Coming Soon: Affordable Organics (From Walmart!)

walmartEarlier this month, Walmart unveiled its plan to begin selling an exclusive line of affordable organic goods made by a company called Wild Oats, in about half of its approximately 4000 stores nationwide. Walmart is often associated with inexpensive products that may be of inferior quality and lacking nutritional value than competing retailers. For years Walmart has been making gains towards broadening its range of products to include healthier yet still affordable options, including organics. This business venture, which is set to hit shelves later this month, has been in the works for many years, and is Walmart’s response to obvious consumer demand. Walmart polled its customers regarding their interest in purchasing organic food products, and the results showed that 91% of its customers would buy reasonably priced organic goods if they were made available. I think this venture has the potential to benefit the interests of Walmart as a large corporation, the consumers who will save money, and organic growers who will have a steady source of demand.

There is currently a significant disparity between the price of organic goods and their respective nonorganic counterparts. This is due to the fact that there is not a large supply of organic goods available. Currently only about 2% of our nation’s farms are organic, and a market with low supply will have high prices in order to be accountable for the scarcity of the products. In addition, organic produce also takes a longer time to grow, and runs the risk of damage due to insects and parasites, which are not protected against because of the lack of pesticide use. Nonorganic farmers who already sell their goods to large retailers such as Walmart are hesitant to convert their farms to organic because they would be running a high financial risk. In order to convert a traditional farm to an organic farm, the grower must follow strict regulations, which must all be met before they can be ‘organic-certified;’ this process can take 3 years or more. Walmart has not yet commented on where their Wild Oats products will be grown, or whether some of their current traditional farms will be converting to organic farms. Organics activist, Mark Kastel, has argued that Walmart’s large-scale commercialization of organic products subverts the purpose of purchasing organic goods; customers who buy organic do so because they like knowing where their food is coming from and how it is being produced. Walmart’s extensive organics initiative with Wild Oats may not disclose this information to its consumers, which diminishes peoples’ motivation for purchasing organic products. It is Walmart’s hope that their competitively priced Wild Oats merchandise will stir up enough consumer demand to maintain this initiative so the company can eventually expand to include more Wild Oats goods. Because prices of organic goods have been kept high, organic products have never really posed much of a competitive threat to nonorganic goods. However, with Wild Oats’ competitive pricing soon to be on the market, this balance of demand could change.

Wild Oats, which will be exclusively providing its products to Walmart’s low priced organics initiative, used to be owned by Whole Foods. However, when it was sold and released from Whole Foods in 2009, sales took a nosedive and the company suffered. Walmart’s partnership with Wild Oats will revive the struggling health and environmentally conscious company as well as expand its own assortment of marketable organics. Upon the new product release, Walmart will only be selling Wild Oats pantry items, such as pastas, sauces, and broths. However, depending on how the initial release of Wild Oats products goes, Walmart hopes to eventually expand its inventory to include meats, dairy, and fresh produce.

As mentioned earlier, I believe that the effects of Walmart’s plan of action will be threefold: profitable for the company, the consumers, and the growers. First and foremost, Walmart would not undertake a huge initiative such as this, unless there is the potential for the company to make a substantial profit from the venture. Walmart is confident that this venture will be successful because the company is responding directly to consumer demand, which requested more accessible, low priced organic goods. In addition to its customers who already regularly purchase organic goods, Walmart believes it will also be able to broaden its consumer base for organic products by appealing to the shoppers who are both budget and health conscious.

Walmart is well aware of the power it holds as one of the largest and most prominent retailers in the world. The company plans to utilize this position in order to “use [their] scale to deliver quality, affordable groceries to [their] customers.” Walmart’s unique ability to keep their prices low potentially makes the company a viable threat to other organic retailers such as Whole Foods. In addition to their already low prices, Walmart spokesperson Jack Sinclair said that the company is “removing the premium associated with organic groceries” which further lowers the price at which Walmart can market its goods. Walmart plans to work directly with the growers from whom they will be purchasing their raw materials and goods in order to eliminate the necessity of a middleman. This approach to have direct contact between the grower and the retailer is beneficial both on the part of Walmart and the farmers because the production and distribution process will be greatly expedited and more efficient.

Walmart’s consumer base will also flourish and continue to amplify with the success and popularity of the new products’ competitive prices. Shoppers who choose Walmart often do so because they are on a budget. Because of this, many of Walmart’s consumers have said that they cannot afford organic food as it is currently priced, although they would love a cheaper option. Customers will no longer need to choose between inexpensive and healthy, because with the Wild Oats option, they can have both. Organics is a quickly growing market, and economists project that by 2018 the market for organic goods will have increased by at least 50%. Walmart will contribute to this growing market popularity because it has made a big name organic label, Wild Oats, very accessible to any and all types of consumers. Walmart aims to sell their Wild Oats products at prices that are competitive with nonorganic versions of the same item. In addition, Wild Oats goods will be approximately 25% less costly than the other organic products that Walmart features.

Organic farmers may also reap the benefits that Walmart and consumers will enjoy if Wild Oats becomes widespread and successful. Because only about 2% of farms in America raise organic crops, production is currently on a very small scale. In addition to there not being a demand sufficient enough for the farms to want to expand, there are also very strict regulations with which organic farmers must comply in order to have their products certified. The rigid compliances often deter farmers from wanting to raise organic crops, for there are many guidelines the produce must meet before it can be approved by the USDA and labeled ‘organic.’ Charles Benbrook, an advocate for organic agriculture, has high hopes for Walmart’s initiative. He pointed out that many organic growers must divide their time and resources between growing organic goods, and also switching over to produce conventional food as well. This costs the farms valuable time, and ultimately money. Benbrook predicts that having a large retailer such as Walmart work directly with its growers will allow them to operate solely as organic farms, and thus cut costs by 20-30% since the farm will not have to rotate between organic and traditional growing.

As previously mentioned, Walmart is determined to work directly with the organic farms from which they will be getting their products and raw materials. Because the growers will not have to go through middlemen in order to distribute their products, there is potentially a larger profit margin for farmers. Since the market for organics is consistently growing and expanding, the organic growers will not have to worry about lack of demand. If partnerships are set up between Walmart and its growers, the farms will have a steady and predictable demand schedule to meet. Not only does this give farmers the insurance that they will be able to sell their organic crops, but it also secures a dependable and credible buyer to whom they can sell their goods for a long term period.

There are numerous ways in which consumers and farmers can benefit from Walmart’s new Wild Oats organic line. Although superficially the venture seems to be a business maneuver to phase out the competition, I can see many positives coming out of this initiative that are not solely profitable to the retailer. The exact outcome of Walmart’s initiative will not be certain until it has been in effect for a longer period of time, but I think the repercussions will prove to be positive, and consumers and farmers will ultimately be able to put more money back into their own pockets.

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