NPEW 2022: The State of Natural & Organic

#returntoanaheim in 2022. Courtesy of Informa.

Anaheim, CA—Natural Products Expo West 2022 is on, and in-person, offering data, leadership wisdom, and advice for retailers.

The first presentation of the conference, “The State of Natural & Organic,” was presented by Carlotta Mast, SVP, New Hope Network; Kathryn Peters, EVP Business Development, SPINS; and Nick McCoy, Managing Director, Whipstitch Capital. It had two portions—the data side, and an interview side.

The overall finding: The industry grew to $274B in 2021, a growth of 7.7%—a lower, but more sustainable, growth than 2020 saw. The industry is on track to add $1B in sales, between 2017 and 2024. By 2024, the industry is expected to surpass $300B, and by 2030, the industry is expected to reach $400B.

“The growth rate is just massive,” Mast observed. “I bet some of you can remember when we were under $100B of sales, and when we hit that, it was a massive achievement for an industry that was always called a ‘fad’ and a ‘niche.’ Well, to be able to hit $400B by 2030 just indicates: We have moved mainstream.”

Looking at individual slices of that pie:

  • Natural & Organic Food & Beverage comprised 38% of the industry, with regenerative agriculture showing up more and more.
  • Functional Food & Beverage held an additional 31%, having grown 8.3% in 2021, with trending ingredients like mushrooms, adaptogens, and electrolytes.
  • Supplements made up less than a quarter of sales, with 22%, but it saw 7.9% growth in 2021, with immune and general health continuing to be hot categories, and mental and sleep growing.
  • Natural Living came in last, with 9% of the industry, but nonetheless showing growth.

Considering how COVID has changed things, Mast reported that the boost it gave the industry is forecasted to last. “We expect the boost to remain for at least the next four or five years, because consumers have changed. In 2020 we had about $7B in added sales, because of the changes that COVID brought—and that actually grew to $11.4B in additional sales in 2021. And again, consumers have changed. They’re paying more attention to their health and wellness, they’re investigating new brands, they’re cooking more at home, and this is creating longer-term opportunity for this industry.”

Looking at some more numbers revealed over the course of the session:

  • Natural-positioned products are growing 3.6 – 4%, while conventional products are only growing 0.6%
  • Wellness products are 25% of dollar volume—but are driving 68% of dollar growth, and they’re driving growth across all departments
  • Top growth categories were snacks, cookies, and RTD beverages—69% of consumers are looking for snacks that balance health and taste
  • U.S. consumer health satisfaction has declined since the start of the pandemic—in 2017, 67% of consumers said they were satisfied or extremely satisfied with their health; in June 2021, that number was only 54%.
  • E-commerce grew 50% in 2021, and is sitting at about 6% of total sales
  • CPG Companies that embrace diversity have greater growth, with 4% growth as compared to companies that are not embracing diversity, which are showing 0.6% growth.

Looking at quick-and-easy growth opportunities, McCoy pointed to average retail price (ARP). “We took a look at all of the products in the SPINS database, and then we looked at the products in the wellness segment, and how much prices increased one year over another. And basically the inflation rate for 2021 was 7%. The food inflation rate was 7%. So that’s not actually a price increase, that’s just keeping up with inflation. But the health and wellness products are a couple points behind. And we have an opportunity to increase taking price—and I know that’s harder for smaller products—because that’s going to keep margins in-line, with those of the big CPGs that are ultimately buying the companies.”

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And moving into technology, Peters noted that it’s revamping the way everything works. “Consumers are continually engaging with retailers and brands. The phone or whatever piece of technology—it’s always at our fingertips. So brick-and-mortar retailers really need to figure out how to leverage this technology and use it to drive loyalty. I mean, think about what it would’ve been like 10 years ago, if you wanted to follow a keto diet, or a keto and vegan diet. It would’ve taken a lot of research on what you can and can’t eat, and a lot of background in nutrition. Here, this is just one retailer’s website, rendered it in moments, what you can pick up. That’s the power of technology. It really is what consumers are looking for. 66% of consumers are choosing products based on their health needs. Millennials—58% are following particular lifestyle choices, with all Americans at 43%. People are not just looking for one-size-fits-all, and it’s really important as an industry that we leverage technology and meet consumers where their needs are and where their individual preferences are.”

Not only is it changing how things work, but Peters says technology is the only way retailers can keep up: “What’s been cited now as the number 1 reason consumers are buying online—it’s not price. It’s convenience. And I was a retailer for many years, and convenience was always what the brick-and-mortar retailer owned. And so it’s really a wake-up call that technology is changing everything about the game, so we really need to embrace it. Brick-and-mortar retailers, we really have the home field advantage, because we can interweave that in a way that online-only retailers can’t. Think about it. If you can stand at a shelf, when you’re about to pick up a really unhealthy item, and you can look at your phone, and your retailer—who already knows your preferences—can help you make an awesome, tasty decision for a different healthy product, and oh by the way it’s on sale? How powerful is that?”

