| |
|
|
GreenMoney Journal - publishing since 1992
Fall 2010 issue
Socially Responsible Investing – Better Companies, Better Communities
|
| |
THE NATURAL PRODUCTS BUSINESS
It's difficult to know where to begin discussing the natural foods business. It's now an industry.
Growing at 20 percent each year during the last decade, the organic and natural foods industry now
earns $10 billion in yearly sales with plans to double to $20 billion in the next four years.
One reason for the growing popularity of natural foods is the need to keep our food supply
healthy in the face of genetically modified foods and industrial pollutants. Of course, mad cow and
foot and mouth diseases endanger animals and, therefore, meat-eaters all over the world.
And now the good news, the $10 billion a year market for organics is literally changing the
marketplace. Some points of note:
1) The USDA, working with the Organic Trade Association
(www.ota.com) and many others, has developed new National Organic Standards that are the strictest
and most comprehensive standards in the world. They will be in full effect by October 2002. For
more on the organic guidelines, Stonyfield Farm is offering a nine-page booklet entitled "A
Practical Guide to Understanding Organic" which can be downloaded free at- www.stonyfield.com.
2) Europe, Britain, Japan and the U.S. sales of organic and natural foods have reached
more than $60 billion a year. Numerous conferences are being held throughout the world on natural
foods and products. The biggest conference is in Germany, with over 1800 exhibitors of organic
products from all over the world. In the UK, organic food sales are growing at 40 percent a year.
The country is celebrating a National Organic Week from October 15-21. The week long event includes
an organic living show featuring organic food and drink, natural healthcare, well being,
ecoproducts, sustainable homes, organic gardening, ecotourism and ethical investing along with rock
concerts.
3) There are strong new calls for mandatory labeling of products made with
genetically modified foods. Britain, Japan, South Korea, Australia and most of Europe have adopted
labels on genetically altered foods. There is also an increasing ban on exports of genetically
modified products.
4) Mainstream companies are buying into the natural products industry
(Kraft, General Mills, Unilever, Mars, Kellogg's, Heinz and others are offering natural products
for the first time). Almost every food item is available in organic form: baby food, breads, body
care, frozen foods, juices, nuts, supplements, dairy products, eggs, produce, meats, herbal
remedies, coffee, teas, cereal, fruits, vegetables, wines and beer, etc.
5) An example of
the changing marketplace: Dole Food Company joins Chiquita Brands in selling certified organic
bananas. Marta Maitles, director of communications for Dole , remarks, "We've been researching
organic bananas for years. There's been such an increase in the organic market that we knew there
was a place for us." Certified organic farms in Ecuador and Honduras will grow the bananas. Dole
also offers pre-washed and pre-cut organic salad and transitional apples. The company is
researching organic pineapples.
Last year, Chiquita Brands International was awarded
Better Banana certification for all its 127 company-owned banana farms in Latin America. It is the
only global banana company to meet the stringent environmental and social standards of the
Rainforest Alliance's Better Banana Project. The certified Chiquita bananas equal 15 percent of the
total exported bananas from Latin America. Today, certified bananas make up over 90 percent of
Chiquita's total volume to Europe and about two-thirds of the volume to North America.
One
of the remaining challenges for the industry is distribution and supply. At the first ever Organic
Trade Association Conference recently these were some of the questions being asked: Should organic
be mass marketed in a Wal-Mart or Safeway and should every food have an organic option such as an
"organic Twinkie" or should it be a "better quality food" available in the growing number of
natural foods stores such as Whole Foods Markets and Wild Oats Markets (together they have
approximately $3 billion in sales), local food co-ops (like the Puget Consumer Co-op in Seattle
with over 35,000 members) and farmers markets.
How best can this industry grow? Lower
prices, wider product availability, increased consumer awareness, and growing supermarket
involvement will all boost the demand for organic foods. Government support of domestic production
will provide further stimulus to growth.
The conversation about organic food as a
response to genetically modified products has also made the larger national forum in The New York
Times, The Los Angeles Times and even The Wall Street Journal.
People concerned about
their health and food safety drive this industry. As people choose more healthy and sustainable
lives this is reflected in the products they buy. More people are eating foods free from
unnecessary additives, made from natural ingredients, not tested on animals and often organically
grown. Many health conscious people are vegetarian, but there is also a growing market for natural
and organic meats. With 70 percent of the conventional grocery store products genetically modified,
labeling has become a key issue; an informed consumer can make or break a product in the
marketplace.
