Organic Produce Prices Being Met with Consumer Resistance

Prices are of the utmost importance to consumers today, with many shoppers thinking about their food bill before they take their first step into the store. Rising prices have changed the way they determine what items they can and cannot afford to purchase. Items now priced beyond their financial means are simply bypassed.

Inflation has set off a chain of events across the produce industry as the operating costs of farming have increased immensely. Since most of those costs are passed on through the system into the retail network, this directly affects consumer prices.

When inflation forces higher retails, sales can show an increase even when volume declines. According to a recent report by Organic Produce Network and Category Partners, organic produce sales grew 3 percent in 2022. However, the volume dropped by −3.7 percent. In short, a number of organic consumers have spurned the much-elevated prices and chosen to purchase less organic produce or none at all. It also persuaded some shoppers to substitute conventional produce items, which have lower retails.

Prices are of the utmost importance to consumers today, with many shoppers thinking about their food bill before they take their first step into the store.

Organic farming is labor-intensive, requiring more work in the fields planting, growing, and weeding. As such, the cost of organics was already higher prior to the influx of inflation. Now that farming costs have gone even higher, produce directors find themselves in a difficult position when it comes to setting reasonable retails. Stores cannot afford to raise prices too much because do so will result in high shrink losses.

Produce directors have been hard-pressed these days to achieve their budgeted gross profit commitments for a variety of reasons. The supply and demand of certain items became plagued with weather disruptions, such as hurricanes, freezing temperatures, and atmospheric river rains. This eventually developed into a number of supply shortages.

In discussing profit budgets with a number of produce directors, I learned that most of their current gross profit deficiencies are being unrewarded in the organic produce category. Organic costs have escalated to a point where it compelled them to cut back display space or stock them as conventional. If a budget called for 40 percent produce gross profit, they could not afford 30 or 35 percent out of the organic section. That would pull down the overall produce gross profit, and the target budget wouldn't be achieved.

Organic farming is labor-intensive, requiring more work in the fields planting, growing, and weeding. As such, the cost of organics was already higher prior to the influx of inflation. Now that farming costs have gone even higher, produce directors find themselves in a difficult position when it comes to setting reasonable retails.

Organic growers need to understand that retailers are now forced to increase prices to the point where it exceeds the affordable range for many consumers. Inflation madness has far outpaced many home expenses when it comes to things like eggs, gasoline, and energy bills, and so some shoppers have started to drop off the organic loyalty wagon.

Let's face the facts that produce costs are running rampant, and organics are now too high for many retailers to absorb in their profit. Growers need to consider where operating costs can be adjusted in order to help retailers price items more attractively.

Shrink has become a growing enemy of retailers since the higher prices have turned off customers in the stores. Organic produce generally has less shelf life than conventional. If the excessive costs and retails slow down the product turnover, it will make matters worse by increasing shrink—and those losses are not acceptable to upper management.