Leeds Business Insights Season 1 Episode #9
S1E9: Heather Kennedy - Taking a Bite Out of the Natural and Organics Market
[00:00:00] Amanda: Welcome to the Leeds Business Insights Podcast, featuring expert analysis to help you stand out from the herd. My name is Amanda Kramer. We are thrilled to have Leeds Natural and Organic Executive Education Instructor and Consumer Marketing Specialist, Heather Kennedy, here, discussing the latest happenings in the rapidly evolving natural and organics industry.
The natural and organics product market is exploding, with more businesses and industries looking to create impact in this space. The epicenter for this movement: Boulder, Colorado, home to many of the players in this space and also thought leadership about what the industry will look like, going forward. Welcome to Leeds Business Insights, Heather. And thank you so much for being here today.
[00:00:46] Heather: Thanks for having me. It's really exciting you guys are doing this. I appreciate it.
[00:00:50] Amanda: We're thrilled to have you. And before we dive into our conversation, let's start here. Help ground our listeners, what is the difference between natural and organic?
[00:01:02] Heather: This is a question that comes up a lot. And, I think some customers sometimes feel a little bit duped by this answer. So, let me start with organic, or let me start generally saying, you know, natural, when we hear the word, "natural," we often think about how something is processed. Organic is really about how something is grown. And there are very specific requirements that are set out by the USDA as to how a product can earn a certification of the organic label. Like, we're all pretty familiar with that USDA label. It's green, and it says "USDA Certified Organic" on it. And if you have that label, you can call your product organic. And there are very specific guidelines that are certified by the USDA to call your product organic. And you have to go through this very specific process. But it is monitored. It is certified. If you see "organic," you know that that product has not been grown with pesticides or certain fertilizers, etc.
Natural, on the other hand, is about how a product is processed in general. And it really does not have a specific definition from the FDA or the USDA. The USDA will say, you know, they put it out there that it's something that's minimally processed, that the product is processed in a manner that does not fundamentally alter the product. And they do suggest that, if you have, if you say "natural" on your label, that you must include a statement explaining what you mean by that. In other words, there's no artificial ingredients in this product or it's minimally processed. But there's really no officially monitoring of that process. Nobody takes a look to see if a product is natural. You don't have to be certified to say that your product is natural. And so, it’s really becomes up to the consumer to decide when they see "natural" on a label, what does that mean. And they still have to do that work of looking at the ingredient list to ensure that that product means what they think natural is. So, anytime you see "natural" on a label, really, more and more now actually means less and less because more people are picking up the use of that term and that word. And it really, it just doesn't mean that much anymore.
I was just reading something about poultry. We probably won't say the company, but it was getting sued because they call their product natural but consumers are starting to realize what that means or doesn't mean. And the USDA says any fresh meat is considered natural. And what consumers are finding out is that a lot of these bigger factory farm companies, when they—sorry, I to use this word, but I have to use it—slaughter their chicken, they then rinse it in bleach to kill any possibility of Listeria. And so, again, it's up to the consumer or the retailer, in some ways, to decide what does natural mean. And so, you have these companies that are like, "We have all-natural chicken." Well, all fresh chicken is considered natural. And so, that doesn't really have any meaning. And so, we're seeing consumers figure that out and lawsuits starting. And I think those companies will have to start to move into better farming practices.
[00:04:28] Amanda: Thank you for that. And speaking of words meaning something, I have recently learned that the word "vegan," I believe, is passé. Can you tell us a little bit more about this new trend?
[00:04:41] Heather: So, "vegan" is still a word that's used. And it's out there. And it's very specific to a certain way that people eat, that they don't eat anything that comes from an animal product at all. So, no meat, no cheese, no dairy, no eggs. And, I think the change that we've seen in the industry, or maybe the trend is that, now, we talk about products as being plant-based. And the reason is because the vegan community in the US is, maybe, half a percent of people are vegan. It's a pretty small group of people. But the term is known well enough now that, when people hear it, they think of this very strict way of eating. It’s very, if I eat vegan, I have to do these certain things. And it's not going to taste as good. Sometimes, when we think about eating healthy, we assume it's not going to taste as good. And so, it has these connotations to it that some plant-based products don't necessarily need to conjure up.
