Uk Organic Food and Organic Skincare Market

As the industry is welcoming new consumer entrants, the organic skin care industry is heading towards double-digit expansion. It is estimated that organic skin care products and toiletries will achieve a total five percent of the entire personal health and beauty industry (Organic Monitor 2013). This is substantial and there are no indications or statistics illustrating that consumer demand is going to drop in this industry.

The UK organic foods market, however, has not achieved the same type of growth as organic personal care and skin care products. As reported by the International Benchmarking of the Information Society (2014), between 2010 and the year 2014, the market witnessed a decline of 2.5 percent. It is a saturated market with 1,895 different businesses in the industry, with the top four organic foods marketers holding 59.4 percent of the market (IBIS 2014). This makes it often difficult for smaller players in the market to successfully compete against the market power and well-developed supply chains of the most powerful market players.

There are indications, however, that the market should rebound by 2018 as a result of the end of the 2008-2010 global recession and consumers regaining confidence about spending (PR Web 2013). It is estimated that the UK market for organic foods is valued at £1.79 billion, however this is a decline from 2008 valuation of the market at £2.1 billion (Smithers 2014). The major supermarkets, Sainsbury’s and Waitrose, both witnessed growth in organic food products in 2014 which illustrates that supermarkets are the most lucrative distribution channel that is favourable for many consumer segments. Interestingly, nearly 50 percent of all baby food products sold are organic-based which is fuelling more growth in this type of product (Smithers). Tesco reported that there was substantial growth in organic produce including bananas, lemons and melons (Smithers). It is also estimated that by 2017, the total value of the UK organic foods market will finally exceed the peak levels of 2009 (Statista 2015).

Box schemes and home delivery of organic food products is one of the smallest markets in organic foods, valued at only between £174.3 million and £216.3 million (Statista 2015). Therefore, it would appear that consumers are less attracted to the online distribution channel for organic food products and less interested in box schemes and home delivery options for these products. This might be a product of organic food products now more conveniently located in supermarkets and hypermarkets. To illustrate, Tesco launched a box scheme in 2012, where consumers could purchase organic vegetables using its online website, but scrapped the strategy after just four months (Lawson 2013). Box schemes are generally priced substantially higher than traditional food boxes, hence driving less demand. Box schemes and home delivery channels have sustained a lack of growth since 2007.

Schrader (2012) reports on the results of a consumer survey that states 91 percent of consumers avoid purchasing organic foods as a direct outcome of having a higher price. This might illustrate why consumers are avoiding box schemes and home delivery of organic foods as the industry is catering to a very price-sensitive market. Complicating this is that Waitrose, Tesco and Sainsbury’s are the largest players, holding 55 percent of the entire organic foods market (PR Web 2013). Therefore, established brand names of high-profile supermarkets with well-developed online sales channels might be more favourable to consumers that drive less interest in speciality box schemes from smaller players. This could be a detriment to smaller market players utilising a box scheme strategy and home delivery strategy where the industry is influenced by consumer price-sensitivity and more loyalty toward larger supermarkets that offer speciality baskets and box schemes via their established online channels.

Trends in the Organic Skin Care and Foods Markets

To determine the viability of the Organic Hamper’s opportunities and threats, it is necessary to examine the trends driving consumption behaviours and demand in these industries. Whilst there is minimal growth in box schemes, consumers are becoming drawn toward niche organic food products, especially noticeable in the sales of baby foods (Schrader). There has been an over seven percent increase in profitability for these products (Schrader).

Schrader (2012) reinforced that there are many price-sensitive buyers in the organic foods industry. However, there is no evidence that price-sensitivity drives consumption behaviours in the organic skin care industry. In fact, a survey from an organic trade organisation found that the number one reason why consumers do not buy organic foods was because of pricing (Wallop 2012). It is rather commonly understood that organic products maintain a higher price tag than non-organic products.

