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With the relaunch of the Wild Oats range of organic products sold almost exclusively at its US stores, Wal-Mart intends to benefit from the marked recovery of organic food sales in the market but also give its brand image a boost, as it is confronted with stagnating sales and footfall.

As leading competitors, including Kroger, Target and Whole Foods, cite strong rises in organic food sales, Wal-Mart sees potential to satisfy this rising demand while differentiating its offer by undercutting its rivals on price and remaining faithful to its EDLP (everyday low price) ethos. However, Wal-Mart’s sheer size may cause supply chain challenges in the organic food industry and could threaten its ability to achieve its claimed price advantage.

Ambitious strategy with credible brand name, but Wal-Mart may face supply chain challenges

A steady recovery in organic packaged food sales was recorded between 2011 and 2013 in the US, following a temporary decline during the recession in 2009. Sales growth rates markedly outpacing those of packaged food, alongside renewed consumer interest in food provenance issues give credence to Wal-Mart’s decision to embark on a more ambitious strategy.

Wild Oats belonged to Whole Foods between 2007 and 2009, before disappearing from the shelves of US grocery outlets, with a presence only reinstated at Fresh & Easy outlets on the West Coast in early 2014, shortly after both brands came under the control of the private equity company Yucaipa Cos in 2013. The brand awareness enjoyed by Wild Oats will boost Wal-Mart’s organic credential immediately and should help make its offer compelling against rivals such as Target, which unveiled the Simply Balanced range with a similar positioning in 2013.

Wild Oats will see around 100 organic variants being sold at around 2,000 Wal-Mart stores for a few months, before a subsequent roll-out, which underlines the difficulties in supplying Wal-Mart’s 4,000-strong network of outlets initially. Promising prices around 25% lower than those of competing branded products also gives Wal-Mart a clear competitive edge, although supply chain issues may arise as Wild Oats’s deployment gathers pace.

As some organic products and ingredients could face shortages, the extra demand from Wal-Mart may push prices up. Therefore, this may involve importing a greater proportion of raw materials or finished products, or relying increasingly on “factory farming”, which is antithesis to the organic ethos.

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Source: Wal-Mart press release

Wal-Mart’s “organic for the masses” mantra determines supply chain shift

Targeting the growing demand for more natural and organic products through exclusive products sold at the low-end of the price scale under a well-established name should help Wal-Mart boost customer loyalty. As Wal-Mart is working in close collaboration with Wild Oats to cut costs, notably in terms of more efficient bulk purchases, it is likely to achieve some significant price advantage and to put organic food on the shopping list of a wider range of shoppers. The organic food supply chain is therefore likely to need to adapt, at the risk of moving ever more closely towards similar practices adopted by non-organic producers. This would confirm a shift instigated not only by Wal-Mart but also by large retailers of organic food, notably Whole Foods, with its overarching 365 private label range.

 

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