In this issue of GreenMoney, we also look at the complex world of Organic and
Fair Trade coffee. We look at some long standing fair trade and organic coffee companies and at a
new one in the world of fair trade creating a bit of froth, Starbucks. We also profile one of the
most successful natural beauty products companies in the world, Aveda. From food to beauty, your
morning coffee to your morning shampoo, it's all about creating a healthy world. First up is a look
inside the natural products industry with Frank Lampe, editor of the Natural Business newsletter
http://www.naturalbusiness.com
A note on a future issue: our October /November 2001 issue
is about "Shopping with Your Values," so we will continue this conversation there.
THE
HEALTHY LIFESTYLE SECTOR by Frank Lampe
It's tough being green. Especially if your
chosen business is as a manufacturer or retailer of dietary supplements. While the robust growth of
organic foods now drives the overall Healthy Lifestyles sector, it wasn't always that way. Up until
recently, the supplements category was the engine that fueled growth, but it has lost its luster as
manufacturers frantically adjust production schedules and inventories to meet lower sales volumes
resulting from an increasingly skeptical public turned off by unmet product performance
expectations, negative media and quality assurance issues. Who knew?
Back in July of 1998,
the supplements industry rode high on 25 percent year-over-year growth rates, fueled by favorable
national legislation, easy initial public offering (IPO) money, fat profit margins and plenty of
positive press about the emerging scientific validation of the effectiveness of many vitamins and
herbs. But inflated profit-to-earnings ratios, the sudden widening of distribution channels and a
lack of blockbuster products such as St. John's wort and glucosamine changed all of that as
consumer demand dropped along with retail prices and profits. Sales figures from Chicago-based
Information Resources Inc. consistently show lower year-to-year sales in the food, drug and
mass-market channels since mid-1999.
To make matters worse, the overall industry, up until
then the darling of Wall Street, fell victim to an overall market correction in August 1998, as
overvalued microcap stocks fell out of favor to the less volatile blue chips. Things have never
been quite the same.
Nearly three years later, however, there are signs that
profitability is starting to return to the supplements companies, even as organic foods continue to
find a home in kitchens across America, which is good news for everyone with an interest in the
products and the companies that make them.
Consolidation & Mainstream Drive the Current
Market
Many observers agree that the modern natural products industry, which owes its
origins to the early health spa movements at the turn of the century, came of age with the IPO of
Whole Foods Market (WFMI) in 1992. Since then, numerous companies, including Twinlab (TWLB), Weider
(WNI), Wild Oats Market (OATS), Hain Foods (HAIN), now the Hain Celestial Group after the merger of
Hain and tea maker Celestial Seasonings, among others, have funded their growth via the public
markets and relatively inexpensive cash. That in turn led to the inevitable consolidations at all
levels of distribution that mark any maturing industry. Yet by most standards, the natural products
industry is still highly fragmented on the supply side, with thousands of brands fighting for
market share-very few supplements brands account for even 10 percent of the total market-which will
lead to further consolidation.
Too Small for SRI Funds
From a philosophical
standpoint, it would seem that Healthy Lifestyle stocks would be a natural for inclusion in the
plethora of socially responsible mutual funds that currently compete in the marketplace. But there
is one big problem. For the most part, the companies themselves just aren't big enough, in terms of
annual sales and/or market capitalization, to warrant the interest of fund managers.
Companies that have found their way into SRI funds include Whole Foods Market, Wild Oats
Markets, Horizon Organic (HCOW), Odwalla (ODWA), and Nature's Sunshine (NATR).
Amy Domini
says that the fund that bears her name looks for companies with a market cap in excess of $100
million with specific growth parameters. Other fund managers echo the same sentiment. And between
the depressed market for the sector in general and the massive amount of consolidation, there just
aren't too many companies that qualify for inclusion.
The Future: Steady Growth and
More Consolidation
In spite of the recent setbacks for supplements, the future looks
bright for the overall category.
The good news is that the basic fundamentals driving
industry growth remain and are expected to bolster the long-term viability of the marketplace.
Those factors include the continued aging of the American population, increased awareness of the
correlation between diet and health, continued scientific validation of the products and the rapid
emergence of complementary medicine.
