On April 10, retail giant Wal-Mart announced a plan to offer packaged organic foods at prices comparable to their non-organic equivalents.
The announcement is seen as an attempt by the company to expand its price-undercutting strategies into the organic market.
“There will be no premium for the customer to purchase organic products,” said Jack Sinclair, executive vice president of grocery at Wal-Mart U.S. “They will be able to purchase organic at non-organic prices.”
Wal-Mart has partnered with Wild Oats, which formerly operated a chain of health-oriented grocery stores until it was bought out by rival Whole Foods in 2007. Whole Foods sold its rights to the Wild Oats name in 2010, and now Wild Oats has reorganized as a producer of organic packaged goods such as spices, sauces and broths.
Wal-Mart will be the only national retail chain offering Wild Oats products, priced at about 25 percent lower than other organic brands. For example, 32 ounces of Wild Oats Marketplace Organic Chicken Broth is priced at $1.98 on Walmart.com, in comparison with an organic chicken broth from Swanson at $2.88. Wild Oats Marketplace Organic Tomato Sauce costs 88 cents for 15 ounces (5.9 cents per ounce), in comparison with $2.48 for 24 ounces from Bertolli (10.3 cents per ounce).
The Wal-Mart-Wild Oats partnership does not include fresh products, such as produce or dairy.
Organic business booming
The organic foods market is booming nationwide, rising 10.8 percent in 2012 to $26.3 billion, according to the Nutrition Business Journal. The market appears to have grown a further 11 percent in 2013, and is expected to sustain a 10 to 12 percent annual growth through 2020, reaching $60 billion. This growth far surpasses that of the non-organic food market.
According to Nutrition Business Journal, natural and specialty retailers now account for only 44 percent of U.S. organic food sales, with mass-market retailers such as grocery stores, convenience stores, discount chains (like Wal-Mart) and warehouse clubs now accounting for 46 percent.
“It’s not just the Whole Foods of the world. They’re finding more and more organic foods at Safeway and Kroger, and they’re happy about that, because not everybody feels they have the resources to shop at a store like Whole Foods,” said Amy Sousa, a senior research analyst for consumer research firm the Hartman Group.
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According to a 2012 Hartman Group study, 75 percent of all U.S. consumers used organic products in the past three months. Sousa attributes this widespread usage to the increased availability of such products at mass-market locations.
Indeed, Sinclair attributed Wal-Mart’s new move in part to just such consumer demand.
“Our customers have been asking for this,” he said. According to one Wal-Mart survey, 91 percent of the company’s customers would buy more organic products if the price were lower.
Even prior to the Wild Oats deal, Wal-Mart carried more than 1,600 organic grocery items, including packaged goods, produce and dairy. In line with national trends, sales of such products – though a small proportion of the store’s total grocery sales – are growing at a faster rate than other grocery sales.
“There’s no doubt that organic food is becoming more popular for our customers, and they’re buying more of the organic food that we do have,” Sinclair said. “If we can make that price premium disappear, we think it will grow much, much faster.”
In addition to the typical economies of scale that allow Wal-Mart to offer such steep discounts to other stores, Wal-Mart can afford to lower prices on organic products for another reason: Wal-Mart can also offer Wild Oats a guarantee that a certain volume of its products will be purchased, thus removing some of the market uncertainty that increases the price of many organic products.