Wal-Mart goes organic
The Arizona Republic
Mar. 14, 2006 06:32 PM
Wal-Mart's aisles are growing greener as it doubles the number of organic grocery products it sells and launches its own line of baby clothes made with organic cotton.
Demand for healthy-lifestyle products is changing the product mix at the world's largest retailer and spurring competition at both supermarkets and specialty grocers. Industry watchers say organic groceries are gaining appeal with budget-conscious and affluent shoppers alike.
Wal-Mart has already gone head-to-head with traditional supermarkets to become the top grocery seller. Now it is looking to tackle the estimated $50 billion natural-products industry.
The retail giant will stock more than 400 organic products at its Supercenters and Neighborhood Markets beginning in a few weeks. New items will be added to all categories of food from dry goods to produce, but the number of items sold at each store will vary.
George Baby, the line of organic cotton infant clothes, will follow in June.
"We are really getting into the area of organics," said Stephen Quinn, senior vice president of marketing for Wal-Mart, at the retail conference held by Bear Stearns & Co. last week. "People feel better about organic food. The customer we're going after . . . is really interested in that intangible benefit that comes from organics."
Quinn acknowledged that stocking organic products is "good for our image."
Beefing up on organic products, which are typically pricier than other groceries, is the latest in a flurry of changes the Bentonville, Ark.-based retailer is making to attract well-heeled customers.
The company also said it would remodel some of its stores with upscale touches, including wood flooring to some departments.
And following the footsteps of its fashion-driven rival, Target Corp., Wal-Mart launched its Metro 7 line of clothes, shoes and accessories to lure new customers. Quinn said Wal-Mart would have more fashion announcements this year.
Will Wal-Mart's core group of budget-driven shoppers embrace the new frills?
The emphasis on organic products is likely to build loyalty with low- to middle-income consumers who already shop there, said Jim Hertel, senior vice president for Willard Bishop Consulting, a retail consulting firm in Barrington, Ill.
"There is maybe a broad perception that organics are kind of just an upscale phenomenon," Hertel said. "There are a lot of people, not just upscale people, who are becoming convinced that organic foods are better for you and that they also taste better."
Hertel said grocers could charge more for organic products and therefore increase their margins.
Wal-Mart said pricing would follow the company's deep-discount pricing policy.
Increasing consumer demand has traditional grocers expanding their organic selection and, in some cases, opening organic offshoots. Chandler-based Bashas' has said it plans to open a natural-foods store, to be called Ike's Farmers Market, next summer in central Phoenix.
Bashas' will incorporate organic produce sections into all of its upscale AJ's Fine Foods stores by June. AJ's also plans to aggressively promote organic items including milk, canned goods and frozen foods.
"(Organics) do seem to be more popular, but the category is a long way from being mainstream in a conventional format," Bashas' produce buyer Jack Armstrong said.
Shares of Whole Foods Market Inc. and Wild Oats Markets Inc. fell on the news that Wal-Mart would double the number of organic products it stocks. But Perry Odak, chief executive officer of Wild Oats, an organic grocery chain based in Boulder, Colo., does not view Wal-Mart as a threat.
"The competition in this business today is really still the mom-and-pops," Odak said. He believes Wal-Mart will focus on increasing the number of its organic dry groceries and not perishables, such as produce and meats, that account for more of shoppers' purchases.
While Wal-Mart says it will sell organic items at discounted prices, Wild Oats stands by its more expensive pricing strategy.
"We sell at premium prices," Odak said, adding that even Wild Oats' private-label items are sold at a premium.
Hertel, the retail analyst, said there is enough demand for organic groceries that all food retailers will benefit at least in the short term.
"We just look at this whole area of natural and organics as being so on-trend and such a high growth area," he said. "It's kind of going into the category of a 'rising tide floats all boats.' "