Retailers Drive Price Differentiation as Organic Food is Coming Of Age: European Organic Food Market Update

European mainstream retailers have recently pushed hard to improve their organic food offerings through expanded product ranges, greater affordability, and price differentiation. For example, Carrefour now advertises its (greatly expanded) private label organic range as a better choice for every budget, using the slogan ‘Bio pour tous’ (‘Organic for all’). While in Belgium recently, I noticed the striking visibility and relative affordability of the private label organic range in Carrefour shops. Additionally, Carrefour has introduced organic ‘shop in shops’ in some outlets.

The discounters are not sitting still either. Both Lidl and Aldi have been expanding their organic product ranges. Furthermore, Lidl in the Netherlands has actively used organic products in promotions over the past six months. First organic milk was on sale followed more recently by organic bread. In both cases, a 25% discount was applied on already aggressively priced products.

As a final example, real, a German hypermarket chain, recently announced the launch of a budget organic private label line, which will simply be named ‘TIP-bio’ (short for ‘Toll im Preis’ or ‘Great Price’). After the introduction, real will list organic SKUs in three distinct price brackets: budget, mid-market (existing private label – ‘real-Bio’), and premium (branded organic and biodynamic products). This is likely a response to other players’ aggressive push into organic. But perhaps more interesting, real’s move formalises another broader market development: differentiation in organic. No longer is ‘organic’ a premium label in itself.

The differentiation at real has further significance: retailers are actively trying to get access to those consumers who traditionally would visit a nature food store and are now looking for a ‘better’ organic experience. Real has a partnership with Demeter for biodynamic products, which some perceive as a class above organic. Along the same trend, DM, a German drugstore chain which also sells food products, has started to sell Demeter products. To ensure no one misunderstands, DM uses the slogan ‘Das Beste Bio’ (’The Best Organic’), and even ditched long-term partner Alnatura’s organic products to make room on its shelves for the new biodynamic range.

Interestingly, whereas Germany is going biodynamic, in France the trend is more towards local products. In France, organic speciality stores are diversifying and adding elements to their ranges in an effort to stay relevant for organic consumers looking for an ‘even better’ alternative. At the same time, well-established more mainstream organic brands are struggling. For example, Carrefour’s acquisition of So.Bio, a small French chain of organic and local food speciality shops that Carrefour aims to expand nationwide, can be seen in this light: it should enable Carrefour to access those ‘darker-green’ consumers as a distinctly separate group next to the more mainstream organic shoppers in their regular Carrefour supermarkets.

Last but not least: in a truly strategic move, Lidl in Germany recently announced a long-term cooperation with BioLand, a major association of German organic farmers, traders, and processors. BioLand will play an important role in securing the supply of private label products to Lidl’s German shops. As this ensures high quality local products, the partnership should help Lidl to woo picky and price-sensitive German buyers.

Expanded organic private label ranges increase the negotiating power of retailers over suppliers of branded organic products. Branded organic food producers have to ensure their brand is perceived as top-notch or risk being pushed off the shelves by private label or by stronger brands. At least some of the loyal organic consumers of old are shifting to what they perceive as ‘better’ alternatives such as biodynamic. And newer organic consumers are likely more open to private label offerings and to newer, hipper brands. This consumer behaviour – which is no different from what we see in ‘regular’ food – could put extra pressure on the classic organic brands.

Organic is becoming a market force to reckon with. Nevertheless, a market with strong volume growth does not necessarily guarantee success for all players, and ‘organic’ is no longer a synonym for premium.