July 2012

Table of contents

Organic market development .......................................................................................... 3

Organic market share of 23 product groups .................................................................. 5

Organic sales ................................................................................................................... 6

Sales by sales channels .................................................................................................. 9

Sales by retail chains..................................................................................................... 10

Organic potential of chains ........................................................................................... 11

Organic consumers ....................................................................................................... 14

3

Organic market development In 1982, the first organic carrots were sold in the Danish retail sector. The organic production was limited at the time, and consumer interest was not exactly overwhelming. The first actual legislation governing organic production was not implemented until 1987, and 1989 saw the introduction of the Danish state-controlled organic inspection label, the red Ø-label. At the turn of the year 1992/1993, demand for organic products was still so low that it was only possible to sell half of the organic milk as organic. The summer of 1993, however, marked a turning point when the retail chain SuperBrugsen offered massive price reductions combined with considerable marketing efforts on TV, in shopping newspapers and advertisements. Other chains followed suit with similar sales-promoting initiatives, making sales skyrocket, and already during the first year, the market situation saw a total change. Suddenly, there was a shortage of organic products. The initiatives of the retail sector in 1993 were subsequently followed up by a 5% membership bonus on organic products in the Dagli'Brugsen and SuperBrugsen retail chains in 1996 and 1997, and in 1997, the retail chain Netto produced a shopping newspaper that only advertised organic products. The Danish state has also supported organic production by earmarking state budget funds for marketing and subsidies for farmers switching to organic production. In 1995 and 1999, the state also prepared an action plan to promote organic food production in Denmark. Figure 1 shows the development in the market share of organic products from 1992 to 2011. As can be seen in the figure, the organic market share increased from 1990 to 1999 when the market stagnated. One explanation of the growth slowdown in the organic market may be the lack of novelty value and focus on organic products in both the retail chains and in the media. In 2005, consumers again started buying more organic products, which meant, as shown in Figure 1, an increase in the organic market share from 3.9% in 2005 to 7.6% in 2011. In 2005, Netto, among other retail chains, sharpened their organic profile through increased marketing efforts in their shopping newspaper and by widening their selection of organic products. These activities helped renew focus on organic products in the other retail chains, in the media and among consumers. Over the past five years, all retail chains in Denmark have increased their selection of organic products. Combined with the increasing interest of consumers in quality food products, the extended range of organic products is believed to contribute to the renewed growth in the sale of organic products.

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Figure 1 Development in the market share of organic products – 1992 - 2011

Organic Denmark expects annual growth rates of between 5 -10 % over the next three years – measured in value.

Source: 1992-2002 Calculated based on figures from GfK 2003-2010 Calculated based on figures from Statistics Denmark

%

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Organic market share of 23 product groups As shown in Table 1, the share of organic products (measured in value) differs from product group to product group. Whereas basic products such as oats, milk, eggs and oils enjoyed market shares of 20% and above in 2011, cold cuts and pork still only hold market shares of less than 2%. The variation in market shares may be explained by differences in price premiums for the products, the perceived added value, quality and supply in its broadest sense. Table 1 Organic market share of 23 product groups in 2011 Product 2011 Oats 40.5 Milk 29.0 Eggs 22.5 Oils 21.9 Fruit juice 21.0 Wheat flour 19.9 Pasta 19.4 Cultured products 16.2 Müsli 14.1 Vegetables 13.5 Butter/margarine blends 13.4 Jam 10.8 Fruit 8.3 Coffee 7.8 Juice 6.2 Frozen fruit and vegetables 5.1 Hard Cheese 4.0 Rye bread 3.2 Beef 3.1 Flourmix for bread and cakes 2.9 Cereals 2.9 Pork 1.6 Cold cuts 1.3 Total 7.8

Source: GfK ConsumerScan Note: The organic shares for product groups are calculated based on value. As shown in the table, the total from GfK is 7.8, while the figures from

Statistics Denmark in Figure 1 are lower. This is because GfK only measures product groups with an organic alternative

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Organic sales As can be seen in Figure 2, the organic food sales from Danish discount stores, supermarkets and department stores totalled DKK 5.5 bn in 2011, an increase of 7% on 2010. In addition to retail sales of DKK 5.5 bn, 2011 also saw sales via wholesalers/catering to public kitchens, school meal schemes, private canteens and restaurants of approx. DKK 0.8 bn, via alternative sales channels like box schemes, farm shops and farm gate sales of DKK 0.7 bn as well as via other sales channels like convenience stores and petrol stations of DKK 0.5 bn. Figure 2 Organic food sales in Danish discount stores, supermarkets and department stores

As shown in Table 2, organic sales increased from 2010 to 2011 within several food product groups. The category milk, cheese, eggs sales saw the largest increase of DKK 172 m, followed by the increase in rice, bread, pasta, flour and cakes sales of DKK 57 m.

