Wal-Mart Stores (WMT) is bringing its economies of scale to organic groceries. The retail giant said this morning that it is teaming up with Wild Oats to offer a wide range of organic fare at nonorganic prices.
Wal-Mart said the groceries will cost about one quarter less than similar organic offerings. At first, the initiative will comprise about 100 different kinds of Wild Oats food—including canned vegetables, spices, and salsa—in about half of Walmart’s 4,000 stores. Eventually, the line may include fresh dairy and produce. “We know our customers count on us to provide them with affordable access to all of the groceries they are looking for; organics are no exception,” Jack Sinclair, Walmart’s executive vice president of grocery, said in a statement.
The announcement comes two days after Target (TGT) said it is expanding its lineup of organic and all-natural products. The Minneapolis-based retailer said it will add about 120 exclusive new products, labeling each under the tagline “Made to Matter.” The initiative also embraces a lot of products outside grocery aisles, including air fresheners and cosmetics.
Whatever global consciousness may be at work here, it’s true that organic groceries have some of the healthiest financials in the business. Safeway (SWY) recently said sales of its Open Nature brand surged 42 percent in 2013. Costco (COST) has been crowing about its trade in select organic products, such as milk and kale. “It’s a big business; it’s growing fast,” Richard Galanti, Costco’s chief financial officer, said on a recent conference call.
Of course both Wal-Mart and Target can use their scale to squeeze great deals out of farmers and suppliers—probably better deals than smaller grocery players, such as Fairway (FWM) and Sprouts Farmers Market (SFM), or even Safeway, can get.
Meanwhile, all retailers hungry for organic fare are getting some help on the supply side. The number of certified organic farms and ranches increased 6 percent, to 9,140, from 2009 to 2011, the most recent federal data available. Some 3,100 of those farms harvested such field crops as beans and corn, 1,900 were milking cows, 1,700 were growing fruit, and 300 harvested nuts.
Today’s Wal-Mart announcement also represents a rebirth for Wild Oats. Whole Foods Market (WFM) paid $565 million for the chain of groceries in 2007. At the time, it was the second-largest natural and organic grocer in the country. But antitrust regulators did not look kindly on the deal, and Whole Foods eventually closed the stores and sold the Wild Oats brand in 2009. Today it is owned by the Yucaipa Companies, Ron Burkle’s investment firm, which also owns 167 Fresh & Easy grocery stores in the Southwest.