How much more is the Organic Aisle?

Our nation’s continued shift to organic food is an exciting trend that Duane Street Capital has been following and thinking about for some time. The organic food industry has been growing at an 18+% CAGR for the past 11 years, but still accounts for less than 4% of American foods spend (see chart below). With a market size approaching $25B (according to the Organic Trade Association), the space is ripe for the types of business models DSC looks to invest behind, specifically businesses that have potential to remove market pain points or add to market efficiency.


While researching the industry, the DSC professionals began to migrate to organic purchasing, and as we did, we asked the question, “how much more expensive is the organic lifestyle”?

A DSC experiment – the “Organic CPI”
Many feel that Americans do not buy organic because of the cost associated with organic products. But how much more expensive would it be to eat organic vs. non-organic, cheaper options? DSC is certainly not the first to ask this question, as it has been covered in New York Times articles, and one blogger has even tracked the price of organic vs. regular carrots over the past decade, but we felt that primary research would help us feel more comfortable with the findings.

In an effort to trim the scope of this investigation, I decided to focus on my personal shopping and what it would cost me to buy organic foods instead of my regular, non-organic purchases at my local, Manhattan, retailers – Fresh Direct, Food Emporium, and Whole Foods. To reduce the scope even further, I decided to focus on specific commodity-like food items that were available at all 3 locations and had both an organic and a non-organic offering. In total, I compared 8 food options highlighted in the table below. I originally set out to have a larger basket of foods to compare, akin to a CPI, but quickly realized that finding foods with both organic and non-organic offerings at all 3 locations was challenging. To be clear, this analysis was not meant to be overly scientific, but rather directional with hopes that some insights could be drawn. In all cases, I compared the cheapest organic option to the cheapest non-organic option.

Item	Size
Eggs, large brown	1 dozen
Non-fat milk	½ gallon
Unsalted butter	16 ounces
Orange juice	½ gallon
Ground beef, 85% lean	1 pound
Blueberries	½ pint
Raspberries	½ pint
Chicken stock	32 ounces

From my analysis, it is clear that organic foods carry a premium, and in this case, purchasing a basket of the above listed foods could cost between 40% and 45% more than their low cost, non-organic equivalent.
While the purpose of this analysis was not to find irrefutable truth, it gave us a sense for how much more expensive it would be to “go organic”. It also gave us more confidence in our assessment that despite the price premium associated with organic, the growth of the organic food space continues.

We are currently looking for opportunities to support organic businesses through investment. If you know a company in, or with exposure to, the organic food industry that meets our investment criteria, we would love to hear from you.