The UK has an increasing appetite for organic food and drink. A record amount of it was bought in 2017, with sales rising for the sixth consecutive year, up 6% to £2.2bn, beating the previous record of £2.1bn in 2008.
The market is dominated by supermarkets, which saw sales rise by 4.2% to £1.5bn. Sales in the independent sector, which includes Planet Organic and smaller outlets such as farm shops and delis, rose by 9.7% to £359m.
Home delivery also did well, up by 9.5% to £286m. Ocado is the biggest operator in this sector, stocking more than 3,000 organic products. The sector also includes veg boxes from companies such as Abel & Cole.
Almost 30% of all organic sales now are online or through independent outlets.
Any product sold as organic in the EU has to comply with a set of standards. Charity, the Soil Association, is the leading UK certifier that goods have met these standards. Its symbol is on more than 70% of organic goods sold in the UK.
Clare McDermott, business development director at Soil Association Certification, said: “We know shoppers are putting increasing value on trust, transparency and traceability when making their purchasing decisions. Organic delivers on those values and is also increasingly seen as the healthy and ethical choice.”
Apart from the supermarkets, who are the big players? Amazon, not usually slow on the uptake, paid $13.7bn last year for natural foods supermarket Whole Foods, with $9bn of that reported to be a goodwill payment. Amazon obviously expects the organic market to grow.
It has now started offering free delivery on Whole Foods goods to Prime customers in certain areas in the States, just two hours after they place their orders. It plans to expand the service across the US later in the year.
With Amazon swallowing Whole Foods, the biggest whole foods supermarket chain in the UK is Planet Organic. It has seven London stores and offers home delivery.
Planet Organic was set up in 1991 by American, Renee Elliott. It is thought to be on track for sales of £35m this year.
In October 2017 it was reported that the company had appointed financial advisors to investigate a possible sale, with interest being reported from Japanese trade buyers and private equity firms. Figures of around £50m are being suggested.
Holland and Barrett
The high street health food staple Holland and Barratt was sold in 2017 for £1.8bn to a retail investment fund controlled by Russian billionaire Mikhail Fridman.
It was previously owned by Nature’s Bounty, owned by the private equity firm Carlyle.
A recent Soil Association report says that: “Online operators can expand their organic choice quickly and assist new start-ups in showcasing innovative products, making them available to national customers.”
Online only supermarket Ocado has definitely benefited from the increase in organic sales. Its head buyer, Rose Price, says: “We see no end to the strong growth in organic, as the market has been buoyed by a new generation of shoppers looking to spend their earnings on food and drink that is not only better for them, but also for animal welfare and the environment.”
Ocado’s share price has risen by 80% in the past year, but mainly because of new licensing deals in Canada and France for its technology.
Two names come to mind first in this area, Riverford and Able & Cole. Riverford is privately owned. It has been going since 1993 and delivers around 47,000 veg boxes a week using produce from its farms.
Abel & Cole was started in 1988 and has been part of the privately-owned William Jackson Food Group, whose other brands include Aunt Bessie’s, since 2012. Abel & Cole’s turnover in 2017 was £65m.
Organic dairy products have more than a quarter of the market. Two-thirds of the country’s organic milk is supplied by a farmers’ cooperative, OMSCo.
Rachel’s, a familiar organic presence in supermarkets is part of Lactalis Nestlé Chilled Dairy a joint venture with between Nestlé and Lactalis. Yeo Valley, another common sight in supermarkets, is family-owned.
With the big name players privately-owned or part of bigger groups, what opportunities are there for those looking to invest in organic products?
If you can’t manage to have your own start-up which is then bought out, it seems you have to be creative in your search. For instance:
- Organic food retailer, The Better Food Company, recently raised £350,000 to open a new store with a bond issue through Triodos bank
- Organic gin company, Graveney Gin, wanting to set up a distillery with tasting room attached, turned to crowdfunding for the amount needed
- The Community Farm in Bristol has more than 500 members who have invested anything from £50 up in the venture.
Investors in the Farm won’t get rich by their involvement. As the project’s India Langley explained: “An investment in the Farm is a social investment rather than a capital one. We don’t pay our investors a dividend – but instead reinvest any profits back into the project.”
Investing in organic products is likely to give you a good glow, but, in the short term, at least, it is more likely to be from the gin that came with your crowdfunding than any serious returns.