Wal-Mart Rolls-out Organic Products: Market Expansion or Market Delusion?

Sep 01, 2006 | by
  • Description

This spring's announcement by Wal-Mart Stores, Inc., that it would dramatically expand its product offerings of organic food has left many organic industry officials and consumers questioning the corporation's likely impact. If Wal-Mart applies its economy of scale and logistical prowess to the organic sector it will likely create a more competitive pricing environment, benefiting consumers, and greatly increasing the accessibility of organic products. Consumers would be big winners while retail competitors and distributors would need to carefully analyze and improve their practices and lower their costs. And the increased demand for organic food would likely bode well for agricultural producers, at least in terms of sales volume. However, if the giant corporation instead decided to apply its traditional business model to organic food, Wal-Marting the marketplace, all existing entities, which have been part of building this market niche into a vibrant $16 billion industry, would likely lose. And much of the basis behind consumers' loyalty to the organic label, illustrated not only by growth but by extremely limited resistance to historic super-premium pricing, might be lost in the transition. This report is an initial analysis of Wal-Mart's early organic marketing practices. It already appears that the corporation has chosen the latter strategy -- partnering with the nation's largest agribusiness concerns to invent an alternative to the existing organic movement -- "corporate organics." This competitive challenge has the potential to destroy healthy markets for other retailers, distributors, manufacturers/processors, and family-scale domestic farmers. It seems clear that in addition to Wal-Mart's logistical strength, their low-price goal for organic food (10% over conventional) is based to a great degree on sourcing products from major agribusiness (with little or no history of manufacturing organic food), foreign sources, and domestic industrial-scale farms. The worst-case scenario for the organic industry is for Wal-Mart to first destroy competition, as it has a history of doing in so many other market segments, and then create an abbreviated product line that ignores the ethical expectations of consumers. Will organic sales continue to flourish at the historic premium prices (even Wal-Mart prices are high compared to conventional food) if consumers no longer feel that their premium dollars are supporting superior food quality and environmental practices, humane animal husbandry, and economic-justice for family farmers? Data was gathered for this report by visiting Wal-Mart's "laboratory" store in Plano, Texas, and other Wal-Mart Supercenters in Wisconsin and Colorado. Industry officials, including Wal-Mart suppliers, were also interviewed. In addition, price comparisons were made between a natural foods specialty retailer, a traditional grocer, a warehouse grocer, and Target and Wal-Mart stores in a modest-sized Midwest city.