Who’s Changing Whom?

The LOHAS marketplace is fundamentally changing the structure of the American economy—and not the other way around - By Eric Peterson

Today’s LOHAS marketplace is the economic equivalent of a big, adolescent puppy, steadily growing and irrepressibly moving … somewhere. The head doesn't always know what the tail is doing, and its paws are too big for the rest of him, but nevertheless his coordination is improving. This is a marketplace that is clearly getting bigger and better. Indeed, argue some of its keenest observers, it is changing the structure of the American economy. But observers also say it’s impossible to pinpoint exactly what’s next. "We are looking at a structural change in the American economy," says sociologist Paul H. Ray. The San Rafael, Calif.-based Ray, who coined the term Cultural Creative in 1995 and wrote a book on the phenomenon in 2000, The Cultural Creatives: How 50 Million People are Changing the World, identified the subculture that spawned the LOHAS movement. LOHAS consumers—people who tend to make their purchasing decisions in keeping with their values of social and environmental responsibility—were quantified in work completed in 2002 by Conscious Media and the Harleysville, Pa.-based Natural Marketing Institute.

Such sweeping change makes economic prognostication difficult. Nonetheless, "In the long run, say a 20-year time horizon, we're talking about a major, major shift toward everything LOHAS stands for," Ray predicts.

Ray says the ranks of Cultural Creatives in the United States are growing at a rate of 1 percent a year. But the number of dollars annually going into the market--now at $355 billion --is escalating about 10 percent a year, according to Ray. "What we’re getting is a lot of people coming into the market more confidently and aggressively," Ray explains.

But mere numbers don't tell the real story of the LOHAS phenomenon, because it's not just about growth, it's about change, Ray asserts. "There's a big difference between quantitative growth and structural change, and LOHAS is going through structural change,” he says. "We're not just getting bigger, we're moving toward new criteria of what makes a good product. The bumper-sticker kinds of explanations don't work when you've got a structural change in progress."

And structural change usually comes in fits and starts. "We're being successful, but not in the ways we predicted, and, by and large, we’re predicting wrong again and again," Ray says. Translation: The future of the LOHAS market won't be clear until, well, the future. Ray’s two cents worth for LOHAS-oriented businesses in 2004: "Be very responsive and nimble on your feet."

Each of the five key LOHAS market segments--Sustainable Economy, Healthy Lifestyles, Alternative Healthcare, Personal Development, and Ecological Lifestyles--is maturing at its own pace, as is socially responsible investing, also a key component of LOHAS. And each of these segments has a unique set of circumstances shaping its structural change. Here we take an individual look at what factors are at work influencing growth in each LOHAS sector.

Sustainable Economy

LOHAS's Sustainable Economy segment is a growing annual market approaching $150 billion. It's not exactly about a specific category of products or services but rather a self-sufficient, ecologically friendly philosophy shared by a disparate set of businesses. And it’s catching on fast, not only because it's the right thing to do: It's also a more lucrative path than the status quo, as Amory Lovins, L. Hunter Lovins and Paul Hawken eloquently argued in their 1999 book Natural Capitalism.
 
"All the way across the board, there are stories and examples that this is a good idea," says Christina Page, a member of the Commercial & Industrial Services team at the Snowmass, Colo.-based Rocky Mountain Institute (RMI). "It is possible to be both ecologically sustainable and economically profitable."

Page points to a striking example. In the late 1990s, British oil titan BP (NYSE: BP) announced a plan to decrease its carbon emissions to 10 percent below 1990 levels by 2010. The company accomplished the task seven years ahead of schedule and saved money in the process. “Everybody assumed it was going to cost money,” Page says.

Another sign of the rise of sustainable business practices is the emergence of relevant consultancies. For example, Page says her team at RMI has worked with a significant number of the Fortune 500 companies. “It tends to have a snowball effect; in a lot of industries, nobody wants to be first, but everybody wants to be second,” Page says.

But not every facet of the Sustainable Economy sector has had such a relatively smooth entrance into the mainstream. Beginning in mid-2000, renewable energy, for example, “was a minefield ... a very difficult place to invest in,” says Matt Patsky, co-manager of the Winslow Green Growth Fund in Boston.

Patsky points to fuel cells to illustrate. “We had a false start for fuel cells. The expectation was that the market was going to materialize quicker,” he says. The booming stocks of fuel cell companies in 2000 and 2001 were the result of “euphoria,” he maintains.

But misplaced euphoria has changed to qualified acceptance now. While Patsky says full acceptance of fuel-cell technology won’t exactly happen tomorrow, it is happening. “The [fuel cell] group in general has turned the corner,” he says, adding the caveat that there’s still a lot of risk to be had in fuel-cell company stocks. 

In addition, while solar energy is “still difficult” economically, wind energy is now, on a relative basis, economically viable as an alternative source of energy in most parts of the world, Patsky says.

This clearly bodes well for LOHAS’s Sustainable Economy sector. “What you’re seeing broadly is that technological innovation is making renewable energy more cost-effective, while dwindling supplies and escalating recovery costs are making nonrenewable energy sources more expensive,” Patsky says. “Sooner or later, we get to a point where it’s all cost-effective.”

