Why Half of Wal-Mart's Groceries Are Banned by Whole Foods

A look at what separates two giants of the grocery industry.

Feb 21, 2014 at 2:00PM

Ben Blatt of Slate magazine conducted an interesting and in-depth study recently to determine how many of the grocery products on a Wal-Mart (NYSE:WMT) shelf are outright banned from the more upscale retailer Whole Foods Market (NASDAQ:WFM). The results might surprise you.

According to Blatt's research, Whole Foods bans roughly 54% of Wal-Mart's fare due to the presence, in its words, of "unacceptable ingredients for foods." These 78 banned ingredients include everything from recognizable sweeteners like high-fructose corn syrup to the tongue-tying dimethylpolysiloxane.

In the process, Blatt left some cartons unturned, since Wal-Mart's website only discloses ingredients for approximately 50% of its grocery inventory. As a result, his survey is not scientific or comprehensive. Nevertheless, the findings are revealing for customers and investors alike.

Okc Store

Whole Foods store in Oklahoma City. Source: Whole Foods Market.

For example, it's no surprise that shoppers would be hard-pressed to find a liter of Coke or bag of Doritos at Whole Foods, but Blatt discovers that even household brands ranging from Minute Maid lemonade to Cracker Barrel cheese are deemed unworthy for Whole Foods' choosy clientele. Whole Foods claims these foods fall short of "safety, necessity, manufacturing methods and compatibility with our overall core values."

While the art of stocking retail shelves might seem quite mundane, the contrast presents two starkly different approaches to running a grocery store. Consider the following statistics:

  • 97% of the soft drinks sold at Wal-Mart contain ingredients that Whole Foods considers "unacceptable." If you ever wondered why a Whole Foods drink aisle makes you feel like you're in a foreign country, well, there's your explanation.
  • Wal-Mart's "Great Value 100% Whole Wheat Bread" contains seven ingredients that Whole Foods scoffs at, including everything from high-fructose corn syrup to calcium propionate. Not one or two "unacceptable" items, but seven. All in a staple product that you have to imagine just flies off the shelves. We're not talking about an obscure frozen dinner here; we're talking about sandwich bread.
  • More than 80% of the candy sold at Wal-Mart would never be found at Whole Foods due to artificial flavors, while 31% of the bacon and sausage products have been blacklisted due to monosodium glutamate, or MSG.

The list goes on and on. Beyond the statistics, however, Blatt attempts to answer the intriguing question for customers and investors alike: Why does Whole Foods limit consumer choice?

As he points out, the Food and Drug Administration has deemed every food product sold in a Wal-Mart store safe for consumption. Whole Foods, however, holds itself to a higher standard. Is Whole Foods, then, playing the role of Big Brother for health-conscious customers or simply catering to the finicky demands of foodies?

Marion Nestle, a professor of nutrition, food studies, and public health at NYU, was interviewed for Slate's article. She points the finger at health-conscious customers: "Whole Foods is giving their demographic what their demographic wants." The "top comment" in Blatt's piece -- which has so far collected more than 580 comments in total -- claims Nestle's conclusion is "the only relevant statement in the whole article." But is it really that cut-and-dry?

Not according to Whole Foods founder John Mackey. When he first started selling natural and organic foods at a small co-op in Austin, Texas, die-hard foodies were a blip on the radar in a massive national grocery industry. Now, the organic food industry, for example, is a $28 billion market that's more than doubled in size since 2004. This health-conscious trend didn't just spring out of thin air. For several decades, grocers like Whole Foods, recognized as America's first Certified Organic store, have ushered in a new wave of health-focused customers.

In the book he co-authored with Raj Sisodia, Conscious Capitalism: Liberating the Heroic Spirit of Business, Mackey claims that Whole Foods plays an important role in leading the consumer toward better choices. Instead of catering to the wants of consumers, Whole Foods educates -- without lecturing -- their clientele: "If the business is able to see unarticulated or latent needs that customers don't yet recognize, it has a responsibility to educate them about the potential value they are not yet seeing. ... We have to satisfy those customers in terms of what they want in the moment, while steering them toward better choices over time."

For Whole Foods, it's as much of a push from the grocer as it is a pull from the consumer to accommodate healthier food options. Mackey believes this makes sense because his grocers study everything from food to organisms to the environment and therefore have a deep understanding that customers might lack.

At the end of the day, it's always a dialogue between the two, but Mackey says a relationship built on trust has led customers to "increasingly look to Whole Foods Market to be their 'editors,' as we carefully examine and evaluate the products we sell." Or, to use another analogy, Whole Foods aims to maximize healthy outcomes for customers like a good mechanic would optimize the performance of an automobile.

As Whole Foods nudges the consumer to make better eating choices, it's in turn expanding that demographic. Their motto might as well be "Educate and they will come."

Wal Mart Produce

Produce aisle in Wal-Mart. Source: Wal-Mart.

But Wal-Mart's heading down a divergent path. From Blatt's point of view, the Bentonville retail giant offers a "laissez-faire" approach to curating the products it sells. Instead of banning ingredients, Wal-Mart's adopted a model for purchasing that provides lower prices and greater choice.

On the surface, this formula looks like a win-win for the consumer, but it comes with a small caveat: Shoppers are increasingly concerned about the ingredients and origins of food and are looking for guidance from a source they can trust. While no one wants their parent -- or grocer, for that matter -- telling them to eat their vegetables, many customers want to know that their grocer supports transparent and sustainable food practices. After all, their health and well-being depends, to a large extent, on the quality of foods in their diet.

Consequently, grocers who carefully monitor everything from ingredients to sourcing are riding on a wave of growth while others are lagging behind. The organic market, for example, makes up only 3.5% of total food sales, but it grew at double the annual growth rate of all food sales in 2012.

Grocers like Whole Foods and its natural-foods competitor Sprouts Farmers Market see increasing opportunity: Both stores recently upped their potential nationwide store count to 1,200 locations, which would triple Whole Foods' size and increase Sprouts' footprint by 7.5 times. While Wal-Mart towers above them with an estimated 3,000 grocery locations, its momentum is slowing. The world's largest retailer struggled to achieve 1.5% year-over-year global-revenue growth in the most recent quarter.

To reach its full potential, Whole Foods will likely continue to educate customers and may even ban a few ingredients along the way. For its part, that seems to be a time-tested recipe for success, translating to a seven-bagger stock over the last five years.

Wal-Mart, on the other hand, has to hope a cornucopia of products offers more for consumers than a carefully curated experience. From my perspective, focusing on rock-bottom prices looks less and less like a viable long-term strategy for the retail juggernaut.

Buy Local Produce

Produce section in Whole Foods. Source: Whole Foods Market.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Isaac Pino, CPA, owns shares of Whole Foods Market. The Motley Fool recommends and owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers