Low-cost leader Wal-Mart is using its massive size to drive down the price of organic food items from tomato paste to chicken broth to make it more affordable for its low-income customers.
The world's largest retailer said Thursday that it has teamed up with Wild Oats to sell a new line of organic foods, starting this month, that's at least 25% cheaper than the national organic brands it carries and in line with the prices of its branded non-organic alternatives. Wild Oats helped pioneer the organic food trend in the late 1980s but has largely disappeared from store shelves since 2007.
Wild Oats' six-ounce can of tomato paste, for example, is priced at $0.58, compared with $0.98 for a national-brand organic version. And a 32-ounce can of chicken broth under Wild Oats is priced at $1.98, compared with the $3.47 for a national-brand alternative, according to the discounter's survey of 26 nationally branded organic products available at Walmart.com.
Wal-Mart Stores is unveiling nearly 100 pantry items over the next several months, adding to the 1,600 organic food items it already carries in its stores. It's taking a cautious approach, planning to have them in about half of its 4,000 domestic namesake stores as it wants to make sure it can satisfy demand. The Bentonville, Ark., company will be the exclusive national retailer of Wild Oats.
"We are removing the premium associated with organic groceries," Jack Sinclair, Wal-Mart's executive vice president of grocery, told reporters during a conference call Wednesday.
The move comes as Wal-Mart and other traditional stores are eagerly trying to stake a bigger claim in the hot organic market as they see shoppers from all different income levels wanting to eat healthier. Sinclair declined to comment on how big Wal-Mart's organic business is, but he says sales of organic food are growing faster than nearly every category of non-organic food items. Still, high prices have put a lid on that growth at the discounter.
Wal-Mart says that 42% of its customers surveyed in 2011 bought some organic or "natural" goods, according to outside research. According to its own survey, 91% of Wal-Mart shoppers would consider purchasing products from an affordable organic brand at the store.
For Wild Oats, it's a big chance to revive its brand. Founded in Boulder, Colo., in 1987, Wild Oats operated 110 stores in 24 states and in Canada at its peak in early 2007. Whole Foods bought Wild Oats that year, but after an extensive regulatory battle, Whole Foods unloaded the chain in 2009, and the stores and its products disappeared. Billionaire Ron Burkle, the founder of private-equity firm Yucaipa Cos., was the largest stakeholder of Wild Oats by the time the name was sold to Whole Foods.
Wild Oats just started selling a line of fresh organic food like eggs and milk at Fresh & Easy stores in the U.S., a former division of Britain's Tesco. The U.S. stores were purchased by Yucaipa last year.
"We're invigorating our brand by bringing great-tasting Wild Oats products to more customers than ever before," said Tom Casey, CEO of Wild Oats.
According to the Washington-based Organic Trade Association, organic food and other products generated sales of $31.5 billion in the U.S. in 2012, the most recent data available. The sales figure was up 10.3% from the year before and has more than tripled since 2002, when sales were $8.4 billion.
"The pie is growing and more consumers are coming on board," said the group's Barbara Haumann. She noted that all types of stores are benefiting from that growth.
In fact, earlier this week, Wal-Mart rival Target Corp. announced it was upping the game on natural, organic and sustainable offerings.
Target, based in Minneapolis, announced it had selected 17 of the leading natural, organic and sustainable brands that already sell to its stores and challenged them to come up with new products or new twists. As a result, an exclusive collection of more than 120 items like non-aerosol air freshener and bleach-free baby diapers are hitting the shelves over the next few months.
Sinclair told reporters that Wal-Mart will be able to reduce costs by making longer-term commitments with producers like tomato growers so they can have an incentive to grow more. When asked about what its other organic brands think of the move, Sinclair said that other labels don't span across all the food categories.
But Sinclair added that to make organic food more affordable, overall, "Prices are going to have to come down."
The Motley Fool has no position in any of the stocks mentioned. 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.
More from The Motley Fool
Just How Big a Social Security Hit Do Early Retirees Take?
Find out the two ways that early retirement affects your benefits.
How Do Government Shutdowns Affect the Stock Market?
Here's how stocks performed during three major government shutdowns in 1995, 1996, and 2013.
Here's Where Things Went Wrong for Nike, Inc. in 2017
Nike's stock didn't have a bad year, but there are some operational challenges starting to show up for the company.