According to a news release published yesterday and widely parroted around the web, Walmart is poised to take its “lowest price is the law” approach to some of its organic offerings, promising to make organic food “affordable” to all. According to their own research, 91% of its shoppers would buy organic food if the price were the same. By partnering with the Wild Oats organic food brand, they plan to introduce a line of organic products priced the same as non-organic equivalents.
On the surface, it sounds do-able. As I’ve pointed out before, the organic premium is largely a factor of economies of scale in transportation, processing, marketing, and distribution, as well as the laws of supply and demand that allow all players in the food chain to earn a little extra along the way (whether they’ve incurred all that extra cost or not). This also means that the premium paid to the grower is rarely directly reflected in the retail price.
By utilizing their immense purchasing power and perhaps by reducing their own mark-up, Walmart aims to overcome these challenges. The reporting also makes it clear that Wild Oats has made certain concessions in return for a commitment from the retail behemoth to vastly increase their sales volumes. Whether they in turn will pressure their suppliers for a lower cost structure remains to be seen, but given the tight supply of organic grains, competitive forces should maintain a healthy farm-gate premium for the time being. As for Wild Oats, I sincerely hope they know what they’re getting into – Walmart has a bad reputation of helping some of their smaller suppliers grow themselves right out of business!
Both parties are quoted as being motivated by the desire to bring more affordable organic food to consumers. Looking a little closer, however, it becomes apparent that the move is less about saving the consumer money and more about marketing. According to data published by the USDA Economic Research Service, processed and packaged foods represent only 11% of organic sales, so this line of organic products represent a fairly small percentage of typical organic grocery purchases. Fresh fruit and vegetables and dairy, on the other hand, represent 43% and 15%, respectively. Walmart takes pains to point out that these products will not be part of its “affordability” campaign, but that it does hope to increase this product range in the future. The end game here is pretty obvious: by advertising a relatively small, unpopular range of products as “just as cheap” as non-organic groceries, Walmart hopes to lure customers into its stores, under the impression that they are the place to buy affordable organic food. And after the customer picks up a can of cheap tomato paste, chances are they’ll stock up on premium-priced veggies and dairy goods, too.
Whether or not Walmart is motivated by anything other than profit is certainly debatable. What’s notable is that they consider the organic consumer demographic one worth pursuing. In addition to low prices, consumers also demand accessibility and convenience – bringing more organic products into Walmart, at premium prices or not, helps accomplish these other two goals. This can only help increase the demand for organic food.
What do you think? Does the promise of cheaper organic food make you want to shop at Walmart? Is the lowest price the law for organic consumers? Are North American farmers prepared to meet the increasing demand?