Costco has publicly advocated for increased production of organic fresh produce items. It is the chain’s member shoppers, however, who are driving organic sales growth as they vote with their dollars, according to Frank Padilla, vice president and general merchandise manager for meat and produce, of the 800-store worldwide chain.
Speaking with Organic Produce Network co-founder Tonya Antle during an exclusive OPN virtual event, What a Year it’s Been, So Far---Organics in 2020, the Costco executive said the past five months under pandemic conditions have been challenging and forced the retailer to be “nimble."
Costco initially concentrated on core organic items, but Padilla said as the supply chain has improved, Costco has expanded the organic SKUs available to its members. He noted that both organic ginger root and organic long-English cucumbers have registered surprising sales gains during the pandemic.
Costco increased sales on many staple items including potatoes, bananas, and citrus, which were indicative of the early panic buying that took place across the retail sector. Padilla said shoppers also bought items that helped them be creative in meal preparation. “Some of the surprises included organic Brussels sprouts, organic mushrooms and cremini mushrooms,” he said.
Antle also explored the expansion of direct-to-consumer options that Costco has utilized, including its relationship with Instacart. Padilla said organic produce sales have done well in the direct-to consumer channel. The Instacart relationship has also allowed Costco to expand its reach as the in-store Instacart fulfillment shopper is the person with the membership and non-Costco members can take advantage of that. Padilla said that relationship has increased on-line sales and organic produce sales have grown as a result.
The OPN event also featured Steve Lutz of Category Partners discussing how well organic sales have done during the pandemic. The produce industry veteran said organic produce sales have experienced “no erosion” during the pandemic and continue to out-perform conventional sales and volume growth within the produce category.
Surveying the numbers, Antle noted that while organic produce continues its impressive double-digit growth on an annualized basis, it appears to have difficulty capturing more than 10 percent of total produce sales. Lutz believes that is a function of availability, and lack of supplies prevent the category from climbing well beyond that benchmark.
As the price gap between conventional and organic produce narrows, Lutz said, organic sales will increase. On average, he said the retail price of organic produce is twice that of conventional produce. Illustrating his point, Lutz noted that in high volume categories, such as bananas, carrots and apples, the price gap is typically much smaller and organic sales do account for a far greater percentage of sales.
The full session is available for viewing here.