The Emergence of Organic Supermarkets in Britain

The UK market for organic food & drink is the third largest in the world, valued at EUR 1.85 billion in 2004. Organic farmland, totalling 686,101 hectares, represents 3.7 % of total farmland. Although a leader in organic food sales, the organic land area is only tenth in the global total.

Picture: Planet Organic in London

The supermarkets comprise most sales of organic foods with roughly 80 % market share. The market share is in decline however with sales from other channels increasing at a faster rate. Apart from organic food shops and health food retailers, a large rise in organic food sales is occurring from farmers markets, home delivery schemes and foodservice companies. Most sales of organic foods have traditionally been from supermarkets and this is expected to remain so, however the market share of specialist retailers, and organic food shops in particular, is on the increase. British consumers are turning to independent retailers to buy healthy, natural foods rather than large conventional supermarkets.

Organic food shops are reporting sales growth of over 20 % per year as consumers become more aware of health & nutrition issues. The high level of customer service and education offered in health food shops and organic food retailers is attracting customers.
Healthy sales growth is also being observed from other channels. Direct marketing has become important for organic producers with many selling to consumers via farmer markets and farm shops. Box scheme operators continue to growth their customer base, and an increasing number of catering & foodservice companies are serving organic foods.

There are about 2,000 specialist retailers in the UK. The majority, about 1700 are health food shops with organic food shops making up the balance. Retail chains are common for health food shops, however chains comprise just 12 of the 300 organic food shops. Organic food shops are mainly concentrated in the south of England; nearly all are independent family-owned enterprises. There are just three chains of organic food shops in the UK with no retailer having more than 7 stores.

Table: Leading Organic Food & Health Food Retailers in the UK

Source: Organic Monitor

Fresh & Wild is the largest organic food shop chain with seven stores in the south of England. All, except one in Bristol, are located in London. The average size of a Fresh & Wild store (picture) is 5,200 square feet (480 m² in the total space) and a wide range of organic products are marketed. The retail chain reported 26 million Euro sales before its acquisition in January 2004. Fresh & Wild was acquired by Whole Foods Market for about 32 million Euro. Whole Foods Market is the largest chain of organic & natural food shops in the word, having 161 retailers in USA and Canada. It was formed in 1980 as one small store in Austin, Texas and has grown to a multi-billion dollar business with stores in three countries. Whole Foods Market has 32,100 employees and reported a 20 % sales increase to 5 billion Euro sales in 2005. A typical American store averages 32,000 square feet (3000 m²). The Whole Food Markets offer a wide range of organic products and non-food items like personal care products and clothing. Organic products account for about 40 % of Whole Foods Market sales and other important categories are natural products, personal care products and household products. The company is listed on the Nasdaq stock exchange and was listed 30th in the Fortune 100 Best Companies to Work For 2005.

The UK stores continue to operate under the Fresh & Wild name since the buy-out, however new stores will be opened under the Whole Foods Market banner. In August 2005, the American retailer announced plans for its flagship London store. It has leased out three floors of a High Street Kensington retail building, which is currently occupied by Barkers department store. A supermarket-style store is to be opened in the 75,000 square foot (7000 m²) area in January 2007. The new store plans to employ up to 500 people. The size of the store demonstrates the seriousness of Whole Foods Market in the UK market; it has plans to open 30-40 more supermarkets in the coming years. Continental Europe is also on the radar of the American retail giant. Although there has been some criticism of the entrance of the American retail giant in the UK organic food industry, most in the industry are positively encouraged. Whole Foods Market is putting a large capital injection into an organic food retail market dominated by supermarkets like Tesco and Sainsbury’s. Organic food producers and wholesalers are the most receptive as most will directly benefit from the opening of large supermarket-style formats.