One of the key factors that customers are opting for organic foods is that they are considered to have greater health benefits. In a recent study conducted by experts at Newcastle University, it was found that anti-oxidant properties of organic foods were between 19 and 69 percent higher than non-organic foods (Carrington and Arnett 2014). The same research showed that 55 percent of organic foods consumers purchase these products for their perceived health benefits and 53 percent of consumers believing it helps avoid chemical residue consumption (Carrington and Arnett).

To achieve certification as an organic product, foods must be produced using sustainable practices that comply with crop rotation expectations, controlling pests using biological rather than chemical pesticides and use fertilisers that are natural (Mintel 2012). The use of artificial pesticides and fertilisers, or using genetically-modified strategies, will prevent products from being certified appropriately (Mintel). Producers that comply with these stringent regulations have opportunities to market these products as being certified organic, which appeals to the market characteristics of demographics that are concerned about the legitimacy of an organic claim. Companies that can achieve this certification through compliance have much more brand visibility and the ability to distinguish their products from non-organic foods.

This is critical as there is considerable growth in the phenomenon known as green and ethical consumption, whereby consumers are more attracted to products that have an environmental focus and emphasis on this type of corporate social responsibility (Thompson and Balli 2007). Companies are regularly responding to these trends, establishing sustainability management ideologies, corporate social responsibility efforts, and launching many ethically-conscious products. In fact, Huybrechts and Reed (2010) assert that this consumption trend is so significant, that it influences attempts of food producers to seek strategies to create social and environmental capability to increasing consumer demands for environmentalism and ethical product manufacture.

The Organic Hamper maintains a strategy that prides itself in sustainability and ethics, seeking strategies to recycle, in areas of fair trade sourcing, and philanthropy for community giving, both green and ethical business ideologies. Therefore, trends appear favourable for exploiting these opportunities using competent marketing strategies to appeal to ethical consumers (which will be discussed in detail later in the report).

There is one monumental problem trending in the UK, however, that could impact the short-term success of the Organic Hamper. Research indicates that in 2009, 33 percent of UK consumers were seeking budget brands as part of a new trend toward thrift (The Ranger 2009). This trend has continued through 2014, where consumers are seeking cheaper cuts of meat and are illustrating thrifty consumption behaviours (Poulter 2014). This could impact a demand for purchasing box schemes and other home delivery products which are typically priced higher due to their inclusion of organic products as a selling point.

PEST Analysis

From a political perspective, there is a governmental interest in promoting healthier eating as a means of ending the massive obesity problem facing the country. The Daily Mail (2014) identifies that healthy eating has become more visible with the Prime Minister of the country promoting that he swore off consumption of any sugary products for 24 hours in an effort to bring national attention to healthy food consumption. Therefore, the benefits of healthy foods is becoming more mainstream and capturing the attention of disparate consumer demographics as a result of government interventions and public health campaigns.

The EU has strict regulations and compliance guidelines for organic foods, whether procured domestically or internationally. Therefore, the Organic Hamper will need to be considerate of ensuring that all of its basket products maintain adequate certification labelling and documentation if the business is to promote these products as healthier than non-organic products. Fortunately, however, the organic skin care market is not as heavily regulated by EU regulations. This could potentially save costs for the Organic Hamper in terms of keeping documentation databases on organic product suppliers.

At the economic level, as an advantage, fuel costs have dropped dramatically in the last year. This impacts some dimensions of business strategy in terms of logistics and distribution and could lessen the costs of overseas procurement of skin care and food products if the Organic Hamper expands its supply chain. Furthermore, household incomes of UK consumers continue to rise as a result of various austerity packages implemented by the government and increases in employment as a result of an end to the 2008-2010 recession. Consumption expenditures in UK households increased 0.3 percent post-recession (Payne 2012). Therefore, this provides some evidence that consumer confidence is returning which is, at least moderately, improving consumption behaviours.

