grab lapsed soda drinkers, Honest made its zero-calorie carbonated Honest Fizz drinks certified organic earlier this year. To partially make up for the higher cost of adding organic varieties of the sweeteners stevia and erythritol, a sugar alcohol, Honest switched from pricey tall cans that give the drink a premium look to the same shorter cans as Coke. The changes almost halved the cans’ cost, Mr. Goldman says.
Shannon Blankenship, a human resources manager from Raleigh, N.C., says she stopped drinking Diet Coke three years ago, but buys Honest Tea’s organic root beer every week. Ms. Blankenship made the switch after deciding to stop consuming aspartame, a sweetener in Diet Coke.
Organic root beer is still a treat and more expensive than a Coke, she says, but “if I know I’m not putting a whole can of chemicals in my body I feel a little better.”
What’s Your Kale Cred?
In recent years Kashi consumers have taken to the company’s Facebook page and other social media to complain that some of its cereals are made with GMO ingredients or aren’t organic.
The bashing contributed to a sales slump. The brand of high-protein, high-fiber cereals, snacks and frozen food owned by Kellogg lost about $200 million in sales over the last five years, according to company filings and analyst estimates. Kellogg chief executive John Bryant told analysts in a conference call last July its sales were about $400 million. “We haven’t kept Kashi focused enough on progressive nutrition,” he said.
A Kellogg spokeswoman says the $400 million doesn't include “away-from-home specialty channels” and non-U.S. business. She declined to comment further.
All Kashi products will be Non-GMO Project Verified by early 2016, said David Denholm,Kashi’s chief executive, in an email statement.
Only a handful of organic and natural brands have approached $1 billion in annual sales, a level that signals the food is a mass-market item found in many homes. Horizon Organic, the largest seller of organic milk in the country and owned by WhiteWave Foods Co., hit $644 million sales last year, according to a company spokeswoman. Milk is often a consumer’s first organic food purchase. Simple Truth, Kroger Co.’s store brand for natural and organic foods, reached $1.2 billion in sales in 2014 after two years on shelves, according to a company spokesman. Affordable pantry staples such as organic no-stir creamy peanut butter and free-range organic chicken broth are best sellers, he says.
Moms gravitate to Annie’s artificial-ingredient-free cheddar crackers shaped like bunnies and boxed macaroni and cheese made with some organic ingredients because the foods are convenient and the tastes are familiar. But, moms feel “better about giving it to the their children,” says John Foraker, president of Annie’s, which General Mills bought last year for $820 million.
For many consumers there are limits to their healthy shopping. Children reject food that veers too far toward a dull, healthy taste, Mr. Foraker says. Annie’s whole wheat macaroni and cheese isn’t a best seller, but has a strong fan base among progressive eaters so the company keeps it, he says.
Annie’s started selling frozen pizza made with organic ingredients in 2013, but shoppers balked at about $9 a pie, says Mr. Foraker. Most frozen pizza sells for a few dollars less, he says. So last fall, Annie’s started selling frozen mini pizza bagels and poppers for about $4 a box. At the lower price, sales of the snacks are taking off, Mr. Foraker says.
Alanna Miller, a strategist for a bank who lives in Phoenix, buys mostly organic food and looks for convenient health snacks to feed her two daughters.
But they still have to taste good.
A fan of Annie’s macaroni and cheese, graham cracker cookies and gummy fruit snacks in mini packages, Ms. Miller once bought another brand of organic fruit snacks for her 3-year-old daughter as an experiment.
“She took one bite and spit it back out in her hand,” says Ms. Miller. “Just because it says organic doesn’t mean it tastes good.”