DKKbn

Source: Statistics Denmark (http://www.statistikbanken.dk/oeko3)

+12%

+18%

+33%

+29%

+6%

+7%

+4%

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Table 2 Retail sales of organic food products in DKK ’000.

2008 2009 2010 2011 Total sales 4 628 805 4 892 755 5 097 526 5 464 421 Rice, bread, pasta, flour, grains, cakes 707 266 716 401 749 056 806 215

Rye bread 107 180 73 376 63 783 61 014 Pasta 86 201 106 393 115 501 127 117 Flour 94 301 106 719 106 658 113 962 Oats, cornflakes, muesli etc. 176 473 192 448 180 081 210 180

Meat, cold cuts, entrails 367 927 342 467 329 550 369 923 Beef and veal 135 270 122 301 127 095 138 765 Pork 74 380 47 477 38 961 48 824 Poultry and meat cold cuts 121 752 119 211 101 911 120 872

Milk, cheese, eggs 1 739 664 1 771 316 1 754 195 1 927 087 Low fat/semi.skimmed milk 540 242 548 319 538 834 571 428

Skimmed milk 268 790 266 608 271 746 290 081 Cultured products 215 146 195 650 210 292 247 895 Cheese 175 975 209 425 185 770 210 663 Eggs 290 086 291 596 303 796 330 443

Fat, oils 208 011 246 866 247 068 273 471 Butter, margarine blends 154 592 178 550 192 968 192 834

Fruit 327 218 376 556 418 877 427 532 Citrus fruit, fresh 67 795 83 188 76 265 83 319 Bananas, fresh 50 162 63 715 78 775 78 345 Apples, fresh 42 591 36 805 53 164 53 464 Dried fruit, bars/slices 76 812 77 380 87 639 81 307 Nuts, almonds 25 740 30 964 42 821 52 562

Vegetables 611 766 679 504 775 342 771 348 Salad, chinese cabbage, spinach 29 677 39 297 52 839 41 785 Tomatoes, fresh 56 363 68 528 80 266 83 591 Cucumbers, fresh 39 865 41 257 48 820 57 199 Carrots, fresh 141 896 138 526 161 706 167 915 Potatoes, fresh 74 448 70 525 74 706 54 433 Onions, fresh 43 649 38 060 36 946 31 565 Frozen vegetables, potatoes, etc. 29 856 45 874 70 513 51 812

Sugar, jam, chocolate, sweets, ice cream, etc. 175 476 195 743 216 423 223 934

Sugar 29 375 35 787 33 049 32 769 Syrup, honey, cake decorations 33 557 18 926 33 971 35 499 Jam, marmalade, etc 41 860 52 297 48 524 49 096 Chocolate 31 757 39 344 54 984 55 908

Spices, stock cubes etc 134 098 171 850 202 723 242 472 Ketchup, dressing, mayonaise 27 521 58 760 85 712 79 755 Spices 21 997 34 114 33 403 70 124 Babyfood, jarred 61 809 44 810 49 653 60 752

Coffee, tea, cocoa etc. 123 654 145 855 169 085 190 366 Juice, fruit juice, wine, cider, beer etc. 228 300 169 465 228 848 226 404

Source: Statistics Denmark (http://www.statistikbanken.dk/oeko3)

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Figure 3 clearly shows the Organic milk accounted for 20% of total organic sales in 2011. Sales of organic dairy products totalled DKK 1.9 bn, corresponding to 33% of total organic sales. Figure 3 Value shares 2011

Source: Statistics Denmark (http://www.statistikbanken.dk/oeko3)

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Sales by sales channels As table 3 demonstrates, the majority of organic food products are, according to market research company GfK, sold to Danish consumers via supermarkets, discount stores, department stores and discount department stores. In 2011, only 10% of total organic sales thus took place through alternative sales channels, including farm shops, box schemes, markets and health food shops, and 2.7% via other channels. The table also shows that discount stores, with a share of 35.4% of total organic sales in Denmark, continue to be the sales channel, selling most organic products. Table 3 Organic sales by sales channel

Sales channel 2011

Discount stores 35.4

Supermarkets 28.6

Department stores 15.6

Discount department stores 3.3

Convenience stores 4.2

Alternative sales channels 10.1

Other 2.7

Source: GfK ConsumerScan Note: Discount stores: Netto, Fakta, Kiwi, Rema 1000, Aldi, Lidl, Alta etc. Supermarkets: SuperBrugsen, SuperBest, Irma, Løvbjerg etc. Department stores: Kvickly, Føtex Discount department stores: Bilka, A-Z Convenience stores: Dagli’Brugsen, Edeka etc. Alternative sales channels: Markets, farm gates sales, etc. Other: Internet, specialty shops (butchers, bakeries, cheese shops etc.)

