Organic food and beverage sales are on the rise in the U.S., and retailers need to take notice.
Interest in the category is good news for grocers, because organic foods tend to deliver higher margins to the retailer. At the same time, organic products require special attention within the supply chain, in order to meet consumer demand and satisfy quality standards.
According to data released last month by the Organic Trade Association, organic food sales generated more than $61 billion in 2022, a record high and the first time the category topped $60 billion. The association anticipates continued growth, with annual increases for organic produce and beverages estimated at 4% and 7%, respectively.
Food retailers need to be prepared for this increase in demand and interest in organic products. With shorter shelf lives, fresh produce and organic beverages need to be closely monitored through a scalable and interconnected supply chain. Supply chain optimization tools can help to ensure full transparency.
The Organic Trade Association classifies organic foods by how they’re grown and processed. The integrity of the product must be maintained from harvesting through production, processing, distribution and sales. Products can’t be grown with toxic or synthetic pesticides or fertilizers, or include GMO ingredients, antibiotics or artificial flavors, colors or preservatives.
Interest in organic foods is growing as younger consumers focus on healthier lifestyles, according to a report by Packaged Facts. In the study, research director David Sprinkle says Millennials and Gen X consumers tend to be the biggest consumers of organic foods.
To meet the rising demand for organics, supply chains must adapt to the unique needs of smaller producers and farms. Retail logistics planners also must be attentive to the risks of spoilage, while keeping price points down and meeting assortment goals within stores.
Retailers can get a better handle on their organic inventory through machine learning-based supply chain solutions. These tools enable retailers to perform detailed scenario planning and forecasting, factoring in unique values and attributes for organics. Artificial intelligence helps to identify the most efficient way to coordinate with a more diverse supplier base, and ensure that sufficient and reliable supplies get to distribution centers and stores.
Many retailers work directly with local organic producers for delivery to a DC, or direct to the store. Sophisticated supply chain optimization tools can accurately track the journey of these products in as efficient a manner as possible.
Following are some ways in which AI-enabled tools, including assortment-optimization technology, can ensure the safe and rapid movement of fresh and packaged organic foods to market.
Improved supply chain transparency. Consumers want to trust that the products retailers put in the organic section are indeed organic, and meet farm-to-shelf expectations. AI-enabled supply chain tools provide detailed visibility into the ingredients of organic products, including those prepared in grocery kitchens.
Optimized fresh offerings. At higher price points, retailers have a strong incentive to minimize waste in the handling of organic fresh and prepared foods. For example, by flagging fresh items nearing a spoilage date, the system can direct produce for use in in-store cafes and kitchen-prepared foods.
Customized stock in each store. Another benefit of AI is in assortment optimization, by ensuring that the right number of organic products are on shelves. Demand in one store may be wildly different from another nearby, based on demographic variables such as shoppers’ income and age. Retailers need deep insights into shopper preferences at the store and item level, to accurately measure demand where it’s highest, and provide customer-centric experiences in those locations. By integrating assortment planning with supply chain optimization, they can manage end-to-end sourcing in line with customer demand in each store.
Organic foods are having a moment, and there’s a good chance they’ll continue to gain ground on traditional food products. Retailers need to treat the category as a strategic growth area, using AI to accurately forecast demand, get the right assortment on shelves, and optimize logistics while reducing waste across the supply chain.
The need for labels and transparency will also play a bigger role as the category grows. Retailers can use technology to achieve maximum transparency over their organic offerings. By differentiating themselves from competitors with trusted, targeted assortments, they can engage loyal organic shoppers who choose grocery destinations to get the foods they value.
Troy Prothero is senior vice president of product management and supply chain solutions with SymphonyAI Retail CPG.
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