Organic food has lost some of its healthy lustre in the recession. After a boom in the past decade, consumers have suddenly stopped spending so freely on ethically sourced, high-quality ingredients.

US organic supermarket chain Whole Foods, which expanded into London in 2007, underlined the scale of the problem yesterday when it announced a 4.8% plunge in sales for the 12 weeks to 12 April - compared with a 6.7% increase a year ago. Whole Foods did not report how its UK operation performed, but last year it lost an estimated £12 million here.

So it's a brave investor who decides now is the time to plunge into the organic market. But then Crispin Odey, the hugely wealthy City hedge fund star known for his contrarian bets, is no ordinary investor.

Foodie types are intrigued to hear his Odey Asset Management has just taken a £1 million stake in a yet-to-be-launched upmarket food retail chain called Union Market. The stores are expected to challenge Whole Foods and Lady Bamford's Daylesford stores in what will be seen as a battle between rich food fanciers in the capital.

The first Union Market store is set to launch in London in September, and there are plans to open a further 15 in and around the capital over the next five years.

David Stewart, chief executive of Odey Asset Management, said: "It is a comparatively tiny investment for us. It was Crispin's idea. He is very keen on his food, and he liked the concept. He thinks it is a very good business model and that it will succeed." Odey rarely gets it wrong. He recently made more than £100 million in a little under three months on the rising share price of Barclays bank. He and his wife Nichola Pease, an ex-director of Northern Rock and a scion of the family that founded Barclays, have been dubbed "the Posh and Becks" of the hedge-fund world.

Although his investment is tiny in comparison with the £4 billion the fund has under management, it is significant because specialist food retail is seen as a growth business and one the supermarkets, with their defined supply chains, find difficult to compete with.

Specialist food retail is not without its risks, however. While sales of artisan and specialist food have held up well during the recession, organic sales are down. Last year, after growing on average 26% a year, organic sales rose by just 1.7%. Whole Foods' latest numbers suggest 2009 could be even tougher.

Union Market will have to be ultra-stylish to shine. The company is currently seeking about 8000 square feet in the capital. But because of the property slump, development was put on hold in order to secure more favourable terms. Research commissioned by the company has identified about 100 further potential sites in the UK where the company believes the Union concept will work.

The stores will have an emphasis on local and regional produce and will aim to be more accessible to the ordinary shopper than its competitors, and at the same time offer supermarket prices. Union is already recruiting staff and tracking down suppliers.

Although the concept is predominantly upmarket, the founders claim they will be able to compete with supermarkets on price. They hope to see customers doing their weekly shop at Union, rather than buying specialised goods there, and then going to the supermarket for basics.

The company has drafted in former Selfridges Food Hall manager Martyn Barrett as its retail director. Barrett, who also did a stint at Tesco, worked with another ex-Selfridges employee, Stephen Wright, who now runs a business called Global Food Consulting. Wright developed the concept - part-food hall with a butchery, bakery and fresh-produce section and part-café.

To underline its serious intentions, a former Whole Foods executive, Aylie Cooke, has joined the Union team as head of buying. Both Daylesford and Whole Foods are seen as specialist food outlets.

Daylesford sells mainly organic food but sticks predominantly to high-class meat, cheese, bread and wine, while Whole Food Market tends to have a wider offering of produce.

Although Daylesford does not file separate accounts from its parent, the road-digger manufacturer JCB, it is believed to be breaking even at some of its branches but overall it is not yet profitable.

Meanwhile, Whole Foods is arguably finding things tougher than it expected. The US firm hit the UK expecting shoppers to be stunned by its "new" concept when there were already several successful chains offering natural and specialist foods at good value prices - not to mention farmers' markets that have sprung up at weekends in recent years around the capital.

So Odey faces a challenge. He is the latest in a line of high-profile individuals who have invested in niche food businesses.

Peter Kindersley, the Dorling Kindersley publishing magnate, has a successful organic operation called Sheepdrove Farms in Berkshire with retail outlets in London and Bristol.

Jody Scheckter, the South African-born former Formula 1 world champion racing driver, is also passionate about food. Scheckter, who made a £100 million fortune in business in the US before settling in the UK, has invested tens of millions into his Laverstoke Park operation in Hampshire.

Even TV chief Hugh Fearnley-Whittingstall has attracted City money for his restaurant and retail ventures in the West Country.

Londoners, particularly well-heeled ones, have an appetite for upmarket food shops and cafés. The revival of Marylebone High Street was driven by food shops such as the Ginger Pig and La Fromagerie and is now the hottest food destination in London.

One paradox about Odey's organic investment is that soon he may not be around in London much to see how it fares. He is threatening to move the Mayfair headquarters of Odey Asset Management overseas because of the new 50% income tax rate for top earners.

But most Londoners are staying put, and Odey is betting they will want to eat well.