Wal-Mart has managed to out-muscle competitors in the grocery business by using its mammoth size to promise low prices. Now the retailer plans to use the same strategy to upend the market for organic foods.
Wal-Mart announced Thursday that it will soon begin stocking shelves at about 2,000 locations, including those in the Washington, D.C., region, with 100 pantry items, such as canned vegetables, spices and condiments, produced by organic food company Wild Oats.
Those products won’t carry the same price markups found on other organic-label food, allowing Wal-Mart to continue its compete-on-price strategy that has made it a mecca for cost-conscious shoppers and a pain for retailers who often lower their prices to compete.
“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.”
“Our customers have been asking for this,” he added, citing a Wal-Mart-conducted survey that found 91 percent of customers would buy organic products if they cost less.
The Wild Oats products are priced at least 25 percent lower than organic products produced by national brands, Sinclair said. The partnership does not include fresh food items, such as produce, milk and cheese.
Wild Oats Marketplace Organic Chicken Broth runs $1.98 for 32 ounces; a comparable product from Swanson costs $2.88, according to Walmart.com. A 15-ounce jar of Wild Oats Marketplace Organic Tomato Sauce costs 88 cents, while Walmart.com lists a 24-ounce jar from Bertolli at $2.48.
Wal-Mart is able to reduce the cost of organic products because it can buy food in such large quantities and tap its existing distribution channels in a way that eliminates middle men that would otherwise drive up costs, Sinclair said.
The company also can give an organic food manufacturer such as Wild Oats greater certainty about the amount of food it will need over time, thus eliminating some of the unpredictability and risk that come with investing in organic food production.
“If we can give our scale to that investment and longer-term planning to that investment, which Wal-Mart can uniquely do, it allows us to bring the price down while increasing efficiency,” Sinclair said.
A 2012 study by the Hartman Group, a consumer research firm, found that 75 percent of U.S. consumers had used organic products in the past three months. That figure points to the fact that organic food has become less expensive and more readily available in recent years, said Amy Sousa, a senior research analyst.
“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,” Sousa said.
Even as the cost of organic food has come down, in part because more industrial farmers are responding to demand, Sousa said price remains a primary reason consumers pass it up.
“Definitely more consumers feel like they have access to certain types of organic products and that’s the reality that prices have come down on certain things,” Sousa said. “But consistently they complain about the price differential and many report wanting to buy organic and not being able to afford it.”