And what was the trend that we're really seeing is that more people are moving toward eating less meat or less animal products. So, it doesn't mean they're becoming vegan or even vegetarian. They've just made this choice of "I keep hearing about that eating less meat is good for me. And so, let me find these plant-based alternatives that are still enjoyable." And so, that's why we go to this term, plant-based. It's got just a little bit more of a positive connotation, honestly. And it's geared towards more mainstream customers and consumers that are concerned about their health but don't necessarily want to go that full leap into becoming a vegetarian or a vegan.
There were a couple of companies that were trying to create a product that was like a ground beef that was part beef and part plant-based, like a plant substitute. And so, it was meant for customers that are thinking about "I want to eat less meat," but I still like meat. And so, here's a burger that's half meat and half plant-based. I don't think that it necessarily took off because, you know, when you think about consumer behavior when consumers decide they're going to eat something indulgent like a burger, they're going to eat that burger, or if they're going to eat something that's plant-based, they're going to eat something plant-based. The crossover didn't seem to work for them too much because, I think, if they're in the mindset of indulging in something, they're going to go ahead and indulge in that.
[00:07:14] Amanda: Heather, the pandemic has brought many changes to the industry, including buyer behavior, pricing, supply chain. What has changed in the marketplace? And how are we going to address those changes?
[00:07:28] Heather: Yeah, you know, in a lot of ways, the pandemic, as horrible as it's been for so many people, it really created a change in the way people think about their body, about their health, about their immunity, and about their food. And they bought more food, obviously, in 2020 and 2021 and more natural and organic food. We are seeing natural and organic grow at a faster rate than what we would call the conventional industry—so, the conventional industry meaning more processed foods or foods that are not considered what we would call natural and organic.
And so, that's been really interesting. I read a stat that there's been $7 billion of additional sales in the natural and organic space during COVID because consumers are really concerned about their health and wellness. They're investigating new brands. They're taking a chance and trying new things. The supplement industry has gone up dramatically. People are buying vitamins and thinking about different, what we call, functional foods. And they're cooking more at home, which is really great for the grocery industry in general. So, that's been wonderful.
I think what has happened that's going to be a little bit problematic for the industry here moving forward is supply chain issues. And not just because of the pandemic, because of what's happening in Ukraine as well. 80% of the world's sunflower oil is coming from Ukraine and Russia. And so, that may not seem like a big deal except that it's an ingredient that's in a lot of natural and organic products and very specific to the natural and organic industry. And so, the industry is going to have to find a way to source differently. In addition, Russia and Ukraine supply more than a quarter of the world's wheat. And we're already seeing that impact in pricing and in shortages coming from that.
The really big thing that I think is finally coming to a head in this industry is sustainable packaging everyone is talking about it. And if you think about how many products we buy that come in some type of plastic, it's kind of disappointing because pretty much every piece of plastic that's ever been produced is still in existence. It does not biodegrade. And I think a lot of how we make ourselves feel better about that of buying things in plastic is we throw it in the recycle bin. And there's a certain feel-good aspect of, like, "Well, I threw that in the bin. It's going to get recycled." But the reality is that 8.7% of plastic that was disposed of in 2018 was recycled. And the industry that I can think of that can address this and really figure out how do we get out of the world of plastic is the natural foods industry. They are very innovative. They do think about business problems a little bit differently. So, I have high hopes.
And one change I have seen that I think is pretty exciting is an increase in the use of aluminum and aluminum packaging for things like bottled water. So, it can be really overwhelming to think of, what can I do as a consumer to help change this trend, this incredible amount of plastic that is out there in the world? Well, when you go to the grocery store, and you want to buy a bottle of water, buy it in an aluminum can, because aluminum is much more recyclable. And it's estimated that about 75% of all aluminum ever produced is still in use today because it doesn't degrade as much when it's getting recycled. The other thing about plastic is it really degrades in the recycling process. And aluminum doesn't. And cans today have about an average of 68% recycled content per can. Whereas plastic only has about 3% of recycled content in any plastic item.
But I do think the natural and organic industry can really be a leader in changing how that happens. And so I'm excited to see some more compostable packaging coming out. And I even saw at expo somebody had a package that had seeds in it. And so, when you eat whatever was in there, you can plant the package and grow something. So, there are some creative solutions coming out, but it's something that is not just important but that consumers are really starting to care about, especially younger consumers that realize that the planet is in need of more sustainable activities from businesses. And they are going to start demanding it. So, it's something that needs to be addressed, for sure.
[00:14:08] Amanda: You mentioned that the natural and organics industry is differentiated, in one way, by their commitment to sustainability and innovation. What else makes this industry unique and helps it maintain its differentiation?
