What Walmart’s Big Organic Announcement Means for Organic VeteransApril 17th, 2014
Could the chain’s entrée into private-label organics cheapen the gold standard in food production?
by Emily Main
Walmart has just announced that it’s going to throw its massive size and influence behind the organic food movement. By relaunching a historic brand, Wild Oats, which used to be Whole Foods’ biggest rival, the chain is pledging to make organic affordable to all and sell the Wild Oats brand of packaged foods at 25 percent less than its organic competitors.
More organic options at a cheaper price is hardly a bad thing, and the organic industry seems to be taking the huge retailer’s announcement with a grain of cautious optimism. But there are also a lot of potential downfalls: Where will a chain of 3,800 stores get enough organic ingredients to satisfy the 91 percent of shoppers who Walmart claims want organic food? Will organic farms have to compromise on their standards to meet the demand?
We asked two organic-industry veterans for their thoughts on the announcement: Mark Kastel, codirector and senior farm policy analyst at the Cornucopia Institute, a pro-organic watchdog group whose goal is to maintain integrity of the organic movement, and Todd J. Kluger, vice president of marketing for Lundberg Family Farms, one of the oldest organic brands in the U.S., whose rice products are sold throughout Walmart stores. Here’s what they think:
Do you think Walmart’s move is a good or bad thing?
Mark Kastel: If Walmart lends their logistical prowess to organic food, that probably is a good thing. It will provide a lot more availability to consumers. Walmart is the largest grocery chain in the U.S., and that could increase demand, which is a good thing for the organic farming sector.
Todd Kluger: If more consumers have access to organic products, that’s the most important thing.
We’ve heard reports that organic ingredients are already in short supply. How can a behemoth like Walmart meet its goals without cutting into an already strapped supply chain?
MK: People have been claiming shortages of organic ingredients for years, but we haven’t really seen any except with eggs and dairy. There are a myriad of reasons for that, and one is the lack of incentives for family farmers to produce organics. They’ve seen their profit margins erode. Because of Walmart’s scale, we could see an impact on the market—but that could mean higher prices for farmers and consumers.
TK: We have experienced shortages, mainly of things like chipotle powder and tomato powder for some of our ready-to-eat rice meals, but also non-GMO and organic dairy powder and powdered cheese. There’s just not enough demand. So to me that’s a dog whistle. Wild Oats and Walmart will have to get involved and create the ingredient supply chain. This will show that there is demand.
Do you foresee Walmart trying to influence the USDA to water down organic standards so that more big food companies can get into the organics game?
MK: I doubt that they will do that directly. There are already corporate entities that are trying to do that, so it would surprise me if Walmart themselves became overtly involved. However, if the company “Walmart-ed” organics and approached the industry sector as they do in many business lines, this would be quite destructive. One of the ways they lower price and maximize profits is by focusing on imports and relying on giant, industrial organic factory farms. It’s not compatible with organics, which is a values-based and ethics-based industry. One of the reasons people are willing to pay more is that they think they’re supporting a different ethic, a different animal husbandry model, and that family farmers are being fairly compensated. Walmart’s methods have the potential to undermine all those values. When Walmart tells an organic company they don’t want to sell products above a certain price, the company either has to pay its farmers less or pull out of Walmart.
TK: When Walmart introduced organic milk into their stores, there was no watering down of industry standards to get that delivered. They said they wanted milk with no growth hormones, and that shifted the industry away from growth hormones almost entirely. Ideas may begin in natural and organic retailers like Whole Foods, but by the time it reaches a retailer like Walmart, the idea has fully been accepted by mainstream.
Is there any concern that the Wild Oats brand could undermine the success of established organic brands?
MK: I’ve said for a long time that “private-label and organics” is an oxymoron. The very nature of a private-label brand like Wild Oats, which isn’t a manufacturer in and of itself, is to keep the sourcing secretive. They don’t really want customers to know who’s manufacturing their products and where they come from because they wouldn’t want customers to develop loyalty to suppliers. The nature of organic consumers is that we want to know where our food comes from, how it’s produced, and what the story behind the label is. That’s not going to be possible with any private label.
TK: Our consumers are very brand oriented. Every retailer already sells private labels at a lesser cost, so organic and natural brands already have to compete with those. We connect with our consumer because we’re able to have transparency. We’re able to deliver a different value to our consumer. Somewhere the cost to sell organic has to be cut, so the brand will have to cut the transparency of it, the traceability to where the ingredients come from. When someone buys our product, they can trace it all the way back to our farms.
Will Walmart live up to its promise of keeping organics at 25 percent below its competitors?
MK: I think it’s a bit dubious, because there are many organic products in the marketplace that only enjoy a 25 percent premium over conventional food. Are they going to say that they’re now selling organic at the same prices as conventional? The only way to achieve that is to cheapen the quality of things—putting products in a smaller size, using poorer-quality ingredients (like replacing olive oil with cheaper oils). I don’t want to condemn them before this stuff hits the market—maybe we’ll be pleasantly surprised. But their claims don’t seem reasonable.
TK: Being able to deliver organics at what they’re suggesting? That is fantasy. There isn’t much you can do to cut the cost of organic ingredients. Just certification and organic farming practices cost you more. That’s already a 15 to 20 percent difference from conventional.