Watch out, Whole Foods: How Costco became the most important player in the organic produce game – Well+Good

Posted: February 28, 2017 at 8:43 am


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Whole Foods may win the prize for the most recognizable retailer when it comes to organic food, butthe top honor when it comes to market shareactually goes toCostco.

Yup,the chain best known for itsbulk stock and low prices reported $4 billion in organic food saleslast yearthats billion with a B. Whole Foods, by comparison,racked up about $3.6 billion in certified organic sales.

The chain best known for itsbulk stock and low pricessold $4 billionworth of certified organic food last yearthats billion with a B.

And this shiftcould have a major impact on you (and your healthy habits), even if youre not a card-carrying member. For one thing, its proof thatfood shoppers across the board are prioritizing organics. And in other exciting news, it shows that its possible to sell certified organic produce (COP) at a competitive pricecrucial for closing the healthy food gap.

But perhaps most importantly, the mega-retaileris literally redefining the organics landscapethere are now Costco-owned organic farms to help the company keep up with demand. Plus, the brand islending money to farmers to expand their output.

Does this mean that a Costco membership is about to be as covetedas an American Express black card?

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Lets face it, dollars area powerful motivator. When brands and retailers noticewhere people are allocatingtheir cash, theyll make it a priorityand organics are definitely having a moment.

HeatherShavey, assistant vice president and general merchandise manager at Costco, says the retailer started zeroing in on organics five years ago because customers demanded it. The spark in the shift was continuing and sustaining consumer demand for organics, shesays. Many [other retailers] thought it was a fad that would pass.

Organic quinoa at Whole Foods retails for $5.99. At Costco, its $2.87. In other words, the savings are real.

Carlotta Mast, the head of content and insights for New Hope Network (the gatekeepers to the massively influential wellness trade shows Expo East and Expo West), has seen the explosion of organic sales firsthand. Consumers are what ultimately is driving the demand, especially in certain food categories like dairy, she says. In other words: Its definitely not a passing food trend.

And Mast, who looks at the industry from all sides, says Costco has been a key player in raising the stakes across the board by making organics cheaper and therefore available for more peopleits starting to no longer be seen as a luxury. They have really demonstrated a commitment to carrying certified organic productsandbecause they offer them at a competitive price and are able to meet consumer demand, it puts pressure on some of the other retailers, she says. (Your move, Trader Joes.)

When youcompare prices, organic quinoa at Whole Foods retails for $5.99. At Costco, its $2.87. Organic chicken breasts area dollar cheaper at the discount brand, and aloaf of organic whole wheat bread is about $1.50less expensive. In other words, the savings are real.

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Costco has been so successful in moving COPs off itsshelves that itssuppliers cant grow the food fast enough. The companyssolve? Buy plots of land and convert them into organic farms. (After all, less than 1percent of farmland in the US is organicwhich simply isnt enough to keep up with demand.) The mega-retailers alsobuying apoultry farm in Nebraska, set to open in 2019.When its up and running, its expected to supplyone-third of the chicken sold in stores.

And that still isnt quite enough to hit its salesgoals, soCostcos also supporting independent farms transitioning to organic by frontingsome of the farms and handlers expenses to make them USDA-approved.

Costco has been so successful in moving COPs off itsshelves that itssuppliers cant grow the food fast enough. The companyssolve? Buy plots of land and convert them into organic farms.

According toSam Jones-Ellard, a public affairs specialist for the USDA, its a complicated, 36-monthprocess. First a farm or handler must reach out to one of our accredited certifying agents and come up with an organics plan, which basically covers everything about the operation, he says. Once thats approved, the next step is an on-site inspection. If given the thumbs up, only thenis the seal awardedbut surprise inspections arent out of the ordinary, and the certification only lasts a year.

Its hardly a selfless missiondont forget that ultimately, Costco will profit off of these investmentsbut what it does mean is that farmers get abig boost and a broader range of consumers will be able to access organic produce.

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Costcos rise in the organics game hasnt been a godsend for every brand, thoughsmaller companies can get lost in the big-box shuffle, since the retailers strategy is to keep prices competitive by moving a lot of product.

Smari Asmundsson, founder of organic Icelandic yogurt lineSmari,says its hard for smaller companies to meet the discount storesdemand. We were in 16 Costco stores for about a year, but then there was a vanilla shortage so we had to raise our prices, he says. Smarisnew price point$2.50 a popwas too high for Costco, so the yogurt is no longer on its shelves. Instead, Asmundsson says hes focused on all-natural retailers, likeyou guessed itWhole Foods.

The prices [for organics] are usually a little bit more expensive, but thats just because of the cost of making a natural product, Asmundsson says. Our margins are not as high as more established companieswe couldnt make [selling at such a massive scale] work financially. Its a hard lesson for many brands: Unless youre ready to scale up your production, selling at Costco might not be in your best interest. (It also brings up the bigger question of whether this race to lower prices ultimately hurts start-ups that simply cant competeif you expect your organic yogurt to cost less than $1.50, would you ever consider spending more for someone doing it on a small scale?)

Smaller companies can get lost in the big-box shuffle, since the retailers strategy is to keep prices competitive by moving a lot of product.

The mega-storedoes support growing companiesin other ways, though. For one, itpromotesbrandsthatarent ready to meet itsdemand (yet!) but are still doing very cool things when it comes to farming and sustainability by featuring them in the Costco magazine, which goes out to members. One example: home-growing kit company Back to the Roots, which was recently featuredon the coverdespite the fact that itsproducts arenot in a single Costco store.

Back to the Roots co-CEO Alex Alejandro says his companyis in talks with the retailer, making slow, cautious steps toward being stocked on itsshelves. The hope is that with more brand awareness, Back to the Roots will be ready for Costco soon. The retailer sees the magazine feature as a way to invest early in fledgling brands, for a long-term payoff.

Soit sounds like the retailer has learned a thing or twofrom running its own farms(plant a seed, wait for it to grow), which is creating more shopping options for health-minded shoppersof all budgets.

If you still cant quit your Whole Foods habit, heres what you can expect to see on their shelves in 2017. And have you heard about the potentially inflammatory ingredient that just got banned from organic food?

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Watch out, Whole Foods: How Costco became the most important player in the organic produce game - Well+Good

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February 28th, 2017 at 8:43 am

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