Healthy Living

Natural and organic foods make up a large portion of the LOHAS market’s Healthy Living sector, and historically it’s been one of the total market’s hottest growth categories, racking up double-digit annual sales increases for more than 20 years. It also is a prime entry point for new LOHAS consumers. According to Nutrition Business Journal, however, annual growth has cooled into the high single-digit territory since the turn of the millennium; still, sales have surpassed $40 billion a year. 

"We're seeing a continual increase in new consumers coming to the market, but it certainly isn’t anywhere near as quickly as over the last 10 years," says Steve Demos, president of soy-products maker White Wave, a unit of Dean Foods (NYSE: DF) in Boulder, Colo. "To some extent there is a slowing of growth, but that doesn’t mean that growth is going away." 

The early adopter phase is over, Demos says. The core market "has embraced the concept. As an industry, we're all adolescents now. We went through our big growth spurt and now we're settling into being adults." 

To push future growth, Demos believes natural foods companies need to relate to the average consumer better. “To presume that we’re going to sit here and keep doing what we’re doing and see an acceleration in growth rates is naïve and ignoring the life cycle,” he says. “Either the industry will continue to grow in the 8- to 10-percent range and everyone will be happy, or it will approach the mainstream and attract enormous growth.

“The best thing for the LOHAS community right now would be for someone to make an enormous amount of money ... as a demonstration that profitability based on all of these values is superior to profitability not based on these values,” Demos says. “It would be a big springboard into the mainstream. If it isn’t growing, we’re basically standing on a big soapbox, preaching to ourselves. Everybody that was at Woodstock is already eating our stuff. We need more of everybody else.”

Another Boulder-based natural foods veteran, Barney Feinblum, now president and CEO of Organic Vintners and formerly CEO of both Celestial Seasonings and Horizon Organic Dairy, points to one company as the Healthy Living sector’s prime catalyst. “Clearly what’s been driving the whole industry is Whole Foods Market [Nasdaq: WFMI],” he says. “You now have a $4 billion retailer approaching 150 stores. Their bigger and bigger stores are accommodating more and different LOHAS products. The retailer is really bringing consumers in and meeting more and more of their needs. Eventually, they’re going to sell environmentally friendly paint.”

Feinblum is upbeat on the future, expecting double-digit growth for at least the next decade. The organic category now accounts for 1 to 2 percent of the food market; by 2014, it should be 5 to 10 percent, he says. “Twenty-five years ago, you didn’t even have the word organic’ But now, you’ve seen it compound at 20 percent growth for 25 years; you know it’s not a fad.”

Alternative Healthcare

As a category, Alternative Healthcare has enjoyed stellar growth in recent years, but the segment hasn’t quite been able to crack the mainstream. Currently, the sector is stuck between a rock (the rising costs of mainstream healthcare) and a hard place (the often inflexible medical establishment). 

Stephen Bolles, a chiropractor and executive director of the Minneapolis, Minn.-based Collaboration for Healthcare Renewal Foundation, says that the Alternative Healthcare sector will move forward only when it is integrated into the larger mainstream-medicine establishment. When the Foundation began operations in 2000, there were “few if any viable business models for the delivery of integrated healthcare,” Bolles says. “There are many more failures than successes from a business standpoint. At some point, they’ve got to figure out how to make money.”

The irony here is that alternative healthcare is good healthcare business. “In every study of cost-effectiveness that has been done ... there has been overwhelming evidence that these alternatives save money,” Bolles says. “The most expensive form of medicine is mainstream medicine.”

Part of the problem with the U.S. healthcare system, Bolles adds, is that there is no mechanism by which to adopt cost-saving processes. “Insurance companies have no pressure to look for lower-cost alternatives,” he says. Bolles says the current conundrum is rooted in the traditions of empirical science. “The system is struggling to understand what these therapies do in light of comparison with fact-based medicine,” he says. “Traditional medicine’s dirty little secret is it doesn’t have a lot of evidence for what it does, either.”

Regardless, or perhaps as a result, Bolles believes that a strong future for alternative medicine remains in the cards. “Academic medicine is moving ahead pretty steadily to make integrated healthcare part of the curriculum,” he says. “You’ve also got people going to medical school who have been more exposed to alternative healthcare.” And, it’s now become a marketplace advantage for clinics to have acupuncturists and massage therapists on the team, he notes.

“The locus of power in the healthcare system has shifted,” Bolles says. “It hasn’t settled on consumers, but it sure is heading that way. What is not progressing as quickly is collaboration on the managed-care side.”

Meanwhile, the alternative healthcare community is trying to prepare itself for the broadest set of consumer interests. Bolles says the system is trying to recast itself as being more relevant. “If we can hang on a few years, we will come out of this with a much more integrated system,” he says.

Personal Development

Numbers are hard to come by, but techno burnout and other travails of 21st century life appear to be fueling the growth of LOHAS’s Personal Development sector.

