Holy Cow! Wal-Mart Really Goes Organic

Wal-Mart (NYSE: WMT  ) has sold a variety of organic products, including milk, for some time now. According to a recent New York Times article, however, the retailing giant has quietly rolled out its own brand of organic milk under the company's "Great Value" label.

The move is interesting for a couple of reasons. To begin, milk isn't your typical product. In many cases, the grocery industry has used it as a near "loss leader" -- a tactic that implies selling a specific product at cost in order to bring customers into the store.

In milk's case, the product's allure is that it can act as a powerful incentive to draw mothers and fathers with growing families into stores. The theory is that these milk buyers -- because they presumably have young and growing mouths to feed -- will also buy a number of other, more profitable products.

In Wal-Mart's case, I'll admit that I don't have knowledge that the company is actually employing this tactic. I also don't how well the more expensive organic milk sells in a store that draws most of its customers because of "everyday low prices."

The introduction of its own brand of organic milk could be significant, however. First, by employing its massive operational and distribution efficiencies, Wal-Mart can lower the price of the milk by anywhere from 8% to 35%, according to the Times.

This, in turn, will help it bring in a new demographic of customers to its stores. A few weeks ago, I wrote about how the company was pushing new, more efficient light bulbs on its customers. That event, along with the push into organic milk, leads me to believe that Wal-Mart is either trying to build up its "green" image or it is trying to reach out to a base of customers to whom it knows such matters are increasingly important.

The news is also significant because of its possible impact on organic retailers such as Whole Foods Market (Nasdaq: WFMI  ) and, to a lesser extent, Target (NYSE: TGT  ) , for whom this "organic" demographic is a key constituency. In fact, from the Times article, it appears that some activist groups and smaller organic farmers are waging a bit of a press relations battle, arguing Wal-Mart's milk is "diluting the principles of organic agriculture" because its supplier -- Aurora Organic Dairy -- cuts corners in order to achieve lower prices. They argue, for instance, that Aurora's cows don't get enough grazing time and thus not enough grass feeding.

This may, in fact, be true, but my sense is that these arguments won't win in the commercial marketplace. As long as Wal-Mart's organic milk is free of antibiotics and growth hormones, a majority of customers will gravitate toward the lower price.

And this suggests to me that Wal-Mart will be successful in using organic milk to bring in new customers to its store -- where they might not only buy it and environmentally friendly light bulbs, but a host of other higher-margin products as well.

Interested in other organic Foolishness? Check out:

Wal-Mart is aMotley Fool Inside Valueselection. Whole Foods is aStock Advisorrecommendation. Take the newsletter that best fits your investing style for a30-day free trial.

Fool contributor Jack Uldrich has "got milk," but he doesn't drink organic milk. He also does not own stock in any of the companies mentioned in this article. The Fool has a strict disclosure policy.


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