Wal-Mart’s Organic Ambition Shakes Up The Natural Products Expo

Giant Retailer Rattles Some Nerves, Has Others Dreaming of Gold

While we didn’t get to talk to any of the Wal-Mart buyers that were at the show and who everyone was looking for, we do know one thing: Wal-Mart was on everywhere lips at the Expo in Anaheim, spoken with trepidation from some, and excitement from others.

The fearful worried the giant would cheapen organic quality and ruin yet more independent stores in its wide and brutal wake.  Others were concerned about the further weakening of organic standards.

The excited were thinking about a sugar daddy purchasing truckload orders and possibly making them rich.  And some others were thinking about the opportunity to grow organic sales in mainstream stores, grow more organic and convert more farms all in an effort to provide shoppers with organic items at prices competitive with conventional items.

And while everyone was talking Wal-Mart this and Wal-Mart that, two announcements on Friday made the fearful more worried and the excited more hopeful.

First was the news Wal-Mart would be adding 400 organic and natural SKUs to its shelves by mid-summer.  Next was word, trumpeted on a full-page advertisement in USA Today, of Wal-Mart’s new private label organic baby formula, Parent’s Choice Organic Infant Formula.

Parent’s Choice Organic Infant Formula has something different too; it’s the first and only organic formula with DHA and ARA, two fatty acids important to infant development.  Previously, formulas with DHA and ARA were limited to Enfamil and other mass-market brands, all, of course, made with non-organic dairy.  Most importantly this new private label organic line is cheaper than many if not most, competing conventional items.

So the giant has roared.  Execution awaits.  No not those kinds of executions, we’re not talking about the random lynching of small towns and small stores, though that may happen as the Giant continues to expand its reach.

Instead we’re talking about another type of execution, meaning a strategy, a move, an entry, the actions required to enter into new areas unknown for a powerful giant that might be clumsier than we think.

Two most important issues remain uncertain:  Supply and Quality.  Wal-Mart’s plan to sell more and more Organic milk, butter, juices and more suggests supply shortages in many key categories might inhibit their success.  (See NBN’s Organic Year End Review for more info). And of course how can manufacturers meet Wal-Mart’s when demand for organic raw materials is high and the ability to add near plastic ingredients as done with conventional food is not allowed? As noted previously some fear a weakening of standards will be there push.  And as noted in Business Week online, some organic farmers think Wal-Mart will turn to where it always has turned to for cheap goods: China.

Should importation of cheaper produce from China and other markets occur, farmers could suffer as the result might both depress wholesale prices for organic crops and hasten the further consolidation of organic into the hands of fewer and fewer large-scale growers.

Several industry sources suggested Wal-Mart co-packers would need to focus on buying lower grade ingredients for products, something we think might be a bit too elitist, but a concern nonetheless.  In other words while blemished apples might make lousier juice, is this a real reason to be worried about Wal-Mart?  Would Wal-Mart cheapen the quality and experience of organic, currently something that gourmands know tastes better than conventional items?

And if so, might that encourage the growth of more stringent guidelines such as biodynamic or humane standards, something that would expand the natural products revolution?

More importantly to NBN’s forecasting mind is whether or not Wal-Mart will remain dedicated to this effort.  Sure the retailer has been busy experimenting with smaller formats, (so called Wal-Mart Neighborhood Stores of 35,000 square feet) but is the world’s largest retailer really ready to create a new market for products that even with higher margins, wont fly off the shelves like their standard product mix?

The precedent for Wal-Mart’s potential to draw to high-end shoppers has been established with Costco and Target leading the way.  Wal-Mart’s goal to create lower price points is no doubt ripe to land among the many who complainingly call Whole Foods, Whole Paycheck and without much thought cite the mantra that organic is more expensive.

Yet any Whole Foods shopper who has ventured into Wal-Mart knows that the experience is as different as riding first class on a plane and riding the bus.  The experience of shopping is intangible and so far, Wal-Mart’s focus on large stores, and larger lines might not play well to the folks who like their grocery shopping more like yoga class.

Yet for who live in Wisconsin or Alabama or Idaho, too, the opportunity could be golden for providing new and more affordable opportunities to buy products that they routinely ignore. These products that currently most often only reside in either granite top kitchens with high-end appliances or among hard-core natural shoppers that live in those blue states on the coasts.

These transitional natural food shoppers might be they key but who knows if they’ll buy and how much.

But this much is certain.  Wal-Mart wants to sell organic.  We should be vigilant as they enter the marketplace, but isn’t this also something to celebrate?  While NBN doesn’t trust Wal-Mart, we do know that our revolution is growing.

And YES they’ll be growing pains BUT don’t forget to celebrate, if only for a moment.  And after you’re done drinking some organic cider or maybe an organic Bordeaux, keep reading and writing and pay attention folks cause the roller coaster is picking up speed.



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