The social environment is, again marked by a new trend toward prudence in consumption. Prior to the 2008-2010 recession, consumers in the UK were more drawn toward conspicuous products that reflect wealth and social status. However, lessons learned through this recession have changed these social attitudes where many consumers are boasting about their thrift in consumption, making bargain-hunting socially acceptable. Euromonitor International (2009) reports that even organic shoppers are looking for superior bargains (another pricing issue) on these products to satisfy this social shift toward being frugal in purchasing. With such measurable growth in social attitudes becoming more accepting of prudence in product purchases, this might be harmful to the Organic Hamper in terms of capturing the attention of multiple consumer demographics to boost sales revenues.

The technological environment also appears favourable for the Organic Hamper. Consumers are utilising mobile technologies and the Internet more frequently to purchase products and these technologies have become lifestyle tools for multiple consumer demographics. This is advantageous for a business model that already utilises email systems and online web catalogues to support all sales enquiries.

SWOT Analysis

The most significant weakness with the current Organic Hamper model is its lack of marketing focus and brand strategy. Local advertisements and over-reliance on the Web to serve as a marketing tool is insufficient for achieving a brand that is recognised and favoured by many UK consumer demographics.

Revamping Marketing Strategy

With marketing being the largest weakness, the Organic Hamper has many opportunities for improving its revenue and achieving growth. The owner of the company is using a geographic segmentation strategy, with the majority of sales occurring within a 30-40 mile radius of its base of operations. This requires an employee to make all local deliveries that have been procured by the website. This is insufficient if the company desires to witness growth.

Rather than focusing on geographical consumer segmentation, the business should focus more on behaviours of consumers (behavioural segmentation or psychographics). To illustrate, Schrader (2012) indicated that there was significant growth in speciality, organic baby foods. Euromonitor International (2014) report that UK mothers are more diligent about providing healthy foods to their children and will pay premium prices to ensure this. This is a tremendous opportunity to utilise integrated marketing communications that speak to the behaviours of parents with a significant concern about natural products for their babies.

Goldman, et al. (2002) assert that when a product brand convinces a consumer that it can enhance their lifestyles and meet their expectations, they have much more probability of becoming loyal and developing long-term emotional attachments to the brand. The Organic Hamper has an excellent opportunity for procuring domestic or international organic baby foods and offering unique baskets that can be promoted as it pertains to baby health and addressing the socio-psychological needs of mothers maintaining this worry. Dried baby foods, milk formulas, and prepared baby foods from organic producers can gain more interest if marketing discourse reinforces the firm’s commitment to sustaining infant health. This discourse can be coordinated on social media and on the firm’s website, as well as direct promotional materials that are sent to consumers’ households along a mailing list or when they sign up for newsletters on the firm’s website.

For the local mother market, Elliott (2011) suggests hosting Opinion Parties, a chance to network with mothers and encourage mutual dialogue about the needs of mothers. Such an effort would be a chance to spotlight the various health benefits of baby food products and also allow mothers to sample these products in real time. It would provide opportunities to gather testimonials from mothers attending these Opinion Parties and post these comments on the company’s website. Why is this important? Consumers are very trusting of the sentiment and opinion of peers via the Web and make consumption decisions based on these experiences and attitudes (Biswas and Roy 2015). The company maintains numerous opportunities to better engage with local mothers and those in the broader UK market on Facebook as well, allowing for mutual discourse to be exchanged between mother and the Organic Hamper.

Additionally, the owner can provide links to government studies and other scientific research which reflects that organic baby food products are healthier; both on the website and on Facebook or other social media sites. This would give brand credibility to the Organic Hamper and allow the firm to make effective marketing-based use of the government’s growing interest in healthy eating and distinguishing the benefits of organic products compared to non-organic products. Statistical and empirical research reinforcement showing why certain organic products have superior health benefits would be critical for building trust in the Organic Hamper brand and reinforce why paying a little extra is worth the health investment.