Yet analysts say that the medium- and long-term
growth prospects for supplements will be in the mid- to upper-single digit range. Organic foods are
expected to grow in the mid-double digit range over the next five to six years.
Food
scares such as mad cow and foot and mouth and concerns over environmental issues continue to drive
organic foods sales. With natural foods still only comprising two to three percent of the total
American food bill, currently estimated at around $450 billion, there's tremendous room for growth.
Additionally, analysts from two investment houses that are active in the area, Salomon Smith Barney
and Adams, Harkness & Hill, say that the supplements sector should start to see positive results
later this year.
But who's going to benefit from the growth? As long as there is industry
growth, there will also be consolidation. And while consumers stand to benefit from greater
availability and lower prices, will they be best served by the corporate America that continues to
gobble up natural products companies? That's the $64,000 question.
To behemoths such as
Kellogg which now owns Worthington Foods; General Mills, which purchased Small Planet Foods, maker
of the Cascadian Farm brand; Kraft, owner of both Balance Bar and Boca Burger; the
Netherlands-based Royal Numico, owner of both General Nutrition and Rexall Sundown; and others,
acquisitions within this space are often spare change buys. These conglomerates are so big that
many such purchases don't even have to be itemized or the purchase prices otherwise released to the
general public.
Will the corporations that enter the space to take part in the healthy
living trend of their customers serve them the same way that the mostly mission-based,
entrepreneurially driven enterprises did in the past? Will they continue the tradition of donating
a percentage of profits to an environmental or socially responsible charity and operate in a
socially conscious manner? Time will tell, but for consumers who prefer to support mission-based
businesses, they would do well to check the credentials and mission statements of the companies
that they plan to patronize.
It is clear that the consolidation trend of the past few
years will be a primary driver in this new century. For investors, this trend provides
opportunities for those with the stomach for seeking out acquisition candidates that can benefit
from a high takeout valuation, as much larger acquirers show a willingness to pay a premium for
high growth food companies and for supplements players, once profitability returns to this area.
IN CLOSING
Please remember that you are an important part of the solution
here, the natural food business is dependent on all of us for support. Vote with your dollars; buy
organically grown products and support the 8,000 organic farmers in the U.S. Here are few of the
numerous personal and global benefits:
Organic farming builds strong, nutritious living soil
with fertile compost, which prevents unnecessary wastes from entering, landfills.
Growing
hardy and healthy plants naturally, without persistent synthetic chemicals, protects our land and
our water supply
Creating habitat for beneficial insects establishes a balanced ecosystem that
keeps pests and disease in check naturally.
Finally, we would like to invited you to attend
the annual "Bioneers: Revolution from the Heart of Nature" conference this fall. The speakers for
this unique event which draws over 2000 people each year include: Janine Benyus, Amy Goodman, Julia
Butterfly Hill, Frances Moore Lappe, Dr. Andrew Weil and many more. Special focus of this year's
conference: Health & the Environment. Other discussions include conserving biodiversity,
environmental education, spirituality and nature, investigative journalism, and business for social
change.
The Bioneers conference will be held October 19-21, 2001 at the Marin Center in
San Rafael, CA. For more information call (877) BIONEER or go their web site at-
http://www.bioneers.org.
GreenMoney's Cliff Feigenbaum and book author Hal Brill will be
attending and having a booth at the conference.
Reminder to Readers: GreenMoney Journal
is now six issues in 2001; subscribe today by calling (800) 318-5725 and get the June/July 2001
issue on socially responsible investing.
- Cliff Feigenbaum, editor & publisher, cliff@greenmoney.com
|
|
|
Home | Archives
| Sponsors |
Links | Calendar
| Contact Us |
Advertising
| SRI News
MISSION
STATEMENT
The GreenMoney Journal encour-ages and promotes the awareness of socially
& environmentally responsible business, investing and consumer
resources in publications & online.
Our goal is to educate and empower individuals and businesses to make
informed financial decisions through aligning their personal, corporate
and financial principles.
“Responsibility from the Supermarket to the Stockmarket.”
The material presented in this news letter is for educational and
informa-tional purposes only. The GreenMoney Journal does not endorse
or recommend firms, products, funds or advertisers.
GreenMoney is a registered trademark.
Copyright 1995-2010 by the
GreenMoneyJournal ®
Green Money is a Registrated Trademark
of The GreenMoney Journal / Cliff Feigenbaum
|
|
|
|