“There’s been a sharp uptick in the perceived value of self-inquiry,” says Stephan Rechtschaffen, CEO of the Omega Institute in Rhinebeck, N.Y. As evidence, he says, the Institute’s year-over-year enrollment keeps increasing, as does the size of its course catalog.

“These days, everybody’s stretching themselves. They’re looking for something in daily life that’s an antidote to that,” Rechtschaffen says.

“People are more interested in quieter, more contemplative disciplines,” echoes Nancy Lunney-Wheeler, executive director of programs at the Esalen Institute in Big Sur, Calif. She says the Esalen catalog has more yoga, meditation, and arts seminars and workshops than ever before.

As at the Omega Institute, enrollment at Esalen continues to grow year after year. Lunney-Wheeler says the demographics of Esalen’s students also have become broader, both in terms of age and nationality.

Broader demographics clearly bode well for the Personal Development sector. Lynn Powers, president of Boulder, Colo.-based lifestyle products company Gaiam (Nasdaq: GAIA), says one out of four Americans is practicing some form of mind-body fitness. “The top-selling videos on Amazon.com are regularly yoga and pilates videos, and the number of health clubs offering yoga classes has doubled in the last 10 years,” she says.

In 2002, the most recent year for which figures are available, Gaiam sold more than 5 million mind-body fitness videos. In that year alone, it launched 45 new video titles.

Ecological Lifestyles

Americans’ quest to escape the rigors of this new century for a while has not translated into growth in eco-tourism, however. Eco-tourism is a prime component of the LOHAS market’s Ecological Lifestyles sector, and while the category as a whole is growing, ecotourism’s growth has decelerated in recent years. In 2002, the World Tourism Organization reported that the U.S. international eco-tourism market is about 4 percent of the overall market and is growing at a similar annual rate as the overall market. But, like the overall tourism market, the $60 billion ecotourism niche has been challenged in the post-9-11 landscape. A 2004 report by the International Ecotourism Society labeled consumer demand for responsible tourism as “strong, growing, but largely passive.”

However, as the tide for all tourism slowly has begun to turn, so it has for eco-tourism. Despite continuing international turmoil, “The 2004 outlook is the best in three years,” says Tim Warren, president of Adventure Business Consultants in Forestville, Calif. “The ecotourism segment should be growing at the same improved rate as mainstream travel.”

On the other side of the Eco Lifestyle sector, eco products, from organic cotton T-shirts to environment-friendly cleaning products, are racking up hefty increases in sales. “There is now a wider range of great natural products that are healthy and stylish,” says Gaiam’s Powers. She also asserts that eco-lifestyle clothing products are surpassing their traditional counterparts in quality, style and design.

Powers says organic clothing and housewares are among the hottest Eco Lifestyle consumer products. The Organic Trade Association backs this claim, forecasting 39 percent average annual growth in organic apparel from 2000 through 2005.

Again, the good news for growth in this LOHAS market sector is the widening of its customer base. Powers notes, for example, that more men are buying Gaiam products, as are younger and more mature consumers. “I believe [the LOHAS market] is already mainstream,” she says.

Socially Responsible Investing

Socially responsible investing (SRI) is another shining star of the LOHAS movement. The Social Investment Forum reported the assets in socially screened portfolios growing to $2.14 trillion in the U.S. in 2003, a 7 percent uptick over 2001. This is especially impressive when taken in context: Over the same period, the assets in all professionally managed portfolios dropped 4 percent.

“Investors are seeing better returns with socially responsible investing,” says Joe Keefe, senior advisor for strategic social policy at The Calvert Group in Bethesda, Md. It follows that the pace of SRI growth is quickening. “Word is traveling much faster today,” Keefe says.

And SRI is no longer seen as simply green or moralistic, but as a strategy that involves research that is more complete. According to a recent Harris poll commissioned by Calvert, 84 percent of investors “are more likely to invest in a mutual fund if it engages in ethical business practices in its operations and reporting,” a statistic that reflects “a seismic shift in public sentiment,” Keefe says.

Amy Domini, founder and CEO of New York City-based Domini Social Investments, sees the rise of SRI as irrevocably tied to the rise of LOHAS in general. “People, generally speaking, are drawn to this type of investing for a consistency of purpose,” she says. “They want to bring their investments more into alignment with the way they live their lives.”

Domini says the SRI trend is more clearly seen in how many companies now publish sustainability reports or social responsibility reports. Nearly half of the S&P 500 now do so. “These are things that didn’t even exist 20 years ago,” Domini says. 

Investors now know, “Thanks to Enron, that there are lying, cheating, stealing CEOs in the world,” Domini continues. “They no longer have a sense that some sort of government authority is watching out for their better interests.” 

As Calvert's Keefe puts it, “We’re living in a different world.” Indeed. And if Paul Ray is correct, it is a world that, admittedly in fits and starts, will increasingly adopt LOHAS marketplace values.

About the Author

--Eric Peterson is a Denver-based freelance writer who covers business and travel for a number of publications. His latest book, Roadside Americana, is available at bookstores.


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