From SCDigest's On-Target e-Magazine

- May 13, 2014 -

Supply Chain News: Just What Does it Mean to Source Organic Foods, as Walmart Doubles Down with Wild Oats Brand

Plans to Offer 100 or More Organic SKUs at Same Price as Regular Items; What Do Walmart Buyers Need to Know?

SDigest Editorial Staff 

The fast-growing organic grocery sector is abuzz of late as giant Walmart plans to expand its "organic" food offering in a big way - and just what does that mean for the supply chain anyway?

Walmart has been offering organic foods for some time, and by 2007 was the largest seller of organic groceries in the US. But in early April Walmart took it a big step further when it announced plans to carry a line of nearly 100 organic products bearing the Wild Oats brand name in all of its US stores and on Walmart.com.

SCDigest Says: So can Walmart and Wild Oats upend the existing pricing model? Details are scarce, but the companies say the key will be eliminating middle men and striking long-term agreements direct with organic farmers. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

The Wild Oats line will include staples such as salsa, olive oil, canned black beans and tomato paste, and more, and if successful will certainly expand.

The question on the minds of many: does organic really mean the same thing to the world's largest corporation as it does to the smaller farmers and manufacturers that have been the bedrock of the organic movement?

"On the one side, I'm happy to see organics opened up to more people; on the other, Walmart only cares about itself and will not help anyone or any farm but perhaps bring the same kind of cancer to organics as conventional agriculture," organic farmer Scott Trautman, owner of Trautman Family Farm in Wisconsin, told the International Business Times. "I hope consumers will investigate organic food and everything it stands for however they come to it."

This is a complex development - with big implications for Walmart, other retailers, and branded food companies.

Wild Oats was a chain of generally healthy and natural food stores that was sold to the larger Whole Foods in 2007. In the aftermath, the Wild Oats brand name was sold off to billionaire Ron Burkle, who was Wild Oats' biggest shareholder when the chain was acquired.

So now Walmart and Wild Oats are bringing 100+ products to market in 2014 at a price point that is roiling the industry - basically on par with non-organic items. That new price point will come versus the 20-25% premium that organic products - including Walmart's existing private label organics - usually command.

So how can Walmart and Wild Oats so upend the existing pricing model? Details are scarce, but the companies say the key will be eliminating middle men and striking long-term agreements direct with organic farmers.

Walmart in fact has been on a multi-year journey to cut out brokers and other third party agents in a quest to capture the middleman's margin (see Walmart to Centralize Global Sourcing, Reduce Use of Middlemen).

And the volumes that Walmart can generate will likely produce some economies of scale that will impact even the organic sector.

Walmart says it will not be meaningfully reducing the price of its current private label organics, nor expanding total shelf space - meaning as the Wild Oats items come in, current SKUs from branded companies either will be gone from shelves or see their facings reduced. Branded organic items will see similar offerings at a significantly lower price, and non-organics face competition at the shelf from organic offerings at about the same price.


(Sourcing and Procurement Article Continues Below)