Monitor: Inflation could have a positive side for natural foods

Natural Products Industry Health Observatory, July 21, 2022

As the world emerges hesitantly from COVID-19, new challenges emerge. In this feature, New Hope Network provides an ongoing update on these challenges and the opportunities they provide. Look for the Industry Health Monitor every other Friday for major news that immediately affects the natural products market and less obvious information that could dictate where the market may struggle or prosper in the months ahead.

We are already hearing about the challenges retailers are facing with inflation; these misfortunes add up to a tight labor market that makes it difficult to fill shelves, even when a struggling supply chain provides enough goods to fill them. We also hear of early-stage brands struggling to plan for ever-increasing costs and then struggling to explain how they will factor those costs into their profit projections.

What we don’t hear about is how natural products, especially groceries, are spared the impacts of inflation that other industries face and how a loss in a particular sector of the economy could be a boon in another – in this case, natural products. Simply put, when people tighten their budget, eating out is among the first budget items cut and when people don’t eat out, they eat there.

Pandemic shutdowns sparked a renaissance in home meal preparation, and grocery stores benefited when restaurants closed. We cannot expect the same effect to the same degree, but we can point to evidence of desirability. In new consumer research conducted by New Hope Network’s Next Data & Insights team, entertainment and “out-of-home food” were the shopping categories most consumers said they cut back on. In both categories, 42% of respondents said they shopped less, a number higher even than “clothing” and well above the 25% who said they shopped less at groceries (food and drinks).

Drilling down into the core categories of the natural products industry, we find that only 23% of consumers said they were reducing their purchases of natural and organic foods and beverages. Only 20% said they were cutting back on fresh produce, a category that also stands out as having the largest share, with 17% saying they were buying more. The categories with the highest proportions of people saying they were cutting back were snacks and desserts (37%) and pre-packaged meals (32%).

The two categories — snacks and desserts and pre-packaged meals — stand out as indulgences that, like eating out and buying tickets to entertainment events, are nice to have but not necessary to live by.

Eating, of course, is necessary to live, and if you don’t eat outside the home, you eat at home and probably buy that food from a grocery store. The fact that about half of respondents reported buying the same or more natural and organic food and beverage products tells us that natural products may not be the victim of tighter budgets than we might have assumed. The fact that the price gap between conventional and organic has narrowed since the last major economic crisis in 2008 could also be encouraging.

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