Organic Stores Hurt By Rising Food Prices

Twice a month, Chris McCullough would drive to the Whole Foods market near Cleveland to stock up on organic groceries like haricots verts (French green beans), artisanal cheeses and fresh fish. Among her friends, the 67-year-old gourmet is renowned for her sumptuous ginger salmon. But with the price of groceries soaring, McCullough has had to take Whole Foods off her shopping list. "I miss it terribly," says the Aurora, Ohio, administrative assistant, who now shops at her local market. "But let's face it, I just can't afford it anymore. Food everywhere is just so expensive lately. It's insane."

With food prices rising, the bloom is going off organics. The healthy-food craze mushroomed this decade, growing 150 percent since 2001 to reach $19 billion in sales last year. Driven by a rising demand for food free of pesticides and growth hormones, organics went mainstream, moving from tony Whole Foods to the produce aisle at Wal-Mart. But now with gas near $4 a gallon, the $7 gallon of organic milk doesn't look as good. (A gallon of conventional milk at Kroger will run you as little as $2.99.) In a new survey from WSL Strategic Retail, only 27 percent of shoppers thought organics were worth the money—even though most agreed they are healthier. After years of 20 percent annual sales growth, consumers are curtailing their consumption of organics, according to market researcher the Hartman Group. "Organic strawberries looked nice in February," says Nancy Massotto, who runs a "green parenting" network in Caldwell, N.J. "But I'm not paying $6 for a pint when I'm paying $4 a gallon for gas."

Organic foods face the same pressures that have driven up the cost of plain old white bread 16.3 percent this year. Energy and commodity prices, along with corn farmers' gold rush into ethanol (feeding our tanks instead of our tummies), are sending the grocery bill skyward. Organics' growth and premium prices once persuaded farmers to go through the costly three-year process to cleanse their fields of chemicals to become USDA-certified as a green grower. But now with corn, grain and soybeans at record prices, the financial incentive is to grow conventionally. The rising price of organic grain is making it tough to feed all those free-range chickens and synthetic-hormone-free cows. Some organic farmers in the Northeast are even converting back to chemically enhanced crops to boost the bottom line. Fewer organic farmers means higher prices and less variety on greengrocers' shelves. "Organics is becoming the private school of food," says Ken Cook, president of the Environmental Working Group, which tracks organic-food production. "It's great if you can afford it. But pricing it out of people's reach is not a strategy for expansion."

The price hikes come just as many of us are giving organics a try. Some four in 10 Americans bought organics in the past six months, according to a new survey for Prevention magazine by the Ford Marketing Institute. So far, the majority of those organics shoppers are continuing to buy healthy foods. But among those who did not come back for a second helping, 70 percent said they found organics too expensive. And is it any wonder with a loaf of organic bread reaching $4.50 and a liter of Italian extra-virgin olive oil approaching $50?

It once appeared that the impressive demographics of organics shoppers—high income, well educated—made them impervious to concerns about cost. Whole Foods (dubbed "Whole Paycheck" by some shoppers) has long argued that it fares better in tough times because its well-heeled clientele cuts back on fine dining in favor of its fancy prepared meals. But even Whole Foods is showing signs of strain, with falling profits and its stock price off 20 percent this year. "A sharp consumer downturn in 2008 will create at least some downside pressure on sales," Credit Suisse food analyst Edward Kelly wrote in a new report predicting a further drop in its stock. Whole Foods declined an interview request.

To avoid losing the customers they've carefully cultivated, organic growers are trying to hold the line on prices. Stonyfield Farm, an organic dairy business, has been hit by five cost increases from its milk producers in the past five years, but has raised its prices only twice. "Despite the fact that we were once again hit with a $3 million milk cost increase this month, we do not feel that we can pass along another price increase," CEO Gary Hirshberg told NEWSWEEK in an e-mail. "Any further price increase will only hurt our mission to continue growing organic consumption."

Some true believers in natural living are adjusting by simply eating less. New Hampshire karate instructor Mark Dana has cut out fruit for breakfast and grass-fed beef (which has jumped from $6 to more than $8 a pound), and serves himself smaller portions. "The cost of feeding myself processed foods is far greater than the cost of organic foods," he says. The problem is that hard-core devotees like Dana represent only one out of five organics shoppers, according to the Hartman Group. Most are more price-sensitive. Darlene Sall suffered sticker shock on her first visit to a Whole Foods near Chicago last week. "Wow, that milk is a lot," she said, eyeing a $5.99 gallon. "That's more than I'll pay." It's a response that seems increasingly natural in the organic aisle.