When it comes to retail, no one moves the needle like
. That's why news that Wal-Mart is going organic is such a big
No, Wal-Mart isn't removing conventional foods from its
shelves. But with the partnership it just announced with Wild
Oats, Wal-Mart will soon carry around 100 organic staple food
items packaged by Wild Oats.
are nothing new for Wal-Mart.
The retail giant carries around 1,600 organic grocery items
currently. The goal is that the Wild Oats items would cost around
25% less than organic items from national brands.
Wal-Mart's non-organic Great Value line will still be cheapest
option on the shelf. However by pricing Wild Oats organic items
roughly the same as non-organic name-brand items, the strategy
could prove hugely successful in luring customers that are
seeking cheap organic foods.
That is surely of interest to a Wal-Mart executive team that
has overseen four consecutive quarters of declining same-store
Wal-Mart's own research has suggested that 91% of its
customers would buy more organic food if the price was lower. On
top of keeping some customers Wal-Mart might lose to competitors,
the retail giant might see success at winning back customers it
has already lost.
Wal-Mart's executive vice president of U.S.grocery, Jack
Sinclair, offered some interesting comments on the matter. "What
is it that makes organic products so expensive? Where's the point
of inefficiency?…We are trying to disrupt the market."
So how exactly does Wal-Mart plan to reduce the costs of
organic foods? By giving purchase commitments to small-scale
farmers Wal-Mart can negotiate for lower prices. Additionally,
Wal-Mart aims to cut out middlemen that exist in the organic food
In a previous job I spent two years working in sustainability
for a multi-national foodservice company. In this role I saw
first hand the lack of organization and efficiency in the
procurement and distribution of organic and local foods.
Though significant strides have been taken by
United Foods (
, this market remains fragmented and lacking the same
organization and efficiency as has been brought to conventional
While I can easily picture some in the sustainability
community criticizing the "evil corporation" and questioning the
motives behind Wal-Mart's announcement, a giant like Wal-Mart
entering the organic space could be hugely beneficial to the
entire natural food industry.
For starters, competition in the market and lower prices can
only help bring in more consumers of organic foods. Before long
these consumers will likely branch into the broader array of
products distributed by United Foods, including the
line of food products.
Wal-Mart's motivations are obvious. Take a look at the
performance of various kinds of food companies.
is up only 74% over the last five years while
Chipotle Mexican Grill (CMG)
is up 682% during that same period.
Shares of grocery chain
are up almost 110% in the past five years while shares of
Whole Foods Market
are up more than 450%.
Consumers vote with their wallets. And the results show that
the growth in food and grocery is in organic and natural
Wal-Mart's move is surely a jab at Whole Foods and other
purveyors of natural and organic foods, such as
The Fresh Market (TFM)
And I honestly hope it pays off for Wal-Mart. Not just because
I am a Wal-Mart shareholder but also because, if successful,
Wal-Mart will force the organic food industry to be more
efficient and price-focused.
Lower cost organic foods means more accessibility for
consumers. And more consumers eating less-processed and
higher-quality foods will almost certainly lead to healthier
consumers. The fact that Wal-Mart is going organic could be a
major event that drives us in that direction.
DISCLOSURE: I personally own shares of Wal-Mart in my IRA.
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