Zacks_Analysts' Blog : Organic Products in Demand - Analyst Blog

On account of mounting competition from alternative channels and evolving consumer needs towards a healthier life, the natural and organic sector is gaining importance. The natural products sector (which includes organic foods, nutritional and herbal supplements, cosmetics and medicines, among other categories) generated sales of over $68 billion in 2008. Over the last five years, the natural products industry grew 8% versus 2% for the overall grocery industry. Most recently in 2008, the natural products industry grew 7.4% versus a 2% decline for the grocery industry.

Food companies like Dean Foods (DF), Hain Celestial (HAIN), United Natural Foods (UNFI) and Del Monte (DLM) are market leaders in the natural products sector, and the competition is primarily based on brand recognition, price, taste preference and quality. Acquisitions have been a key part of these companies strategy to build their market share. Acquisitions have not only expanded their geographical presence but have also provided opportunities to cross-sell products.

DF and HAIN, being the market leaders with international presence, have acquired many companies with organic product portfolios in the recent past. UNFI and DLM are the main players in the domestic market.

Similarly the natural and organic cosmetics category is also believed to be performing well and gaining importance. Physicians Form Face (FACE) has a complete range of cosmetics in the organic makeup line -- from pressed powder, foundation, blush, eye shadow duo, mascara, concealer stick to makeup removers. FACE competes against leaders such as Avon Products (AVP), Estee Lauder (EL) in the prestige beauty industry. Since natural products are gaining importance, Avon also introduced a new cosmetic range Live Botanicals, with primary ingredients being plant extracts.