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 would expand 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.
A version of this article appears in print on April 10, 2014, on page B9 of the New York edition with the headline: Walmart to Offer Organic Line of Food at Discount Prices.http://www.nytimes.com/2014/04/10/business/walmart-to-offer-organic-line-of-food-at-cut-rate-prices.html?hp
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