[00:14:19] Heather: Yeah. You know, what I really love about working in this industry is that most companies are very purpose-driven. And so, when we think about business, we often think about the purpose of business is to increase shareholder value. Your purpose as a business is to increase profitability. And there've been a couple of industries, but natural organic specifically really turned that on its head and said, "No, our purpose can't just be to make money. It has to be to think about everyone that's impacted by our business." We call that a stakeholder model. We think about all the stakeholders involved in the business and how the business impacts them.
For example, when I worked at Whole Foods, the number one stakeholder at Whole Foods is the customer. And it makes sense. When you think about if the customer is happy, they're going to buy more product, we're going to make more money. And so, it's not just about, well, Whole Foods was successful in spite of the fact that they didn't just focus on the bottom line. No, I would argue they were successful because they didn't just focus on the bottom line. They focus on the customer. They focus on the employer. They focus on creating wonderful partnerships with the vendors, the people that sell product in the store. And they really think about the communities in which they do business. And you can see their whole strategy developed around those values. And most companies that I've worked with in the natural and organic space are of that same mindset, that purpose is important. And because of that, their cultures are really unique. So, it's really a very unique industry and so much fun to work in.
[00:13:50] Amanda: You know, Heather, you just talked about most natural and organic companies are purpose-driven. But we have a gap that has arisen. As we see, entrepreneurs and founders enter the market and compete against these big CPG companies. Tell us more about this gap and how CU Boulder is helping to fill it.
[00:15:18] Heather: Yeah, absolutely. So, it is really interesting in the natural and organic space that you do have these founders and these companies that were really founded on this incredible passion that they have for the product. I ran into someone yesterday who has a new product. And the reason I said, "Why did you create this product?" It was an energy bar. "Well, I couldn't find an energy bar that had good enough ingredients for me. So, I created this. And now, I'm bringing it to market."
And that's how a lot of these products start. They come from "I made this amazing hummus or this salsa. And my friend said it was so delicious and it's got the cleanest ingredients. And we really care about it. And now, I want to take that to market."
So, that's a real positive because these businesses are based in purpose and passion. The downside is that a lot of these folks don't have the business skills or training that really would make bringing that product to market a lot easier and more efficient and just plausible, you know. It's a tough, tough industry with a lot of competitors. So, we see an opportunity to train our students that have that passion and interest in the natural and organic space or in doing something that gives back that's a little bit different and training them in consumer packaged goods, processes, and business acumen.
On the other side of that are these really large CPG companies that have fantastic business acumen, but they don't necessarily have the understanding of the industry itself. And they are looking for people that really know natural and organic, that they understand what makes it tick, that they understand the consumers. And so, we also see an opportunity to transform our students to go that direction, to bring some of their passion, enthusiasm, and their knowledge for what matters in the natural and organic industry to these larger CPG companies that are realizing they really need to jump in and get into this space. And it's already happening. Consolidation industry is big. A lot of these companies are buying smaller natural and organic companies.
And we just think, being here in Boulder, we are perfectly positioned to train our students in both business acumen and what makes that natural and organic industry special and unique. And part of the reason we're positioned well for it is we have such wonderful help from our local leaders. There are so many CEOs and retired CEOs here in Boulder that want to work with our students and want to give them that edge on how to be successful in the industry and to bring their lessons to the classrooms. So, we've been really lucky in that way.
[00:17:05] Amanda: Can you tell us a little bit more specifically about the Natural and Organic Executive Education Certificate at Leeds?
[00:17:12] Heather: Yeah. We have created a program that is starting this summer and will hopefully run every summer after this. It's called the Executive Certificate in Natural Products: How to Grow and Scale Your Business in a Healthy Way. And what's going to make this program really unique is that we bring in folks from Leeds, our expert professors, our best professors, to come and talk about some of these important topics. And then we combine that with our local community, members from our local communities, CEOs, and other folks in the natural and organic space to come in and talk about how they see some of these academic elements manifesting themselves in their businesses here in Boulder. So, it's really a special experience. It's very unique because we're able to combine both what Leeds gives on an educational level and our partners within the natural and organic space here in Boulder.
[00:18:07] Amanda: Heather, you are a marketing expert. Do you have a few tips that you could share with our listeners about how to differentiate your natural and organics product in the marketplace from a marketing perspective?
[00:18:18] Heather: You know, I always tell my students that the most important thing is to start with your customer and really understand who that customer is, what makes them tick. And I almost phrase it like, what right do you have to be in their world, right? There are so many products out there and so much for them to choose from. You better have a good sense of why they should choose yours. What makes you different? What makes you unique? And so, understanding that before you even go down the path of how are we going to communicate that from a marketing perspective, what's the strategy behind this product, and why does it matter to your customers?
So, I use the example of a passionate founder who wants to make hummus, and his friends really love the hummus that he's made. And so, he wants to take it to market. But if you have to look a little wider now, look at the marketplace, what's in the marketplace right now? There are a lot of hummuses out there. Probably, the last thing the world needs is a hummus or a salsa. We got a lot of those right now. So, what's going to make your product better and different? It's very hard to compete in the same way as several of your competitors. You've got to find something unique about your product.
And that can come through research. There's so much information available now. And just looking at social media and doing what we call social listening where you just go out there and see what people are saying and search on different terms to see what folks are saying about different products can really help you identify, is there an unmet need there that I can fill with my product? So, strategy is everything. And you have to start with strategy and understanding your customer and what value you're delivering to them.
And then, when we come down to how do you communicate that well and how do you make sure that all those things are aligned, you know you want to understand where your customer is. Where are they getting their information? What matters to them? Are you a product that, if you're a gluten-free product, where are gluten-free people hanging out online? What are they talking about? What matters to them? And making sure that you are joining the conversation in a way that's relevant to them.
Another thing I like to tell my students is you can never make your product the hero of your story. The hero of your story has to be your customer. And how has this product making their life better? You don't want to say, "Here's this product, and it is the best product out there. And my product, my product, my product." People start to shut down. I had a friend that used to talk about it like, if you went to a dinner party and you sat next to someone and that person just talked about themselves the entire time, you would start to tune out. And it's the same when it comes to marketing, particularly if you have a product that's purpose-driven or that has a really interesting story behind it, but you have to talk about how is this product going to make you, the consumer, your life better? How am I going to make you the best version of you, right? How can my product help you achieve what those goals are? So, understanding your customer in that way and talking about, engaging with them in things that matter to them. That might be beyond what your product does, but you want to have content and information out there and connect to your consumer on an emotional level that goes beyond just "Here's my product. Here's how much it costs. Here's where you can buy it."
[00:21:41] Amanda: Every episode, we have an LBIdea or a key takeaway. And I think the key takeaway here is that the natural and organic space is growing, and there's a real need for these products in the marketplace, but in order to be an effective and successful purpose-driven natural and organics company, the customer needs to be the focus, and the founder or company needs more than passion or a great product idea to make their purpose come to life. And CU Boulder is here to help guide those that are interested in this space in taking their product or idea to marketplace.
[00:22:13] Heather: Yeah. I think the fantastic thing about the natural and organic movement is that it has gone fairly mainstream. I make this joke, like, you know you live in Boulder when there's a kombucha bar at the Safeway, which always surprises me. But it speaks to more than just the fact that I live in Boulder. It speaks to the fact that the natural and organic space is reaching a broad group of customers. And that is really important when we think about not just business opportunity but making sure that we maintain that level of integrity that the natural and organic movement has right now and that that space has right now through making sure these companies continue to have purpose and that they hang on to that and that they hang on to their culture and that we can bring it to the mainstream market at, hopefully, a more reasonable price. And so, I do think that making sure you're thinking about your customer, making sure you're thinking about business acumen and bringing those things together, but to base it all on that purpose and making sure that we're trying to make the lives of our consumers better.
And sometimes, the price premium that these products get is reasonable because it's more expensive to produce a product that has really wonderful ingredients in it or that's organically produced. But there's plenty of food that is inexpensive, and that's priced really well within the industry. And we need to do a better job of promoting that and making that available. If there's one good thing in my mind that comes out of Amazon buying Whole Foods, it's going to be that. It's going to be that they will help them push down the price of some of these products and increase the reach of where people can actually get some of these amazing products.
[00:24:04] Amanda: Thank you so much for addressing that important point with us, Heather. And thank you so much for joining us on the LBI Podcast today.
[00:24:12] Heather: Well, thank you for having me. It was a lot of fun. And I really appreciate the opportunity.
[00:24:20] Amanda: Thank you again for listening to Leeds Business Insights. Make sure you don't miss a single episode. Subscribe to Leeds Business Insights wherever you get your podcasts. See you next time.
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