Planet Organic is the second largest organic food retailer with three stores in London. The company was founded by Renee Elliott, an American who has moved to London. She opened the first organic food supermarket in Notting Hill in 1995. The retailer also has organic food supermarkets in Fulham and in central London. The 4,000 square foot (370 m²) Fulham store won the Soil Association Best Large Store Award in 2005. Over 8,000 products are available in Planet Organic stores with a significant portion of total sales from organic products. Like Fresh & Wild, the stores have in-store deli counters and juice bars. Planet Organic is also looking to open new organic food supermarkets in the Greater London area. It has been actively looking for new locations since it opened its Fulham store in May 2004.

As Nature Intended is the third retail chain of organic foods. It was founded by Malcolm Walker, the ex-chairman of Iceland (the leading frozen food supermarket chain in the UK). The first supermarket opened in Chiswick, West London in June 2000. A second opened a year later, however poor business led it to close shortly afterwards. Malcolm’s daughter, Carolyn, took over the venture in 2002 and As Nature Intended reported its first profits in 2004. The second As Nature Intended supermarket opened in May 2005. The 2,400 square foot store (220 m²) is located in Ealing Broadway, West London, and houses over 5,000 products. Over 90% of the food products it sells are organic. Like the other organic food retail chains, more new store openings are in the pipeline.

Health food shops were the pioneers

Health food shops were important sales channels for organic foods until the mid 1990s when they were overshadowed by supermarkets and then by dedicated organic food retailers. Although their market share is now very small, health food shops remain important sales outlets for organic products like cereals, grains, dried fruits, beverages, dairy alternatives and snacks. Organic fresh produce is usually limited to dairy products, which are usually made from goat and sheep milk. No organic fruit & vegetables and meat products are found in health food shops, although some do have organic vegetarian meals.

The three leading chains of health food shops are Holland & Barrett, The Health Store, and GNC. Holland & Barrett is the largest chain with 520 stores in the UK. It is owned by the American company Nature’s Bounty (NBTY), a leading producer of nutritional supplements. Holland & Barrett stores focus on marketing vitamins, minerals and herbal supplements. The Health Store is a co-operative of health food shops in the UK. It was formed in 1932 and has grown to become one of the most important distributors and retailers of health foods. The co-operative has about 450 members in the UK and Ireland. GNC is a chain of health food shops that specialises in marketing nutritional supplements. It is also owned by the American company NBTY. Organic products are rarely found in GNC stores.

Home Delivery Schemes are growing quickly

Home delivery schemes, especially box schemes, are showing a significant rise in market share. Box schemes were initially set up by organic farmers who were supplying organic vegetables to nearby consumer households. Home delivery schemes have become highly elaborate and more sophisticated in the last 10 years. Producers of other organic products like organic meat and dairy products have set up home delivery schemes, as well as retailers. Orders can be taken and processed online with some operators offering deliveries over great distances.

The leading box scheme operator in the UK is Abel & Cole (www.abel-cole.co.uk). The company was formed in 1988 when its owner started selling potatoes from his South London house. Abel & Cole now operates the largest home delivery service in the Greater London area, delivering to over half a million customers. Its sales are expanding by about 125 % per year, reaching 10 million Euro in 2004. Abel & Cole was awarded Organic Retailer of the Year by the Soil Association in 2004. In June 2005, it was awarded a Queen’s Award for its ethical sourcing and sustainable development.

Riverford Organic Vegetables (www.riverford.co.uk) is another leading box scheme operator. The Devon-based company delivers over 15,000 boxes a week to consumer households in southern England. Riverford doubled its customer base in 2004, and now delivers organic vegetable boxes from Cornwall to London. The owner, Guy Watson, who set up the company in 1987, was named Farmer of the Year in the BBC Radio Four Food and Farming Awards in 2004.

The success of box schemes has led some conventional food companies to jump on the organic bandwagon. The most notable new entrant has been Dairy Crest (www.dairycrest.co.uk), one of the largest dairies in the UK. It is the largest supplier of milk to households in the southern and eastern parts of England. Dairy Crest started supplying organic milk to consumer households in 2001 and started supplying organic vegetable boxes in spring 2005.