Organics a bust for Wal-Mart?
Last year, Wal-Mart shook up the food retailing business by announcing that it would carry a wide range of organic foods and sell them at Wal-Mart-style discount prices. The thought was that Wal-Mart would introduce healthy food to its working and lower middle-class customers, even if it was planning to sell organic cookies and cereals form big vendors. Anticipation was high from the organic farming community, and smaller, more expensive retailers that had specialized in organic foods (like the Whole Foods chain) suddenly looked like their niche, too, was being assaulted by the giant retailer.
Six months later, it looks like Wal-Mart is backing off. That's according to a BusinessWeek article "Organics: A poor harvest for Wal-Mart", 4/13/07), which reports a major backing off from the retailer. The article quotes organic orange and apple farmers talking about major buys from Wal-Mart initially, with little subsequent follow-up. Instead of stocking some 400 organic products as announced, most Wal-Mart stores now stock between 100 and 200. The demand simply isn't there.
The article attributes the problem to a mistaken mix of brand images.
In the case of organic foods, there also may be a disconnect between Wal-Mart's brand and the products it hopes to sell. The retailer's existing customers tend to be very price-conscious and may not be willing to pay a premium for organic foods.
Furthermore, the article argues that Wal-Mart's usual hardball tactics in negotiating costs does not sit well with organic farmers, who tend to be on the independent side anyway. Organic foods are much harder to grow; they take planning and care, and Wal-Mart is having a hard time commoditizing them, and getting the supplies it wants. Some suppliers resist being squeezed.
So Wal-Mart may be forced to eat its (non-organic) hat. But the ploy may have worked in any case. The fanfare surrounding the organic announcement last fall was meant to burnish Wal-Mart's image. So far, the retreat from organic is being kept very quiet, so the glow may still be there..
