Issaquah-based Costco Wholesale seems to have quietly passed up Whole Foods to become the biggest organic grocer as it courts a younger demographic, according to one investment bank. 
 
 Costco Wholesale seems to have quietly surpassed Whole Foods to become the biggest organic grocer as it courts a younger demographic, according to one investment bank. 
 
 In an earnings call last week, chief financial officer Richard Galanti mentioned that the Issaquah warehouse club’s sales of organic products exceeded $4 billion annually — up from a previous $3 billion-plus estimate given last year. 
 
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 That means, analysts with BMO Capital Markets said in a research note, that the discount chain is “possibly now already eclipsing” the industry leader, Whole Foods, which the investment outfit estimates sells about $3.6 billion in organic stuff every year. 
 
 “It started small,” Galanti said, referring to Costco’s buoyant trade in organic foodstuffs, which are grown without conventional chemical pesticides or synthetic fertilizer, or come from animals raised without antibiotics or growth hormones. “It’s still small, relative, but growing faster. And there’s certainly more supply of that out there,” he said. 
 
 Costco’s organics business has doubled in the past couple of years, Galanti said. 
 
 Of course, $4 billion is a tiny speck of Costco’s business. BMO expects its total sales this year to reach $114 billion. 
 
 But in terms of the organic- food industry, it’s a huge number: It means more than 1 out of 10 dollars in organic food sales are made at a Costco. The Organic Trade Association, a U.S. lobbying group for the industry, estimates total organic-food sales to be around $36 billion. 
 
 The numbers underscore how organic food, once the domain of alternative co-ops, farmer markets and specialty retailers, has become a mainstream phenomenon — especially among so-called “millennials,” the elusive younger demographic that warehouse clubs like Costco are eager to enlist. 
 
 Wal-Mart is also pursuing this path. The CEO of its Sam’s Club unit, Costco’s warehouse-club nemesis, said in an earnings call last month that it increased its organic offerings by 20 percent since the beginning of the year, since “these are important to various demographic groups, including millennials.” 
 
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 The organic trade group says more than 30 percent of organic-food buyers in a recent survey said “it’s not unusual” for them to buy the products at a warehouse club, a 10 percentage-point jump from a year ago. 
 
 The U.S. Department of Agriculture (USDA) says that demand for organic foodstuffs is growing at double-digit rates. Big-box stores’ emergence as purveyors of organic food is likely to put the already-tight supply of these products under pressure. 
 
 For example, the premium for a 25-pound sack of organic topped carrots delivered in San Francisco in 2013 rose 22 percent from the previous year, according to USDA data; the premium charged for organic avocados over conventional ones rose 14 percent. 
 
 Higher prices eventually result in more supply. For example, a University of Wisconsin report published this year says that in that agriculturally rich state, the number of organic farms has grown 77 percent since 2005. 
 
 The entrance of heavyweights like Costco may strengthen that supply chain, eventually. 
 
 Costco’s Galanti says the supply situation is becoming better as “more organic supply and producers are doing it. And we’re pretty good at getting out there and working with suppliers both here and around the world to commit more to it, whether it’s raising eggs or ground beef processing or produce.” ||||| Organic Aisle Has Become a Battlefield 
 
 People are itching to buy Whole Foods (WFM) now that its stock has a $41 price tag, an 18% off sale for the year. They are asking about Sprouts Farmers Market (SFM), the boutique version of Whole Foods with its small store and homey feel, that's down 10%. Those who like to shop at some of the prettiest Fresh Markets, and they can be dazzlers, are intrigued by scooping some of that one up, as it is now down 21% for the year. 
 
 And for all bottom-fishers in the natural and organic space, may I direct your attention to what Target (TGT) CEO Brian Cornell emphasized last night on Mad Money, notably that the company wants to get bigger and bigger into "wellness" and says he is just getting started in the expansion of the food aisle to include more natural and organic foods. 
 
 I say, welcome to the most crowded area of the supermarkets and discounters these days, because it is a double-digit growth category where you have low-single-digit to no growth center of store merchandise at supermarkets and heavily discounted apparel and electronics at the big-boxers. 
 
