Look Who's Going Organic


With its folksy name and bucolic, mountain-and-valley logo, Cascadian Farm organic entrees evoke a sense of purity and homegrown goodness that Hamburger Helper, Green Giant, and Old El Paso just can't muster. But don't be fooled by appearances: Cascadian, like the other brands, is produced by General Mills, the fifth-largest food company in the world.

General Mills (GIS) isn't alone in quietly chasing the organic market. Food executives like the 20% to 24% growth rate of foods now loosely classified as organics -- the fastest-growing segment of U.S. food sales. Last year, Americans bought $460 billion worth of groceries but dropped just $9.4 billion on organics.

Demand will likely grow, however, when the U.S. Agriculture Dept. issues organic-certification standards on Oct. 21. To carry Agriculture's new "organic" seal, at least 95% of a product's content must be organic. That is, it must be grown and produced without toxic synthetic pesticides, herbicides, fungicides, fertilizers, hormones, antibiotics, genetically modified ingredients, or irradition.

MORE NUTRITIOUS? In the past, 43 different certifying agencies had their own rules. Now, under Agriculture's jurisdication, the U.S. will have just one national standard for products and food imports. The rules cover everything from produce, beer, and processed foods to livestock and animal feed.

Some organic foods are healthier than regular foods, but organics also can be loaded with calories, sugars, and fats. "Quite often, people are under the assumption that organic food may be more nutritious," says David Grotto, a dietician and spokesman for the American Dietetic Assn. "There really isn't any data out there that supports that."

That certainly isn't stopping companies from expanding their organic offerings. With traditional grocery sales lucky to ring up only 4% annual sales increases, multinationals such as Kraft (KFT), Kellogg (K), Dean Foods (DF), and Groupe Danone (DA) are gobbling up niche producers of organics.

"IN ITS INFANCY." Groupe Danone acquired a 40% stake in organic-yogurt maker Stonyfield Farm last fall, with an option to buy up to 75% in 2004. Kellogg owns Kashi, a brand of organic cereal, and Kraft owns veggie-burger maker Boca. Dean Foods bought organic soy producer White Wave for $204 million in May. Dean also has a 15% stake in Horizon Organic. "We believe that the trend toward organics is in its infancy and will continue to grow, so it's really a long-term investment on our part," says Dean Foods CEO Gregg Engles.

Others are adding organics to traditional product lines. On June 19, H.J. Heinz (HNZ) launched Heinz Organic Ketchup. The company also has a 19% stake in Hain Celestial Group, one of the largest organic-food producers in the country. The goal, Heinz says, is to goose growth in the condiments category, which has been flat for the last decade or so. Heinz is aiming for 15% growth in organic condiments. If the organic ketchup is successful, a whole portfolio of products could go organic, says Brian Hansberry, vice-president for ketchup, sauces, and condiments.

Supermarket chains are getting involved, too. Many, such as Safeway and Kroger, now offer private-label organics and natural-food items. Kroger has special sections for natural foods and organics in 43% of its 2,400 stores, and it adds more each year. Harris Teeter, an upscale grocer in the Southeast, launched its own 30-product line of organics and natural food in April. Whole Foods Market is now launching its own private-label brand of organics -- from salad dressings and canned soda to popcorn and cookies.

HEFTY PREMIUM. Even Wal-Mart is getting into the act. Its newest smaller-format Neighborhood Market in Rogers, Ark., which opened in February, has a special "healthy-living" section at the front of the store that includes organic foods.

Consumers can pay as much as a 75% premium to eat foods free of pesticides, fertilizers, and hormones. Most of the markup, analysts say, results from the higher costs of producing foods without pesticides and fertilizers. Even so, foodmakers find the market attractive. Whether organics will improve Americans' health is another question. By Julie Forster in Chicago


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