Clearly, there are pricing considerations that must be determined in markets with growing price-sensitivity and frugality. Currently, the average hamper price for the firm is between £125 and £155. However, the company has opportunities to utilise periodic price promotions as a means of gaining more interest in the company. Online and printed coupons (such as in local newspapers) for a limited period discount opportunity would attract the price-oriented buyers. According to research, price promotions are highly effective for price-sensitive markets and are a measure of how some customer demographics view product quality (Dawes 2004). The company currently maintains low operational overhead and the ability to procure products from countries that have a much lower currency value than the United Kingdom. Therefore, short-term price promotions would not be detrimental to the company if moderate, short-term discounts were provided and more hampers could be sold at a faster pace.

There is another strategy involved with pricing that could also have benefit for improving the revenue growth opportunities for the Organic Hamper. The firm can utilise high-low pricing, where the firm maintains its regular high pricing strategy, but offers free items to consumers once they have made certain purchases on promoted items. For example, with the purchase of the mother’s hamper, the baby food health basket, parents can receive a free child’s pajamas, pacifier, or even another organic food product. By using this type of promotional strategy, not only will the brand receive more marketing visibility, but will incentivise purchases for many consumer market segments that are concerned about pricing when making organic foods and skin care products (when applicable).

High-low pricing strategy can be an ongoing campaign whereby Lock identifies low-cost products (to the business procurement model) that can be added to the purchase as a free gift for selecting the Organic Hamper over competition. Free gift concepts using this high-low pricing strategy may even become incentive to make future purchases when consumers grow accustomed to the excitement and appreciation for having a free item included in their order.

From a different perspective, in terms of other organic food products, the company should highlight the different products being offered in their baskets showing the supplier’s credentials or certification efforts. With such growing interest in ethical consumerism and favouring companies with a social responsibility focus, the owner has opportunities to market the firm’s devotion toward environmentalism, recycling and other sustainable practices. Using Facebook as a forum to create discourse, the company can indicate how its procurement helps domestic or foreign farmers’ (and other producers) lifestyles and efforts that the firm is undertaking to give back to the community. These communications would reinforce the company’s environmentalism and CSR objectives which would make the company more attractive to markets that are concerned about these matters. PR Web (2013) reported a survey showing that over 40 percent of consumers buy organic products because of their focus on sustainability.

Ansoff Matrix – Growth Strategy Evaluation

Should the Organic Hamper seek an international market strategy at the current time? Based on limited company assets, available capital and lack of experience catering to (and marketing to) a foreign market, the business should seek growth domestically by expanding out of the 30-40 mile local radius.

The Ansoff Matrix provides several opportunities for growth, including market penetration, product development, diversification or market development. The company does not maintain adequate financial resources to diversify and establish new businesses, especially with a limited trained staff and the costs that would be incurred to procure new assets, recruit new labourers, and many other operational concerns. It is through market development that the business can be excelling in achieving growth and higher profitability. Through market development, the firm attempts to improve sales of its existing products by making them more attractive to new target consumer segments.

The male demographic is becoming more lucrative for personal and skin care organic products. The company has opportunities to develop specialty baskets that appeal to this demographic. Products relevant to men could include a just for men product that contains organic skin care products and organic foods. The company maintains experience in procuring organic personal care products and has the know-how to create baskets with eye-catching appeal. Using marketing communications that are geared toward male socio-psychological mentality would be a lucrative opportunity in a market where men’s skin care is witnessing a 12 percent growth rate (GCI 2013). This would be using existing basket scheme products to achieve more interest from a different target segment.

The business can also procure products to make many different specialty baskets, including organic foods that would appeal to the sports-oriented consumer, such as organic canned appetizers, using clever imagery, sports team’s logos and other imagery related to the sporting industry to attract this type of consumer demographic. Whilst this represents only a handful of potential examples, if the business utilises marketing strategies (such as Search Engine Optimisation), a broader UK market could be lured to the Organic Hamper’s website and maintain many unique and creative specialty baskets that identify new target segments.

