Will People Buy Organic Foods From Wal-Mart?

With its new line of Wild Oats Marketplace products, Wal-Mart hopes to deliver reasonably-price organics to a wider marketplace.

Apr 16, 2014 at 10:18AM

Quick! What's the first store that comes to mind when you think of buying organic groceries?

Did you say Wal-Mart? Me, neither. But the retailer is hoping that's about to change.

Here's another top of mind: What's the first word that comes to mind when you think of organic food?

If you said "expensive," you are like most consumers. We may be intrigued by organic food and even find appeal in the potential health benefits, but many of us will pass it by without even checking the price. We simply assume it will cost more. In fact, buying organic has come to be regarded as something of an upscale luxury.

Nevertheless, organic products carry many of today's hottest food marketing attributes. They will often fit into a "clean diet," and must be GMO-free to carry the organic label. The problem has been that the process of producing organic food has resisted being scalable to a wider market.

Rolling out Wild Oats

Could this be opportunity knocking? Wal-Mart (NYSE:WMT) and Wild Oats seem to think so. The two companies have announced that they will be "teaming up" to make organic foods available and reasonably priced to hopefully reach a much larger segment of the market.

The first Wild Oats products to hit the Wal-Mart shelves will be pantry staples, including canned vegetables, spices, and ready-to-prepare dinner kits. The products will be sold under the "Wild Oats Marketplace" label and will be priced about 25% less than Wild Oats' standard fare. In all, the companies plan to offer about 100 different products in the line. A 6-ounce can of Wild Oats Marketplace organic tomato paste, for instance, will retail for $0.58, which compares to $0.98 for a comparably branded organic item. At this price point, the product is line with other non-organic choices.

While Wal-Mart has incidentally carried organic products among its groceries – DelMonte organic varieties, for instance – the move is significant because of the high visibility of the rollout and a more full commitment to an organic line. The retailer plans to introduce Wild Oats Marketplace items in about half of its stores.

Wild Oats

Déjà vu all over again?

This is, of course, the same Wild Oats purchased by Whole Foods (NASDAQ:WFM) in 2007 before the national chain was forced to sell in 2009 amid antitrust concerns. In a strategic change of course, Wild Oats now positions itself as an organic seller "for the people" under the tag line "Quality shouldn't come at a premium price."

By offering products through Wal-Mart, Wild Oats will presumably be accessing a much wider – and different -- spectrum of the market than through Whole Foods. The test will be whether Wal-Mart can excite the market with the new product line.

A revolution in the making?

Both Wal-Mart and Wild Oats are hoping to lead a revolution in accessibility for organic foods. By choosing less lofty price points and stocking the shelves of a more populist retailer, this would seem to be a good start.

The most pressing initial question will be whether people will buy. Are the companies tapping an unmet consumer demand? Have price and accessibility been the only barriers to wider adoption of organic groceries? Shopping habits change slowly, and organic is nothing new. Likely, this collaboration will convert some shoppers, but the buying patterns of shoppers who have not been conditioned to choose organic – at any price – will probably change incrementally. Wal-Mart, whose grocery business has slumped some in recent years, hopes to gain a much-needed bump from the deal.

Target (NYSE:TGT) recently announced a similar initiative with its "Made to Matter" collection of well-known brands it has tagged as "wholesome." This collection is not exclusively organic, but is meant to appeal to a consumer interested in healthier eating and more sustainable sourcing. Target's move, then, can be seen more as an attempt to give a stronger identification of its brand to a wider segment of the market.

The larger question for organic foods overall is sourcing and scalability. Prices have traditionally been high because organic farming is not the purview of large-scale agriculture. Proponents of organic foods may cheer this as a step in the right direction, but supply and demand in this marketplace will need to work together incrementally, which will likely slow the pace of more widespread distribution at lower prices.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Beth Nichols has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool 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.

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