Iceland's high profile switch to organic foods appears to have been unwise. It now believes that consumers are "not ready to make the jump" into the organic arena. However, Iceland's competitors have reported strong growth in their organic sales. Clearly there's a growing market for organic food - but the switch needs to happen organically.
UK frozen foods retailer Iceland yesterday revealed that like-for-like sales dropped by 1.5% in the six months to December 29. Shares in the frozen food retailer have similarly fallen since the announcement, dropping 15.6% to 218p at close of trade on Monday.
The company's 100% switch to organic foods at no extra cost to the consumer seems to lie at the heart of the problem. Even though consumer research found that 75% of consumers would prefer to buy organic food if it were sold at no extra cost, the move now appears to have been misguided. The switch to organic was announced last June when public interest in organic food was at its height amid high profile BSE outbreaks and food scares. Now however, the hype appears to have subsided and Iceland has been forced to admit defeat, claiming consumers were not ready to 'make the jump'. Iceland's food sales fell by 5.5% over the festive period, forcing the frozen food company to cut back on its pledge to stock organic products and re-evaluate its move into pesticide-free food.
Iceland's competitors are telling a very different tale. Tesco claims its 750 organic lines are selling well and Safeway reports year-on-year growth for organic food at 85%. Such contradictory reports suggest Iceland has misjudged the market. Its full-steam-ahead approach seems to have overshot consumer demand whereas the more gradual approach of the leading retailers is encouraging a steady consumer conversion. The organic opportunity clearly exists and undoubtedly there is consumer demand but retailers should be wary of launching new initiatives too quickly.
Some valuable lessons can be learned from recent events at Iceland. The organic momentum is clearly underway but consumers are not ready for full-scale conversion. If retailers are looking to increase their organic sales then gentle persuasion is needed. Implementing a 100% switch to organic food will simply frighten off consumers - as Iceland now knows all too well.