Kroger Takes a Bite of the Organic Market, Whole Foods Downsizes

We've been waiting for it for years. For those who spend a significant amount of their paychecks and consumer strategies avoiding the presence of pesticides and genetically modified organisms in food, it's great news: Organic has finally gone mainstream.

According to some analysts, that boon is due largely to one major corporation. And interestingly, it's not Whole Foods, Natural Grocers or another niche natural foods chain.

Kroger, the owner of Fred Meyer, Ralph's, City Market and Sooper's, has been not-so-quietly setting up shop in the organic sector, building a niche that now includes its own certified line of packaged organic products. And best of all, they meet a criteria that Kroger's main natural foods competitor has been struggling to meet in recent years: They are mainstream-affordable.

But let's be fair here. Is it all Kroger?

Organic foods sales exceeded $39 billion in 2015, according to the Organic Trade Association. While that is only about 5 percent of the revenue generated by food sales in general, it's a growing sector that has supermarket chains fully engaged. As of 2000, reports the USDA, 49 percent of all organic products was sold in conventional supermarkets." And that command of the market has continued to grow. Retailers like Safeway, Albertsons (co-owned now), Walmart and niche locations like Trader Joe's now outsell the corner natural food stores, which have, in some cases, become the more expensive go-to places for high-quality, less-mainstream natural and organic products.

Still, analysts credit Kroger's lower-price marketing strategy as one of the reasons that organic shoppers are growing. Unfortunately for Whole Foods, it's also one of the reason for the drop in its own sales, which following the 2008 recession seemed almost unbeatable. Consumers have realized that sometimes a big-box store will do when it comes to organic foods, especially if the prices are more affordable.

And that realization is also forcing Whole Foods to do a re-think of its own marketing strategies, with a smaller footprint called 365. Lower prices, too, will be part of the concept, says Jim Sud, Whole Foods' vice president of growth and business development.

The new store will be geared toward more conservative pricing and allow millennial consumers to use social media and other technology in the store. It will also do something that the mega-size Whole Foods often didn't: It will try to fill a niche in moderate- to lower-income neighborhoods that don't have a lot of retail food stores, like the adjoining area between Houston's Garden Oaks and Houston Heights neighborhoods. The store, which was due to open this year, will be one of a dozen or so spread across the country.

For the consumer that wants affordable organic and natural foods, and isn't in the position to drive miles to go to one store, these changes are good news. It means more competition across the board.

But given the variety of controversial press Whole Foods has received in recent years, it's worth asking if there is a lesson to be gained in this transition. Is mainstream market success in organic foods all due to downsized pricing? Perhaps if it were, consumers wouldn't have backed it as strongly after the recession.

Kroger's organic success vis-a-vis Whole Foods' forced remake says a lot about consumer mindset -- and the questions that need to be asked when taking on a market that may seem, on the surface, like just a niche concept that no one will else will be able to tackle.

Image credits: 1) Flickr/Nicholas Eckhart; Flickr/Osbornb