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Walmart plots a low-price takeover of the organic food market

Walmart plots a low-price takeover of the organic food market


The wolf of Main Street is feeling hungry

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Ask 10 different people to tell you what constitutes organic food and you’re likely to get 10 different answers. Ask them whether organic is better, however, and nine of them will say that it is. That’s the data coming from Walmart’s internal research, which found that 91 percent of the giant American retailer’s customers would opt for organic foods if their prices were lower than they currently are. Never one to neglect market demand, Walmart has acted today with the introduction of a new Wild Oats range that promises to save shoppers over 25 percent when compared to buying better known organic food brands.

The USDA has an exhaustive checklist of conditions to be satisfied by organic produce, spanning the entire course of farming, processing, and storing of food. The key prohibitions rule out the use of hormones, antibiotics, and GMOs. Wild Oats, whose products are going national with today’s deal after selling only in select Fresh & Easy stores in California, says that all of its organic-branded items are USDA-certified. They’re mostly pantry fillers at the moment — such as condiments, snacks, and canned vegetables — but the company’s looking into expanding the selection to include fresh produce as well.

"We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more … We are changing that." — Jack Sinclair, Executive VP, Grocery, Walmart.

Walmart's an unlikely ambassador for the health benefits of organic food

The benefits (and even the definition) of organic food can often be a source of controversy, but even so, Walmart’s reputation makes it an unlikely candidate for spreading awareness of the issue. The company’s brutal cost efficiency and aggressive pricing have been the subject of widespread criticism: from being satirized in South Park to investigative documentaries questioning its employment practices. It’s a business built on vast economies of scale looking to sell and promote products whose defining characteristic is a less intensive mode of production. The two would seem to be mutually exclusive.

Unsurprisingly, Walmart’s groceries boss sees no contradiction in its newly unveiled plans. Jack Sinclair, who’s been with Walmart since 2007 following stints at Tesco and Safeway in the UK, describes what the company is doing as "a win, win, win." Customers will get lower prices on something they want, suppliers will have the assurance of consistent demand, and Walmart itself benefits from the halo effect of being associated with healthful foods. Sinclair sees massive inefficiencies in the organic supply chain and believes that by skipping out the industry’s middlemen and placing direct orders with suppliers of the raw goods, Walmart can secure that trifecta of advantageous outcomes.

Cheaper prices today for higher profits tomorrow

This may come at a significant initial cost to Walmart, but sales of organics are increasing notably faster than conventional foods and Walmart’s keen to seize the initiative in a growing category. If it can establish itself as a leader, the retail giant may be able to soften its severe public image while also counting the profits of a smart early investment.

Over the past few years, Walmart’s been engaged in a series of projects to rectify its negative brand perception, which the Wild Oats range slots neatly into. Last year, US First Lady Michelle Obama visited a Walmart Neighborhood Market — a smaller, more intimate version of its stores — to commend efforts made toward reducing sugar content and improving the quality and variety of groceries sold by the retailer. Now the company is setting out to price what’s been typically a premium subset of products at the same level as the regular stuff.

A $29 billion industry set for a shakeup

Although it’s embracing some aspects of the health-conscious food culture that’s spreading throughout the United States, Walmart is mindful not to actively subscribe to it. "This isn’t about telling our customers what to eat," says Sinclair, but rather about broadening the choice they have within the scope of their budget. The conservative corporate spirit remains strong at Walmart, but there’s no denying the potential for everyone to benefit from lower prices of organic foods.

If Whole Foods — the specialist health food retailer that bought Wild Oats in 2007 before selling it on the brand in 2009 — feels the pressure to compete, Walmart’s trailblazing ways could have an even wider effect than its 4,000 grocery-selling stores in the US. On the other hand, the omnipresent threat with Walmart is that it will strangle competition by exploiting its great scale and end up operating a de facto monopoly. The one cause to be more optimistic today is that, should Walmart’s plans succeed and sales increase as the company anticipates, organic farmers around the US will have reason to expand their production and thus reduce costs through their own economies of scale — meaning they’d be able to charge less to anyone seeking to compete with Walmart’s prices.

The wolf of Main Street already dominates America’s groceries market. Now it wants to wrest control of one of the pillars of the premium segment as well, and its sheer size and influence look set to give the $29 billion organic food industry its biggest shakeup in years.