Wal-Mart Gets Doubly Serious About Organics

Discussion
Mar 07, 2006
George Anderson

By George Anderson


Wal-Mart is out to clear up the perception that you need to be rich to be able to afford organic products and, to do that, it plans to double the number of skus it offers over the next several years.


DeDe Priest, senior vice president of dry grocery for Wal-Mart, told Reuters the company is not looking to turn itself into a health food store, but that the number of consumers buying organic goods makes it the right time for the retailer to give more attention and shelf space to these items.


The company is already the number one seller of organic milk in the U.S. and Ms. Priest, who took over her current job in December, “met with CEOs from 15 of the top consumer products companies in her first week on the job to stress the importance of organics and press them to expand their offerings,” according to the Reuters report.


The goal behind Wal-Mart’s strategy is simple, said Ms. Priest. “It’s to grow our absolute sales.”  


Moderator’s Comment: What impact will expanded organic food offerings have on Wal-Mart’s business? What impact will Wal-Mart have on the organic foods
market?


DeDe Priest told Reuters, “Our focus (on organics) is never really to grow our margin, it’s to grow our absolute sales.”
George Anderson – Moderator

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15 Comments on "Wal-Mart Gets Doubly Serious About Organics"


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David Livingston
Guest
14 years 11 months ago

I have no data to prove this but in my opinion, the organics shopper is not the typical Wal-Mart shopper (above average income, education, and median age). Perhaps Wal-Mart will be successful. The major organic retailers such as Whole Foods, Trader Joe’s, and Wild Oats have found they are successful only in certain areas with a certain demographic profile. Most of these areas have no Wal-Mart and Wal-Mart probably would not be too welcome there anyway. There is a reason why there is no Wal-Mart near DePaul University in Chicago, however, there are a few Whole Foods and Trader Joe’s. Just as there is a reason there is no Whole Foods or Trader Joe’s in Muskogee, Oklahoma.

Camille P. Schuster, PhD.
Guest
14 years 11 months ago

If there is a demand for these products among loyal Wal-Mart shoppers, then Wal-Mart will be successful. Choices are always made to devote shelf space to those products consumers want and will purchase. Wal-Mart has the data to know whether their consumers purchase these products. Wal-Mart addresses the same core concern that faces every merchandiser: how to make available at the right price the products that your most valuable consumers want to purchase. Their distribution system is certainly efficient enough to get the product to the stores. I would guess that Wal-Mart would not announce a switch to organic foods without having already found a source.

Art Williams
Guest
Art Williams
14 years 11 months ago

Wal-Mart will expand the total organics market and capture the consumers that have been missed by Whole Foods. They probably will not get the core Whole Foods shopper, but they don’t need them to be successful in this niche. These two chains are obviously appealing to different consumers and I would think that there is enough volume for both for the foreseeable future.

Doug Fleener
Guest
14 years 11 months ago

I applaud the idea of bringing organic foods to more people but the overall impact on Wal-Mart’s business will be minimal. What it does continue to do is redefine who the Wal-Mart customer is. The challenge for Wal-Mart is that they don’t alienate their core customer as they strive to redefine themselves. I would have to agree with Al that there just may not be enough capacity among organic growers to support much of an increase in demand. The good news for other organic retailers and consumers is that the move may drive more growers to go organic.

Gene Hoffman
Guest
Gene Hoffman
14 years 11 months ago

Wal-Mart gets “doubly-serious” about everything it does and organics will be no exception…providing organics can increase Wal-Mart’s “absolute” sales. If organics become a prime focus of Wal-Mart and they sell them for less, other retailers’ sales of exact items will be affected because most people don’t want to pay more for items that become like commodities.

Catherine Sleep
Guest
Catherine Sleep
14 years 11 months ago

Independent grocers, farmers’ markets and the more touchy-feely multiples such as Whole Foods Market can relax. For many people, buying organic food verges on an emotional experience. It’s not just about pesticides, antibiotics or animal welfare. It’s also about supporting local growers, food miles and spending money with small businesses. The organic food these devotees see at Wal-Mart might bear the same certification, but buying it there will never give them the same warm glow that they get from shopping in a dedicated environment.

Bill Bishop
Guest
Bill Bishop
14 years 11 months ago

It’s not just people with money who care about their health; in fact, a study last year showed that there’s a disproportionate amount of interest in organics among Wal-Mart shoppers compared with the average shopper.

This suggests that greater emphasis on organics will give them a nice sales boost, and their greater emphasis on organics will make this class of products more popularly priced in the minds of shoppers.