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Sales by retail chains Figure 4 shows that Netto, according to GfK, is the retail chain enjoying the largest share of organic sales in 2011. Thus, Netto accounted for 16% of total organic sales in 2011, followed by the COOP chains SuperBrugsen and Fakta with market shares of 14.3% and 10%, respectively. Figure 4 Retail chains’ share of organic retail sales in 2011

Source: GfK Consumer Scan

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When looking instead at how large a share of their total food sales is accounted for by organic sales, the picture is somewhat different. As can be seen in Figure 5, Irma, with organic sales accounting for 23.5% of the retail chain’s food sales within product groups offering organic varieties, is the chain enjoying the by far largest organic share in 2011. Irma is followed by SuperBrugsen, Fakta and Netto with organic shares of 10.1%, 9.7% and 9.6%, respectively. The difference may be explained by large variations from chain to chain in terms of number of stores, store sizes and location. In addition, the number of organic items offered also varies from chain to chain. With its selection of approx. 1,100 organic items, Irma tops the list. By comparison, Netto’s permanent organic product range includes approx. 120 items. Figure 5 Chains’ organic share of total sales within product groups that offer organic varieties. Period

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Source: GfK ConsumerScan Note: GfK only measures product groups having an organic alternative

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Organic potential of chains Figure 6 shows the organic potential of the chains (‘bubble’ size) and how well the chains leverage this potential (‘bubble’ location in diagram). The size of the ‘bubble’ indicates the chain’s potential defined as total customer purchases of organic foods inside and outside the chain. The vertical axis indicates the relative loyalty of the chain customers and shows the proportion of organic consumption in the chain covered by the chain’s customers, compared to the proportion of total grocery consumption in the chain covered by these customers. This means that chains located above the horizontal axis are relatively good at satisfying the organic requirements of their customers and thus relatively good at leveraging the organic potential of the chain. Correspondingly, the chains located below the horizontal axis are relatively poor at satisfying the organic requirements of their customers. These chains thus have an untapped organic potential. The horizontal axis indicates the chain’s relative potential and shows the propensity of the chain’s customers to purchase organic products compared to their total grocery purchases. This means that the chains located to the right of the vertical axis have customers with a relatively strong propensity to purchase organic products, whereas the chains located to the left of the vertical axis have customers with a relatively low propensity to purchase organic products. Figure 6 thus shows that Netto, SuperBrugsen, Kvickly, Fakta and Netto have customers with a strong propensity to purchase organic foods, and that these chains are good at satisfying the organic food requirements of their customers. The figure also shows that SuperBest, Daglibrugsen and Føtex have customers with a strong propensity to purchase organic products, but compared to Netto, SuperBrugsen, Kvickly and Fakta, these chains are relatively poor at satisfying the organic food requirements of their customers. They thus have a large untapped potential for organic product sales. Contrary to the above chains, Bilka, Spar, Lidl and Aldi have customers with a relatively low propensity to purchase organic foods, and at the same time, these chains are relatively poor at satisfying the organic food requirements of their customers.

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Figure 6 Chain leverage of organic potential 2011

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Organic consumers As shown in Table 4, there is a clear trend that households in Copenhagen buy relatively more organic products. The organic share of total household grocery purchases in the capital area thus accounted for 12.5% in 2011. The largest growth in this share was, however, seen in western Jutland where the organic share of total grocery purchasing saw an increase of 4.7% in 2011 compared to 4.1% in 2010. The consumers in Zealand are placed second in terms of the organic share of total grocery purchases in Denmark. When looking at family status, the highest organic share of total grocery purchases is seen among families with one child, 10.8% in 2011. As regards age groups, those aged 40-49 years have the highest organic share of total grocery purchases with 9.7%. As is clearly illustrated in Table 4, consumers with a long-cycle higher education also have the highest organic share of total grocery purchases with 20.8% in 2011.

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Table 4 Organic share of groceries by population groups. In 2011

Chains 2011 Geography Greater Copenhagen 12,5% Zealand etc. 7,8% Funen etc. 5,1% Northern Jutland 5,9% Eastern Jutland 7,5% Western Jutland 4,7% Southern Jutland 4,1% Household size 1 person 9,6% 2 persons 6,2% 3 persons 10,0% 4 persons 7,2% 5+ persons 6,1% Family status No children 7,3% 1 child 10,8% 2 children 7,9% 3+ children 6,4% Age Up to 29 years 9,2% 30-39 years 7,3% 40-49 years 9,7% 50-59 years 8,3% 60+ 6,2% Income DKK 100,000-199,999 7,2% DKK 200.000-299.999 6,3% DKK 300.000-399.999 8,2% DKK 400,000-499,999 10,0% DKK 500,000-599,999 6,3% DKK 600,000+ 8,3% Education Vocational education 5,9% No education 4,3% Short-cycle higher education 7,2% Medium-cycle higher education 10,0% Long-cycle higher education 20,8% Source: GfK ConsumerScan