Walmart to Offer Organic Line of Food at Discount Prices

Walmart plans to announce on Thursday that it is putting its muscle behind Wild Oats organic products, offering the label at prices that will undercut brand-name organic competitors by at least 25 percent.

The move by Walmart, the nation’s largest retailer and grocer, is likely to send shock waves through the organic market, in which an increasing number of food companies and retailers are seeking a toehold.

“We’re removing the premium associated with organic groceries,” said Jack L. Sinclair, executive vice president of Walmart U.S.’s grocery division. The Wild Oats organic products will be priced the same as similar nonorganic brand-name goods.

For now, Walmart will carry the Wild Oats label, which is owned by the Yucaipa Companies, a private investment firm, only in its pantry section, with items like tomato paste, chicken broth and cinnamon applesauce cup. Over 90 percent of its offerings at Walmart will be organic, while the rest will adhere to company standards about ingredients and additives, a Wild Oats executive said, but not to any government regulations.

Instead of hitting the entire national market at once, Walmart will first introduce Wild Oats at 2,000 stores in the coming months, only half of its national footprint, and then roll it out to the rest of the country. Mr. Sinclair said that concerns about supply kept the retailer from introducing the brand in all its stores at once.

“What we don’t want to do is launch it in 4,000 stores and then not be able to supply those 4,000 stores in the short term,” he said. “Certain commodities are challenging in terms of being able to access both the raw material and the processing capacity.”

In an effort to manage and ensure the supply, Mr. Sinclair said, Walmart plans to enter into long-term agreements with suppliers — for five years, for example — so it can lock in what it will need to meet its enormous requirements.

Over at least the next few years, Walmart’s move is likely to raise prices for organic ingredients, which are already going up because of fast-growing consumer demand. Organic food accounted for $29 billion in United States sales in 2012, according to the most recent data, the Organic Trade Association said. Ten years earlier, its sales were $8 billion.

Eager to tap into that demand, Target, one of Walmart’s primary competitors, said on Tuesday that it wouldexpand the presence of organic products in its stores. At Walmart, internal company research found that 91 percent of customers said they would buy “affordable” organic products if they were available, executives said.

While organically produced grains do not necessarily cost more to grow than other types, Lynn Clarkson, founder of the Clarkson Grain, which processes and sells organic and conventional wheat, soy, corn and other grains, said they commanded a huge premium because they were scarce.

“Right now, there is so much demand and competition for supplies that the price is very high, and I cannot imagine that changing anytime soon,” Mr. Clarkson said.

He estimated that farmers in the United States were producing about six million bushels of organic soybeans, for example, when some 20 million bushels are needed to meet current needs. Organic soy is selling for $25 to $30 a bushel, Mr. Clarkson said, or about twice the price of regular soy beans.

The amount of land devoted to organic farming has grown, according to the Agriculture Department, but not nearly enough to address growing consumer demand.

“Younger people are much more interested in the chemistry of their lives, and so for them the issue of pesticides is a troubling one,” Mr. Clarkson said.

Ultimately, however, Walmart’s move could increase the supply, and eventually bring prices down.

The online grocery retailer Fresh Direct has an extensive selection of organic products among its overall merchandise mix. A five-pound bag of conventional russet potatoes was selling for $3.99, while its organic counterpart was $5.99. A box of Driscoll’s organic strawberries is usually a dollar more than its conventional brethren.

“We offer both, but more often than not I try to push people into the organic because I think it’s better,” said David McInerney, a founder of Fresh Direct. “You can compress the margins on organic to make it more attractive.”

Mr. McInerney said he did that in hopes of building the scale of organic products. “Prices can and will come down with scale,” he said. “We’ve already seen that as demand for organic products has grown.”

He said an increasing number of farmers he dealt with were considering switching at least a portion of their conventional production to organic, attracted by the premiums.

But even if a farmer decided to turn to organic production today, various restrictions mean that it would be three years before any crop could receive the federally approved organic seal.

Reference: http://finance.yahoo.com/news/walmart-offer-organic-line-food-041113860.html

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