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No Booms or Busts, Just Steady Growth for the Italian Organic Sector

08.02.2007 by Redaktion (comments: 0)

The organic industry’s overall sales receipts are on the upswing (see Tab. 2), with 2005’s registering a 6 % rise and the first three quarters of 2006 a solid 9 % increment. Yet the latest figures strike a more varied tone on the scale. For, though rebounding, sales to big supermarket chains are still down 11 % compared to 2004, whereas the overall two-year rise in the specialist retail end is 20 % and the catering arm has also posted an optimum performance. But it’s been the exports that have out-performed them all, with a two-year surge of 111 % to Germany, a rocketing 140 % to France and a fine 46 % burst to Switzerland.

Picture: Roberto Pinton, organic expert and editor of AzBio

Oscar Pizzi, the managing director of the fruit and vegetable wholesaler Pizzi Osvaldo & C., took the export route to the UK and Germany to offset slowdowns in the domestic supermarket arena. “We’ve seen that what buyers abroad demand in a product and its qualities is very different from what our domestic buyers look for. In Germany, for example, the emphasis is on safety and residue-free products, with discount chains focused more on price and the big chains more on quality. In the UK we’ve had to deal with exacting and very rigorous quality standards but where price is no problem. The market is global to be sure, but each marketplace is very different from the others. From our vantage point we see that Italian businesses can ensure that the flexibility is there when you need it.”

With its approximately 8000 active customers, Vittorio Claretta of La finestra sul cielo (‘Window on the sky’) agrees that the figure marks a notable difference with respect to the pioneering years of organic products, which in this case was at Turin in 1978 as a macrobiotic shop. “Another difference today is the far greater competition among producers, wholesalers and retailers offering a far greater assortment of products in all price ranges and quality scales. There’s also greater efficiency at both the wholesale and retail ends, thanks in part at least to vastly improved lines of information, communication and marketing. The other side of the coin is that all this competition and market cluttering tend to drive prices down, so the entire chain must make a real effort to push the margins back up.”

Nor is it just the supply side that’s undergone structural change. So has demand. “The demands of the early consumers were pretty simple, although the trade volumes we’re talking about were far smaller too back then. Today demand is manifold and increasingly more sophisticated. Just think about the demand for foods suited to the various needs of the many people with diet-based allergies”, says Vittorio Claretta.
“So, yes, consumer profiles have changed. Consumers that take their custom to a specialist retailer have decided that price takes a back seat to full and coherent product range. They’re also looking for the intangibles a specialist can offer like the trust factor. They speak a language not all consumers understand and see in their specialist outlet the only real place to get all the products and the information they want. The big supermarkets on the other hand are where you go for transparency, lower prices and uniform product lines throughout the chain. They may not really be two altogether different consumers but they pursue two different objectives with their purchasing power,” commented Quartesan from Fattoria Scaldasole.
Another growth area for the organic industry is employment (see Tab. 6). The latest two-year figures show a 13 % gain in overall jobs and a 25 % spurt in those employed in quality-control and monitoring capacities, a key segment in this kind of industry.

Italy’s organic sector always appears to be on the move. While surveys focusing on quality angles like consumer preferences, purchasing habits and frequency, and willingness to pay a premium-price offer a reliable snapshot, pollings that use a quantitative lens leave much to be desired in the image you get. Indeed, the only reliable source in this connection is the periodic survey conducted jointly by ISMEA, the authoritative government services agency for the agri-food market, and AcNielsen, although it only covers family purchases of packaged products bearing EAN barcodes.
Much is thus left out of the picture, including such key sector arms as catering, products sold loose, packaged products without the EAN barcode and, above all, direct sales from the country’s 2000 or so farmgate outlets.
Nor does the list end here for products without the EAN barcode. Equally overlooked are sales by the more than one thousand specialist retailers and their normal trade counterparts, turnover in the 200 open-air markets held regularly throughout the country, and sales generated by herbal shops, which latter though not chart-topping are important because in some areas of the country these shops outnumber specialist organic retailers.

The ISMEA-AcNielsen survey is thus essentially restricted to supermarkets, a very partial take in the end. In effect, though it is an important business research tool, the sample it covers accounts for little more than a third of the overall retail market, not to mention the fact that only two supermarket chains stock more than 300 organic items at any one time. Indeed, the numbers on the other side of the street tell a different story.
For example, the average product assortment on the shelves of even a small specialist retailer top a thousand and the range at specialist supermarket chains like NaturaSì (picture) climbs to over 3000.
Even the number of survey respondents needs a closer look. For, while it includes a broad swath of the public, these consumers are less inclined towards the purchase of organic products than those with a long standing loyalty to and interest in them, who naturally see specialist retailers and even the organic growers themselves as their first and most reliable choice.

