It has already been mentioned that the organic food industry of the United States has experienced an impressive growth over the past couple of years. Even in the year 2010, this industry has experienced a growth of an amazing 7.70% for the organic fruits and vegetables, whereas the organic dairy sales have expanded by 9 percent in the year 2010 alone. This also shows a crucial trend that has continued in the year 2011. In the year 2010, the organic food industry managed to increase its overall market share of food sales to 4 percent. This shows that the market is experiencing a shift towards organic foods and this will also have a positive impact on the organizations that sell these organic foods.
The rate at which the production of organic foods is increasing is quite less than the increase in consumer demand of organic foods. As a result of this U.S. had to import a significant amount of organic products to cope with the increased consumer demand; which the local production failed to satisfy. At the retail level, organizations dealing with organic milk and produce are subject to hefty price premiums. This is mainly because; organic food costs more to produce and therefore they also tend to command higher price premiums.
In order to analyze the competitive environment that organic foods create for organizations dealing with them; we will use the Porter’s Five Forces Model. This model focuses on five crucial aspects of the competitive environment.
Threat of New Competition: The existing organizations selling organic food have to compete with foreign firms who are selling their products in the U.S. market. Organizations that traditionally sold organic products now faced tough competition from private companies, who have started to provide organic products at cheaper prices.
Threat of substitute products or services:
Organizations dealing with organic products comprise of a mere 4% to 5% of the overall food market. This means that they also have to face tough competition from the producers of non-organic food. Therefore, attracting customers to buy the more expensive “organic food” instead of the cheaper non-organic substitutes can be quite tough for these organizations.
Bargaining Power of Customers:
Over the past couple of years, the demand of organic products has catapulted significantly. The trend of growth in the organic food market is expected to continue for the next couple of years. This means that the companies providing these products are at an advantageous position, at least for the next couple of years and the bargaining power of the customers can be expected to be quite low during this time frame as well.
Bargaining Power of the Organizations:
Nowadays, large organizations have entered the organic food market, promising to offer products at a cheaper price than previously possible for this industry. Most of these large companies buy the product from the farmers and then sell them through the retail shops. The implementation of bulk production, buying and selling mechanisms have allowed them to enjoy lower costs; thus allowing them to offer a lower price for their produce. This means that these large corporations also enjoy a significantly higher bargaining power than their predecessors in this field.
Intensity of Rivalry between the organizations:
The organic food industry players’ prime competition is the other firms offering such products to customers. Apart from this, they face little competition from the other retailers who are offering non-organic products or even the organic ones, but at a very small scale.
SWOT analysis for organic food industry
Strengths: This industry’s primary strength is the huge quantity of customers available to buy their products. Organic products are perceived to be valuable for both and environment and also socially, as a result of which these costumers are willing to pay a premium price for these products.
Weakness: The industry often has to charge significantly higher prices than those of the non-organic products. This means they may have to face tough competition in increasing their market share in the overall food industry.
Opportunities: As customers become more and more inclined towards organic products, this industry may also enjoy greater market share in the future. Its growth is already increasing at a significant rate and it is expected to grow in the next couple of years as well.
Threats: The entry of foreign organic products is a threat that this industry currently faces. Already, a significant amount of organic products are being imported from Asia and Europe with the intent to satisfy the increasing amount of customer demand. If foreign players enter the U.S. market, then the U.S. organic producers will undoubtedly faced more intense competition.
The organic food industry can encourage the customers to buy locally produce products, which will ease off the competition from foreign firms to a certain extent. As already mentioned, the demand for organic products is increasing at a high rate and this industry can enjoy momentous growth rate in the future as well.
1. U.S. Organic Industry Overview. (2012). Retrieved on 24th May 2012 from http://www.ota.com/pics/documents/2011OrganicIndustrySurvey.pdf
2. Thilmany.D. (2006). Retrieved on 26th May 2012 from http://organic.colostate.edu/documents/Thilmany_paper.pdf
3. Research and Markets: US Organic Food Market Analysis. (2010). Retrieved on 26th May 2012 from http://www.businesswire.com/news/home/20101112005893/en/Research-Markets-Organic-Food-Market-Analysis