 Sure, natural and organic sales are growing 11% and are said by some counts to be up to almost $40 billion in sales. So you could argue that there's room for all comers. However, you have to recognize that you are playing with some chains that simply insist on winning the space, including Costco (COST), which, at a $4 billion run rate in this category, is now neck and neck with Whole Foods. Quite a change from when management of Costco admitted to me just a few years ago that they thought it was a fad that would go away. Now even Wal-Mart (WMT) recognizes its importance -- and I say even Wal-Mart because this is a store where clerks sent me to Rice Krispies bars when I was looking for rice cakes just five years ago. 
 
 It's not just these companies that want to dominate. Kroger's (KR) Simple Truth natural and organic food line's doing $1 billion in sales and going higher. Who the heck knows how much business the private Trader Joe's is doing? And Amazon's (AMZN) got plenty of runway, too, with its sales of so many natural and organic products that it's become a major driver of natural and organic king Hain Celestial (HAIN) sales. 
 
 Into this breach comes Target's Cornell, and natural and organic has become integral to his world view of capturing millennials and nabbing young moms as part of a 360-degree attempt to start them at Target when they create their new households. 
 
 He can't afford to lose this battle and he can't afford to cede ground to anyone in the category, including the once most powerful force in the industry, Whole Foods. 
 
 Now we know from our interviews with co-CEO Walter Robb that Whole Foods isn't taking these challenges lightly. The founder of the movement is working on a new concept store that's meant to appeal directly to millennials. The issue I have, again, though, is that when you have this kind of price war, it is going to hurt the margins of all involved and it is easier for a Costco with its profits coming from membership cards to come in and dominate almost as a loss leader. As we know, there is a shortage of natural and organic product in the country, which means higher prices to the consumer, prices that Costco may not feel like passing on. It makes enough money on the cards that it can get away with keeping prices lower than everyone else, hence its amazing sales numbers. 
 
 So I come out and say, be careful here with bottom-fishing in the narrow-focused natural and organic stocks. When you wade into the natural and organic aisle, you are wading into a battlefield with the newest combatant, Target, determined to win, and I do not want to doubt the resolve of a company playing catch-up in this most important category. ||||| Organic produce and $1.50 hot dogs: That’s what Costco does. 
 
 According to an analysis released Wednesday by financial firm BMO Capital Markets, the free-sample-slinging grocery chain is projected to sell just over $4 billion in organic products this year, edging out $3.6 billion by Whole Foods to take the national lead. To be fair, Costco is the second-biggest retailer in America overall—Walmart is the perennial champion there—so its percentage of organic to nonorganic foods is likely much lower than Whole Foods’. But volume and product diversity are just some of the perks that come with each store being the size of an airplane hangar. 
 
 Still, Costco didn’t conquer the organic market accidentally. Expanding its offerings has been part of a calculated effort to capture younger consumers and lure them away from other retailers. The membership-based chain has increased its organic sales by about $1 billion in just six months, and it plans to push even harder. 
 
 So, Why Should You Care? That big-box retailers are adding more organic options signifies that American food demands are changing. Not only are organic foods healthier for your body—they tend to have more antioxidants and lack the pesticide residue of traditionally produced food—but they’re also healthier for the environment. According to the U.S. Department of Agriculture, “The principal guidelines for organic production are to use materials and practices that enhance the ecological balance of natural systems.” 
 
 The market for organics increased 12 percent from 2013 to 2014 and is projected to jump double digits again going into 2015. The increase in demand has directly led to an increase in supply. 
 
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 “While the challenges in terms of supply are still out there, they’re becoming less formidable because there are more organic suppliers and producers,” Richard Galanti, Costco’s vice president and CFO, said in a conference call with the analysts. “We’re working with them to commit more to it.”
– One out of every 10 organic-food sales is made at Costco, the Seattle Times reports—enough to propel the warehouse club to estimated annual sales of $4 billion and allow it to beat out Whole Foods ($3.6 billion) as the No. 1 organic grocer, per an analysis from BMO Capital Markets cited on the TakePart website. Costco's numbers were revealed in an earnings call with CFO Richard Galanti last week, who noted that Costco's sales of organic have doubled over the past couple of years. What this means, the Times notes, is that organic is moving from just being on the shelves of specialty venues to mainstream sellers—and right into the sights of the younger "millennial" generation. So while Costco's relatively new tack may seem surprising—as TheStreet's Jim Cramer puts it, the news is "quite a change from when management of Costco admitted to me just a few years ago that they thought it was a fad that would go away"—it's probably just the start, with retailers like Walmart not far behind, per the Times. (Click for America's 10 favorite grocery stores.)