Demand feeds Wal-Mart organic food sales, possible lower prices

by The City Wire staff ([email protected]) 192 views 

American consumers will have more access to less expensive organic food products with the recent partnership between Wild Oats and Wal-Mart Stores, and analysts predict that when Wal-Mart puts its full resources behind the organic push the outcome will be lower prices across a wide variety of foods.

Sales of organic products rose 11.5% last year to $35.1 billion, the fastest growth rate in five years, according to the Organic Trade Association. It’s anyone’s guess what that number will look like next year as Wal-Mart expands its organic products under the Wild Oats brand.

Wal-Mart says about 90% of the Wild Oats “pantry” items — non-perishable products like chicken broth, spices and apple sauce — it plans to carry are certified organic by the U.S. Department of Agriculture, meaning that they contain at least 95% certified-organic ingredients.

Jack Sinclair, Wal-Mart’s executive vice president of grocery, said its Wild Oats products will cost at least 25% less than similar products offered by competing national organic brands. Wal-Mart also will be only retailer to offer the Wild Oats brand, which was owned by Whole Foods before being sold in 2009.

“We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more,” said Sinclair said. “We are changing that and creating a new price position for organic groceries that increases access. This is part of our ongoing effort to use our scale to deliver quality, affordable groceries to our customers.”

Wal-Mart said to procure organic goods at lower prices it is entering long-term purchase agreements with farmers and suppliers. It is also looking to consolidate middlemen to further eliminate unnecessary costs.

There has been some push back from smaller organic farmers who fear their margins may shrink as Wal-Mart and Wild Oats together have pricing power, Some also worry about inferior products being “certified organic,” according to a report by International Business Times. However, organic advocate Anthony Zolezzi noted in an April 4 blog post that Wild Oats executives made more than 50 trips to Bentonville over two years to hammer out a plan that does not compromise on quality.

Other organic food advocates say it’s more about allowing everyone an opportunity to purchase and consume high quality natural foods, and with lower prices comes greater consumer access.  

Analysts agree the timing is perfect for Wal-Mart and Wild Oats to take advantage of a burgeoning consumer demand. 

"The U.S. organic market is experiencing strong expansion. … Consumers are making the correlation between what we eat and our health, and that knowledge is spurring heightened consumer interest in organic products," said Laura Batcha, executive director and CEO of the Organic Trade Association.

OTA's organic industry report shows organic food sales in 2013, at $32.3 billion, accounted for roughly 92% of the total organic sales. Non-food organic products —including flowers, fiber, household products and pet food — are a small part of the total organic market, but are making quick in-roads. Sales of non-food organic products, at almost $2.8 billion, have jumped nearly eight-fold since 2002, and have almost doubled in market share.

The growth rate of organic food sales, which has averaged almost 10% every year since 2010, has dwarfed the average annual growth of a little more than 3% in total food sales during that same period. Organic fruit and vegetable sales totaled $11.6 billion last year, up 15%. More than 10% of the fruits and vegetables sold in the United States now organic, according the OTA report.

The other organic category sales increases were:
• Bread and grain sales rose 12% to $3.8 billion; 
• Meat, poultry and fish sales rose 11% to $675 million;
• Condiment sales rose 17%, to reach sales of $830 million; 
• Snack food sales increased 15% to $1.7 billion; and 
• Packaged and prepared food sales rose 10% to $4.8 billion.

The OTA report cited that farmland in the U.S. is not being converted to organic at the pace needed to meet the growing demand for organic foods. Supplies of organic feed and organic grain have been tight and costly which could limit growth, especially in the organic dairy and meat sectors, the report notes.

"The entire organic industry needs to rally around helping consumers better understand and appreciate all the values that certified organic brings to the table," Batcha said in her report.