Staffing and the Legal Status of the Business

The company does not have to change the legal status of the business to achieve growth. As aforementioned, being more innovative in making specialty baskets that appeal to diverse market segments (and expanding out of the local region) could bring growth and higher profitability to the Organic Hamper. The company could consider becoming a PLC in order to achieve capital growth through a public stock offering, however it would require the owner to restructure governance systems, give control of decision-making to shareholders, and also identify opportunities to sell stock shares when the firm, in its current condition, would have insufficient valuation to attract investors. Transforming to a PLC could be a long-term strategy for capital growth once the business improves its annual revenue stream from the modest £225,000 it earns from the local market.

The company will, however, require expanding its labour base in order to achieve growth. The production of specialty baskets (i.e. baby foods, men’s skin care packages, sports-oriented organic baskets) will require more production and control logistics for delivery in an environment where home deliveries will encompass more of the United Kingdom than just the local community. The company will require, likely, an additional production employee, a marketing and sales coordinator, and perhaps even administrative assistance to aid in such areas as invoicing, accounts receivable, and conducting general office duties that will increase with higher sales volumes and delivery schedules. Once the business has solidified its online and social media strategies and published promotional communications to capture new target segments, the business will require recruitment to ensure that production capacity can be increased.

Altering Distribution Strategy

The Organic Hamper has an excellent opportunity to expand the visibility of the product outside of just utilising the Internet as its only sales channel. Karen Lock can be more instrumental in networking with local retailers within a 50 mile radius to promote the benefits and opportunities of carrying her organic baskets. Karen requires more hands-on direct sales strategies to gain the interest of various boutiques, supermarkets or other specialty stores that would have an interest in providing consumers with unique baskets.

Karen should be instrumental in developing promotional presentations with these business owners that discuss procurement opportunities, using statistical market data to convince these businesses that offering Organic Hamper specialty baskets would be a lucrative opportunity. By collecting market data (such as through focus groups or surveys), Lock can iterate that she understands the demographics interested in organic skin care and food products and also illustrate environmental analysis competencies of the firm that make placing her baskets in bricks-and-mortar stores more incentivised. This strategy also enhances the firm’s market development strategy for growth and can rely on some dimension of sales prowess and experience with these retailers that can assist in moving more product off the bricks-and-mortar shelves.

Lock can also offer bulk discounts for hampers of specialty organic products and skin creams that do not have short-term perishability. For instance, offering a 20 percent discount when more than 15 hampers are purchased would allow the firm to move more product and gain rapid revenues needed for expansion and business model improvement would be more incentivised for many different retailers. Customer relationship management from a business-to-business perspective is critical for ensuring long-term customer retention and injecting a sense of trust between B2B partners. These bulk discounting strategies are often utilised in such a relationship in order to make one supplier (in this case Organic Hamper) stand out from other supplier competitors.

Mid-Term Strategic Opportunities

The business, to manage the different consumer segments that are now dispersed throughout the UK and the local region, will require adopting new technologies to support better business operations. Lock will need to consider the procurement of an Enterprise Resource Planning software package to facilitate inventory controls, effective and well-planned procurement systems, invoicing, order tracking, and other important business concepts. These software packages would also free Lock from the burden of maintaining accounting records as a multi-faceted manager and allow technologies to facilitate better operational controls and better coordinate the value chain. This software incorporates all aspects of business operations, including e-commerce, customer service, production or even asset management in a way that gives an instant snapshot of the current state of the organisation.

Lock, with limited short-term staff and minor increases in support employee growth, will need more time to be instrumental in coordinating sales and marketing activities, conducting the human resources function, identifying retailers, conducting environmental and marketing analyses, and identifying new opportunities for potential domestic and international suppliers. Therefore, incorporation of an ERP system will give the owner new flexibility as a more strategic-oriented company manager and ensure that all business transactions are maintained in an easy-to-access database.