Warren Thayer
Guest
14 years 11 months ago

This will have significant impact. Supermarkets hoping to find differentiation vs. Wal-Mart here will be squeezed harder than ever. Wal-Mart doesn’t act on whims; they’ve researched this, and, as their track record proves, will likely be successful. I agree that the Whole Foods/Trader Joe’s shopper will not cross over to Wal-Mart, and with Wal-Mart pricing to fight with, traditional retailers should focus more on competing with Whole Foods (more skus, more information for shoppers, more promotion of these products) than by trying to match or beat Wal-Mart on price with organics.

Bernice Hurst
Guest
14 years 11 months ago
Whether Wal-Mart will benefit or not, I doubt that they will have a beneficial effect on the overall understanding or sales of organic products. Already those big manufacturers who have decided to get in on the act have been lobbying for “adjustments” to the definition of what is organic; once Wal-Mart provides them with an outlet they will do the same old same old and squeeze producers until they can’t produce sustainably or profitably (for themselves) any more. I don’t suppose Wal-Mart shoppers will know or care but I strongly suspect that any sensible retailer who doesn’t want to get squeezed out will ensure that they do not even think about sourcing from the same producers. Milk from cows that never go outside but are fed on organically manufactured whatever, or at least with something that contains some organic ingredients, will never produce the same milk that currently dedicated and determined shoppers are seeking. More of the same old same old will apply to prices – Wal-Mart will be cheaper but when you pay your… Read more »
James Tenser
Guest
14 years 11 months ago

Wal-Mart knows it’s competing over share of customer’s wallets. It does very well with household staples and packaged products. Most of its grocery shoppers also shop elsewhere to obtain items of special interest. An offering of the most popular organic products is likely to help Wal-Mart capture some of those trips. It is less likely to persuade hard-core health food consumers to change their habits with this tactic. But, incremental trips from existing customers might produce that “absolute sales” increase.

I share some skepticism that the organic food producers of the world can supply additional product in sufficient quantity. However, if Wal-Mart’s action (and a similar recent step by Safeway) results in a higher level of demand for organic products, then I must believe the food industry will shift its emphasis to meet it. The question of just how we will define “organic” within that scenario I leave to a subsequent discussion.

Bob Bridwell
Guest
Bob Bridwell
14 years 11 months ago

Just about everyone pooh-poohed Wal-Mart when they entered the grocery business some 20 years ago. And now, they have by many estimates upwards of 28% of the retail grocery market and are growing.

They have the attention of just about every producer in the country. You’re right, Fred’s Organic Cheese Hut, can’t supply them, but how about Kraft? When you get a commitment from Wal-Mart everybody listens.

Al McClain
Guest
Al McClain
14 years 11 months ago

As laudable as it is that Wal-Mart wants to sell organics, I question whether the organics industry can produce enough of any organic product if Wal-Mart goes after it in a big way.

Mark Lilien
Guest
14 years 11 months ago

Wal-Mart, like most retailers, can probably sell anything they want. The question is whether the new items will be more profitable than the ones they replace. As organic foods become more popular, the supply goes up and the price goes down, making them more appealing to the economically challenged. More and more major brands are producing organic lines, so the supply chain issues for organics are declining. Competitive retailers will have to strategize their response to Wal-Mart because selling the same items Wal-Mart carries will not be profitable.

victor martino
Guest
victor martino
14 years 11 months ago
Because of their sheer size (largest retail distribution network in the world), Wal-Mart will sell lots of organic products in terms of volume. Just imagine a brand of organic cereal in every Wal-Mart store in America, for example. Even if the item only moves at the rate of 2 skus per-store-per-week (rather low movement), Wal-Mart (based on its store count) will still be selling more of that item than any other retailer in the USA. So, yes—the simple fact that Wal-Mart will be getting deeper into organic sales is going to make a huge impact. This impact will be felt on both the consumer, trade and manufacturing sectors of the industry. Many shoppers not familiar with organics (they don’t shop Whole Foods, etc.) will be introduced to them, creating a whole new consumer base over time. Second, since Wal-Mart will take smaller margins on a given item (supermarkets take a much higher margin on any given organic item relative to a similar conventional item), a new value perception could be created for organics. Let me… Read more »
Steve Grossberg
Guest
Steve Grossberg
14 years 11 months ago

Wal-Mart can do as they please; they have the legs to back it up. However, I doubt any typical organics customer would make the switch to Wal-Mart even for a small price incentive. It simply costs less to make and sell inferior products. I don’t imagine this move will impact the growing market for natural products in any way.

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