U.S. consumers may pass on convenience and organic foods

By Brad Dorfman and Lisa Baertlein - Analysis

CHICAGO/LOS ANGELES (Reuters) - Cash-strapped U.S. consumers could be turning their backs on two of the biggest trends in the food business -- organics and convenience -- in order to save money.

Food industry executives and analysts interviewed in the past week pointed to those two categories as among the most vulnerable to consumers trying to stretch food budgets. While cash-strapped consumers may be eating more at home, they are also cutting out some of the little time-saving or health- conscious luxuries to which they had grown accustomed.

These changes could be a boon to companies such as Kraft Foods Inc, General Mills Inc and J.M. Smucker Co, whose products are seen as building blocks to home- made lunches and dinners.

But forays by food producers such as Chiquita Brands International Inc and by supermarket chains such as Whole Foods Market Inc and Safeway Inc to sell pre-cut packages of fresh fruits and vegetables or prepared meals at a premium could be among the casualties.

"When the $75 doesn't buy what it used to buy, you change what you buy," said Bob Goldin, executive vice president at food and restaurant industry consulting firm Technomic. "Consumers really are willing to sacrifice convenience to manage their budgets."

Demand for organic milk and meat remains strong, while purchases of packaged organic products such as crackers have dropped off, said Laurie Demeritt, president of market research firm Hartman Group in Bellevue, Washington.

According to the Organic Trade Association, sales of organic products, including food and nonfood, were estimated to have risen 19.8 percent to $21.2 billion in 2007 from 2006, with the increase slowing to 17.9 percent in 2008. Sales rose 21 percent in 2006 from 2005.

"Leveling off occurred much more quickly than people anticipated as a result of the economy," said Brian Morgan, senior research analyst at Euromonitor, noting that areas such as organic produce have seen slower growth.

It has also become more difficult to attract new customers to organic products, he said.

Stonyfield Farms, the leading U.S. organic yogurt maker, said the pace of revenue growth has slowed for the company along with the economy.

"I would have expected a slowdown this year because of the price pressure that people are seeing," Gary Hirschberg, chief executive of Stonyfield, told Reuters.

But though the pace of growth has slowed, sales are not actually falling, he said.

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Food prices were up 6 percent in July from a year earlier, according to the Labor Department's consumer price index. Food makers, struggling with soaring costs for grains, energy and other commodities, have repeatedly raised prices in the past several quarters after years of stable prices.

That has put pressure on consumers who are also being hammered by rising costs for gasoline and mortgage payments.