The Organic Panic
A growing demand in today’s market is the desire for organic produce. The trend of the green initiative has slowly grown over the past decades but is starting to gain serious momentum. Where there is a demand, there will be businesses trying to capitalize on this demand. A recent article in the Huffington Post states that Costco has now overtaken Whole Foods in the market of organic produce. Now, the only problem that Costco faces is a shortage in supply.
Costco has established a large membership base through the use of its two-part pricing and block pricing strategies. Costco’s focus is to bring in high quality product at a low cost, and sell in high volume to make up for the smaller margins. With Costco’s benefits it offers its member (cash back, no questions asked returns, and low costs) a high percentage of their members renew their subscription year after year. As Costco has stepped into the organic market, the millions of customers have shown their preferences and are purchasing even more organic food than can be supplied. What is Costco’s response to this demand?
To help supply organic produce, Costco has made exclusive deals with certain farmers to sponsor them and help subsidize their costs. Organic farming can be a long and expensive process to produce certified organic food. Farmers live on such razor thin margins that this process, plus the lower yield, can cripple most farming operations before they even harvest a single crop. Most farmers cannot even take the risk to become certified. Costco is attempting to shoulder some of this risk to help solidify its future supply of organic goods. This only makes me wonder if, in the future, Costco will expand its vertical integration to roll out its own Kirkland brand of organic grown produce. As the demand for organic food increases, supply will only become more scarce. Many businesses will have to take high risks to win in this organic panic.