The keynote also featured a panel Q&A, hosted by Mast, featuring Julia Collins, Founder & CEO, Planet FWD and Moonshot; Robert Craven, Co-Founder & Managing Partner, Findaway Adventures; MaryAnne Howland, Founder & CEO, Ibis Communications & Global Diversity Leadership Exchange and a Co-founder of the JEDI Collaborative; and Danielle Nierenberg, President, Food Tank. Some gems from the speakers:

“Curiosity is the foundation for innovation,” shared Collins. “I think it is the most—the most—important characteristic of every entrepreneur, every founder, every changemaker. That $400B target that we saw this morning in the data session? We don’t get there by following the status quo. We get there by being curious. And for me—curiosity is both a mindset, it’s a way that I think, and it’s also a practice. In 2015, I asked myself the question, how can we make the work of restaurant people safer and more joyful? And we created a company called Zume Pizza, which used robots working together with humans to make pizza. In 2019 I asked the question, what would the world look like if every product was sourced from farmers that practiced regenerative agriculture, and was climate-friendly, and carbon neutral? And that’s why we built Moonshot, as the first climate-friendly snack brand. In 2020 I asked, how could I make it easier for all brands to create their own climate-friendly products? And that’s why we created Planet FWD. It’s always—how would the world look if I, fill in the blank.”

Howland’s take on curiosity: “The JEDI Collaborative worked with Ryan Pintado, Smoketown Strategy, who asked the question: What are we willing to fight for? And if you ask me that, my fight is all about closing disparity gaps. One of the things that I think about is—I’ve been working alongside corporate America for the past 20 years on DEI. I’ve been working with them on recruitment and retention, supplier chain diversity, community partnerships, and finding ways for them to connect with multi-cultural markets—I’ve been doing this for 20 years. And look at the disparity gaps. It hasn’t changed much. I’ve grown disillusioned. So what I’m curious about? Is what will this industry do. The reason why I’m here, and working alongside all the people who have expressed a commitment to the work of JEDI—I’m here because of that. And if the full commitment of this industry is not realized… I don’t know about you, I don’t want to become disillusioned again.” Howland noted that since the summer of 2020 protests surrounding George Floyd’s murder, there has been a sudden uptick in attempts at diversity—but pointed out that the same thing happened right after the civil rights movement, but historically, nothing has changed. “So the work that has to be done, from my perspective, is the work around policy. We have to change policy. We have to embed JEDI into the cultures of companies that are committed to this work, and I’m curious as to whether or not you’re going to be able to do that. And for those companies that are bold and courageous? Who want to do this work? I’m here. These are the companies I’m going to work with, because I’m tired of fooling with nonsense. We have to work on closing the health gap, that has such an incredible impact on minorities, and women, and underserved communities, and poverty—that has to shift.”

Craven’s answer: “In the past three to five years, from a business standpoint, I’ve never seen more change. Business model templates—thrown out. Channel strategy—throw it out. I see an awakening happening. Things like JEDI are becoming more important, which means curiosity becomes more important. At Findaway, we’ve been focused at the early-stage ventures, to help them really think about how to grow their business in all this change. We’ve been focusing on bringing conscious leadership into these businesses. And commitment number two is all about curiosity. I’d submit that curiosity is really important in these new businesses that are going to make the most change. Curiosity is vital, because of all the change.”

For Nierenberg: “Food Tank is all about story-telling. If I wasn’t curious, if my staff wasn’t curious, we wouldn’t be able to tell these stories, and inspire change, and create activation. But I think, as Robert said, we’re at an awakening right now, but we also need to come to a reckoning. And I think it’s the curiosity of business leaders that’s going to help bring that real change that needs to come about. We are still not able to make the change that needs to happen in the food industry, just by looking at this room—we need to be able to ask questions constantly. Curiosity is at the heart of everything I do, but it’s also at the frustration part of everything I do, right, because we’re constantly asking questions that can’t be answered, but they need to be answered now. We don’t have any time to waste. What I’m most curious about is why others don’t understand the urgency that I know everyone in this room feels—the urgency to make changes around diversity and equality, the urgency around the climate crisis, our multiple political crises—that’s what inspires me. The ability to get people to activate. Get them moving on these issues.”

