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Profit Trends in Organic Food Markets

Jeff Siegel | Thursday September 2nd, 2010 | 1 Comment

 

The farmers’ market was absolutely packed this past Saturday.

Of course, it was my own fault for getting up so late…

If you’re not there by 7:00 a.m., you have to maneuver through the flocks of hungover hipsters that always seem to congregate around the Thai food stand that displays deep-fried spring rolls like delicate glass ornaments.

But despite the larger crowds that morning, there was still plenty of food to go around at the stand where I pick up my weekly share of fruits and vegetables.

You see, I belong to a local CSA (Community Supported Agriculture). I pay a few hundred dollars at the beginning of the year, then throughout the summer and fall, I get a “share” of whatever my farmer grows.

This year, the Japanese eggplant, cantaloupe, and Thai basil have been exceptional.

I really couldn’t be happier with our CSA. They’re very reasonable; there’s never a shortage of produce; and they’re completely organic— something that’s very important to me, and to a few million other U.S. consumers.

Thriving sales in the Great Recession

While organic food and beverage sales only represented about 4 percent of all food and beverage sales in 2009, growth has been significant over the past two decades — moving from just $1 billion in 1990 to nearly $25 billion in 2009.

And globally, organic sales doubled from $25 billion in 2003 to almost $51 billion in 2008.

Even during recessionary times, organic food sales continue to grow… Perhaps not as much as pre-recession days, but according to market research firm Packaged Facts, the market for products marketed on the basis of ethical standards, including organic, is thriving despite the recession.

Here’s what Don Montuori, publisher of Packaged Facts, had to say about the study:

Our survey indicates that more shoppers understand the environmental, social, and economic implications of their choices. The result is a sizable number of consumers who will purchase typically more expensive ethical products even in economically challenging times.

Certainly good news for organic food producers and retailers — and great news for investors who have been playing a handful of organic food stocks this year!

Fat gains; healthy bodies

Every morning I start the day with a big bowl of organic steel cut oatmeal. I absolutely love the stuff… especially with a few dried cranberries and walnuts on top.

My favorite brand of steel cut oatmeal is Arrowhead Mills. Arrowhead Mills is a brand of Hain Celestial Group (NASDAQ: HAIN), a natural and organic food and personal care products company.

For Q4, Hain beat earnings by $0.02 and increased 2011 guidance. The stock got a ton of positive coverage following those results, including a near 10-minute spot on Cramer.

Another organic and natural foods stock that’s delivered this year is SunOpta (NASDAQ: STKL).

For Q2, 2010, SunOpta boasted revenues of $235.9 million compared to $216.1 million in 2009, and net income on a GAAP basis came in at $20.5 million compared to $1.8 million.

For the year, the stock is up more than 60%.

And of course, no coverage of the organic foods sector can be complete without discussing Whole Foods Markets (NASDAQ: WFMI).

Whole Foods is the king of the organic castle — boasting revenue of $8.03 billion for FY 2009, and $2.16 billion for Q3 2010.

Of course, same-store sales growth for the third quarter came in lower than the company had previously indicated, and that helped push the stock down last week. Today, WFMI is down about 10% since earnings.

That being said, Whole Foods is no slouch. And few stocks rebounded stronger than Whole Foods after the market tanked in 2008. After hitting a low of $7.04 in November 2008, the stock soared to a high of $43.18 just a few months ago.

That’s a gain of more than 500% in less than two years!

And this was after an avalanche of negative press about the company’s ability to survive during an economic downturn. Oh how easy it is to bash a company when the entire market is swan diving into the abyss!

As both an investor and customer of Whole Foods, I took offense to all the inane criticisms of Whole Foods, and responded with an article entitled, “Don’t Underestimate Whole Foods.”

The stock is now up about 285% since I wrote that article.

Early stages of a food revolution

Although I have little doubt that today’s economic nightmare is far from over— long-term, I still believe that Whole Foods is not a company that should be underestimated.

As well, I think we’re still only seeing the earliest stages of a major food revolution that will cater to local organic food producers and retailers.

Recession or not, there continues to be a groundswell of support for local, organic, and fair trade products. And as a consumer of these types of products, I know I’m contributing to a healthier planet and supporting domestic job growth and security.

My garlic is not shipped from China; it’s grown about 30 miles away at a beautiful organic farm that I can visit any time — no passport necessary!

Of course, I realize that not everyone gets as excited about locally grown organic food as I do…

But if you get excited about making money, don’t sleep on this organic food movement.

Long-term, the potential here is solid.

And there’s no doubt in my mind that this will prove to be one of the greatest investment opportunities of the next decade.


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