For instance, Lock will have to work with baby food suppliers, men’s skin care producers, and other specialty organic foods vendors that will be utilised in her new specialty hamper packages. The current staff at the Organic Hamper, though valuable under the short-term business model, do not have the competencies needed to handle more administrative activities of the firm that will be critical for ensuring a proficient value chain. ERP systems can be procured using short-term bank loans or revenues achieved from market development activities to gain new consumer demographic attention. However, the incorporation of such software is critical, especially when the current staff competencies are insufficient for even updating information on the website to ensure it is accurate and relevant.

Long-Term Strategic Opportunities

Once the business improves its revenues in growth locally and throughout the UK, the firm can begin exploring new market opportunities for organic products. For example, in France, the organic foods market has quadrupled in size between 2002 and 2012 (Riffiod 2012). The business can utilise many different market research tools to gain perspectives on French consumers about their attitudes toward organic foods and skin care products, the basket scheme, online ordering, and pricing. These tools include surveys, focus groups, or approaching random consumers using an ad hoc recruitment strategy to discuss sentiment about ordering organic gift and specialty baskets.

France is only one feasible market, but this same strategy of gaining market research would provide valuable information, long-term, as to whether there is profit viability in a new market. Exporting would be the most viable market entry strategy for the Organic Hamper under an existing business model with the capabilities to use web-based marketing and sales after establishing various retailers that would be procuring baskets. Home deliveries, moving product from the United Kingdom to France (or other nations) would be cost-effective utilising global logistics companies such as UPS and other low-cost parcel services.

The company also has opportunities to discuss potential investment opportunities for long-term foreign market expansion with venture capitalists. The private investors will provide financial capital for an expansion project if there is evidence that the investment will have reasonable payback and profit advantages for the venture capitalist. This would require Karen to be more instrumental in conducting aggressive negotiations with outside investors and create a solid business plan that consists of long-term cash flow expectations, current financial health of the firm, and long-term marketing and sales strategies. Karen would have to take on the role of manager more akin to a Chief Executive Officer and develop competencies in relationship management and negotiation in order to achieve a foreign market expansion by the year 2018.

In the long-term, Lock can also consider product development, creating joint ventures with organic foods and skin care producers to identify opportunities to research and develop innovative products. By partnering with smaller firms in this sector that have competencies and professional talents that can test new organic fragrances and ingredients, Lock can create her own stand-alone branded products produced under the joint venture without reliance on procurement from other domestic and international suppliers. A joint venture in this capacity would give the business virtually unlimited opportunities to distribute the Organic Hamper brand of organic products that can be sold in supermarkets and not necessarily under the hamper strategy that is currently driving the short-term and medium-term business strategy.

By the time that development of a stand-alone brand, branded under Organic Hamper, is established, the company will have a recognised brand name in the UK market and some dimension of customer loyalty in key segments. Therefore, it will be feasible to launch a stand-alone organic foods brand when consumers already trust in the integrity and quality of Organic Hamper and are willing to make future purchases of the firm’s own, branded products.

Conclusion

As shown by the research, there are significant opportunities in the organic skin care industry that could provide Organic Hamper with strategic growth and enhanced profitability in the short- and long-term. The main difficulty is in the organic foods industry where major competitors, namely supermarkets, have well-crafted marketing strategies for gaining consumer attention when visiting their bricks-and-mortar retail stores. However, by creating specialty hampers that have themes which differentiate the company and are attractive to key market segments based on their behavioural or psychographic-based attitudes, the Organic Hamper can achieve brand visibility and recognition whilst also achieving more market interest throughout the United Kingdom.

If Lock follows the strategies outlined in this report, the firm should achieve substantial revenue growth and improve its competitive position. New marketing strategies, with an emphasis on price and target segment-relevant integrated communications, technology procurement, moderate enhancements to existing staff levels, being more hands-on in identifying new retail channels, and pursuing continued growth through market development, the Organic Hamper can achieve its goal of growth and expansion. Though the company only boasts, today, sales of £225,000 annually, by attracting new target segments with specialty hamper creation and innovation, it is likely that these revenues will triple within just two years. Once revenue growth is achieved, business expansion can become a reality, but not feasible until revenues exceed £750,000 per annum.