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Shifting to what success looks like, Collins told attendees: “Here’s the fact: We’re living in a very, very narrow window of time where we can do anything about the climate crisis. And that can feel very sobering. But it can also, if you reframe it—it can feel really exciting. Because the truth of the matter is, we have the technology we need to drive towards a net 0 future right now. It actually won’t take a Moonshot technology, it’ll take a Moonshot vision. It’ll take everyone in this room coming away and deciding that now is the time to make a difference. So the way we define success at Planet FWD and Moonshot is, it’s very clear: How can we get as much done on the climate crisis, as quickly as possible, so that we can safeguard a livable, prosperous, beautiful future, of course for our future, but also for us, we deserve that. So I work with a lot of urgency, my team works with a lot of urgency. We get up every morning, with a fire in our bellies to make it happen, but we also work with a lot of joy, because if you think about it, it’s really a privilege, to be alive, and to be in a position of power and influence, during this really special window of time when it’s still possible to make change. We have less than 100 months, guys, we have less than 100 months to reduce global emissions by 40%. And we’re not on track, but we can be. And that is the opportunity. Now really is the moment to deploy as much talent, as much capital, as much innovation, as much JEDI as we can to solve the problem. So for me success is clear. It’s how can I use my work on this planet, right now, in this moment, to safeguard a climate-friendly future for everyone.”

Asked about how to improve JEDI, in order to reach the level of innovation that Collins is discussing, Howland’s suggestion: “Those companies that do not have representation? The first thing I would do is take a look at your mid-level management, and if you don’t have any people of color or women in that role, don’t just hire one, hire two. You need to hire two at a time. There have been lots of conversations about how difficult it is to be the only one in the room. And you won’t get the maximum contribution from an individual who feels uncomfortable or feels as though they are not being listened to. Therefore, you need someone else that they can relate to. Second thing I can recommend is—make the commitment to do the work. Be honest with yourself about where you’re failing. Where is there systemic inequity in your organization. And once you understand that, don’t be afraid to ask for help. There are lots of advisors and experts who will be able to work alongside you to help you implement strategy. One of the tools the JEDI Leadership Institute, which we are currently establishing—it’s designed to help leaders in these industries do a deep dive into the work of policy, internally and externally within your organization, addressing such things such as hiring and belonging within your organization. And by the way, that’s a term that I’ve always had a problem with, and I’ll tell you why. I’ll tell you where I belong: I belong in a company that’s going to pay me a fair wage, that’s gonna give me an opportunity to advance up the corporate ladder, and that takes care of my family, and I can have a retirement income. What the person in the booth next to me thinks about me? I don’t much care. I want to work for a company that’s going to give me equal opportunity. I know we get caught up in the diversity training and how we speak to one another—and not to say that’s not important—but know that what really matters is how each individual worker is treated in your organization.” And JEDI 2.0, she said, is working on that. More on JEDI can be found here.

Nierenberg spoke on new, impactful technology, saying: “The best technologies and the best innovations are the ones that build on existing traditional and cultural innovations themselves. The ones that help farmers and innovators develop something that’s already there, but needs a little more oomf behind it. One good example that I’ve seen with the Alliance for Biodiversity and the Center for Tropical Agriculture in Columbia—they’re working directly with farmers to develop ways to measure soil health, to manage pests and disease. They’re working directly with farmers, and this is really important, because in the past, a lot of research has been done by white guys in lab coats or business suits, or people who look like me, and it hasn’t been done with the people who actually receive the sometimes-benefits, receive the products or innovations themselves. And that’s why some innovations really don’t work, particularly in parts of the global South. And I think we need a real paradigm switch, and you see pockets of organizations and research institutions doing this, but there are also so many in this room, but being able to develop ways to analyze ingredients, and then provide those to business leaders, especially those working in underserved communities, to make the most nutritious product possible. We need more nutrient-dense food. These snacks are great, I eat them all the time, but we need more nutrient-dense foods in underserved populations. We need more of this interaction, this participatory work. It’s possible, it’s needed, but we need to get out there and do the work. The more that we can get all of these folks on board and get them involved in the process, the better.”

And when asked what Craven is seeing and what he’s excited about, he said: “I’m very excited about the learning that I’m getting, and how we’re applying that to the innovative approaches of how we build businesses. So trying to think through new business approaches, new ways to attack a channel, new ways to do business, new ways to partner, even things as sacred as margins. We’re kind of blowing up everything to try to find new ways to mesh seed-level investing with the Founder’s passion for changing the world, and then baking that into their business strategy in a way that’s scalable. We’re also looking at CPG tech—it’s how consumers interact with a packaged good. There’s lots of technology coming out around that that can help spread the message of the social impact part of the business strategy. One example is a device baked into a label, that not only tracks a product through its supply chain and gives you good omni-channel data, but also you wave your phone over the product and it can tell you the story of the farm or go deeper and tell you about transparency. We’re real interested in that kind of technology as well.”