The crux of the issue, then, is that though the survey data are important, they only take a blurred picture. There is also the fact that the press and other news media do not go in much for details. Indeed, when the 2001 report appeared showing a truly remarkable 83 % surge in the organic sales in supermarkets, the next day’s newspapers paraded out banner headlines touting the organic market boom, an image just as truly remarkable for distorting reality since it seemed like Italian consumers had suddenly been seized by a frenzy for organic products.

That was not how it was, of course, even though it did induce a few entrepreneurs to bring out a line of products to catch the crest of the wave, so to speak. What was actually behind this ‘great leap forward’ for those reading between the lines was the decision by the Esselunga chain to introduce a private label of organic products in their supermarkets with a high-profile promotional blitz, which triggered a like response from competing chains. And, had anyone bothered to look, it was all too evident that the specialised retailers had not seen anything like that kind of jump in sales.
Unsurprisingly, just the reverse occurred when subsequent reports registered the downturn in sales due largely to two main factors. One was assortment consolidation and downsizing by the big chains after the initial exuberance, and the other the pullback of promotions across the front lines, a move laid to the slide of the overall economy in the last few years which led the big chains to push their core, primary-price products harder than those at the high-end range. This time the banner headlines shouted ‘market bust,’ depicting scenarios of consumers abandoning a sinking organic ship.

In other words, the Italian organic market seemingly went from extraordinary boom to dramatic bust in the span of just four years. Yet the boom and the bust was a cycle peddled only by the media - the real numbers were another matter altogether. We can get a real handle on the facts with a little help from our friends, eleven of the country’s leading wholesalers of organic products and all members of AssoBio, the recently established association representing the organic processors and traders at the institutional level and other affiliated bodies in the sector.
So let’s take a closer look at the situation and see how, without booms and busts on the radar screen, the organic industry has kept to a steady growth and consolidation course over the last few years.

Palermo Calcio, footballers who eat organic

The number of products in the organic foods basket has shown a distinct rise in the last two years (see Tab. 1). The input of research and development in novel offerings is clearly behind the 1282 new products that have cropped up in areas of the pitch hitherto unexplored. A good case in point is the line for athletes and those who play sports that Probios, which won the prize for the most innovative product in the ‘Produkt des Jahres’ competition at Biofach 2004, developed with Palermo’s Premier League football team.
“An organic diet for athletes is part of an overall project designed to improve team performance by fine-tuning food, posture, psychology and training tailored to the individual player,” said Fernando Favilli, the company’s executive director. “The team’s coaching staff has asked the players to eat organic foods not only when they’re at table with the team but also at home. We’ve chosen whole-grain cereals like farro, kamut®, corn and rice as an alternative to wheat to eliminate any problems linked to gluten, replaced simple sugars with fructose and limited the intake of saturated fats, yeast and additives.” Coaches and players have noted improvements in performance and recoup time from injury. Indeed, as we write, Palermo’s in third place in the Serie A, Italy’s first division.

While it has no connection with products for athletes, the Fattoria Scaldasole, which was founded in 1985 and is the leader in organic yogurts at both the supermarket and specialty retailers, is another product innovator. It was the first company in Italy to blend an organic product and pro-biotic ingredients by studying and developing its own ferment Lactobacillus casei Biovitalis with the University of Verona’s Scientific and Technological Department.
“Functional foods are particularly dependent on advertising input because without that kind of informational support consumers get only a limited profile in their field of perception,” noted Renato Quartesan, the managing director of Fattoria Scaldasole. “Organic sales volumes still have a long row to hoe and advertising outlays have to toe the same line. In fact, the more innovative and functional the product, the harder it is to gain momentum. Experience tells us that the consumer of organic foods is more attuned to the flavour properties and general health benefits they offer and less so, or only occasionally, to their functional role. It’s probably fair to say that our products will win over new consumers to organic foods.”
Another innovation for Fattoria Scaldasole is in its packaging. The cups have dual components: recycled paper outside and only half the plastic as traditional containers inside, a novel idea that makes it easier for refuse sorting and recycle collecting.

Table 1. Sampled companies’ products by assortment range

Product	2004	2005	Var 2004/05	2006	Var 2005/06	Var 2004/06
Fresh produce	3,073	3,243	+ 6.00 %	3,645	+ 12.40 %	+ 18.61 %
Convenience food	6,521	6,437	- 0,01 %	7,053	+ 9.57 %	+ 8.16 %
Total food	9,594	9,680	+ 0.01 %	10,698	+ 10.52 %	+ 11.51 %
Non-food	2,125	2,214	- 0.04 %	2,593	+ 17.12 %	+ 22.02 %
Own label	2,944	2,865	- 0.03 %	3,229	+ 12.71 %	+ 9.68 %
New releases	1,014	992	- 0.02 %	1,292	+ 30.24 %	+ 27.42 %