Don't Miss Out

Subscribe to OCA's News & Alerts.

Big-Box Organic: Natural Foods Industry Braces for Wal-Mart's Presence

It isn't obvious from the smattering of organic products on display at west Eugene's Wal-Mart Supercenter, but the nation's largest retailer has begun a full-on invasion into the increasingly lucrative market of natural foods. The reaction from those in the path of the incursion?

Everything from fear to loathing. From nonchalance to cautious optimism. "Undoubtedly, we've got mixed emotions about it," says Tom Lively, senior sales representative of Eugene-based Organically Grown Company - the largest distributor of organic produce in the Northwest.

Inevitably, there will be displacement among existing organic food retail outlets and supply chains when a heavyweight such as Wal-Mart wades into their established marketplace, Lively says. But when the hydraulics of supply and demand even out, the end result will be increased production and consumption of organic goods.

"It will transition more acreage into organic production," he says. "It will create supply problems, but also has the tendency to create more supply." As recently as a year ago, many would have seen a Wal-Mart foray into organics as an absurd demographic mismatch.

But after enduring years of criticism over its bare-knuckled business practices and anti-union stances, the company has made a conscious effort in recent months to remake its image and be - as president and CEO Lee Scott said at a media conference last month - "a better company."

The chain - which has had a reputation among social and environmental activists as the Genghis Khan of discount retailers - built its first "green" store a year ago in Texas. It also has sweetened its often-criticized employee benefits pot and even offered grants for neighboring small businesses in some urban markets.

Its leaders have made no secret of their desire to join rival Target in appealing to a broader range of customers, and to reach beyond its traditional base of low-income consumers.

"Wal-Mart is trying to get touchier-and-feelier - they're getting friendlier and trying to change their image," Lively says. "The organic deal is part of it."

While Wal-Mart has carried a few organic products - salad mixes, for example
- for the past few years, the real push began when Scott, the CEO, stated his intentions last June at the annual shareholders meeting.

"I'm excited about organic food - which is one of our fastest-growing food areas and a great example of how Wal-Mart can appeal to a wider range of customers," Scott said in addressing the meeting's general session.

Scott's comments followed widely published reports that organic food has become big business, with U.S. sales soaring from $1 billion in 1990 to $20 billion in 2005. The organic market is continuing to grow by as much as 20 percent annually, compared with growth rates of 2 percent to 4 percent for nonorganic food sales, according to the Organic Trade Association.

"We know that customers at all ends of the income spectrum want organic and natural foods," Scott told Wal-Mart shareholders. "But frankly, most of them just can't afford the high prices the specialty stores charge.

"And let's face it, affluent customers appreciate saving money, too. We think there's room for all of them at Wal-Mart."

Eugene's only Supercenter store, on West 11th Avenue, so far has only a token organic inventory: a small display of organic bananas - 76 cents per pound, compared with 29 cents for conventional bananas - and a 10-foot section in the produce department's "wet case" stocked with prepackaged organic cabbage, broccoli, green onions, carrots and lettuce.

Jennifer Holder, Wal-Mart's spokeswoman for the Northwest region, says it's just a matter of time. The company is working to build a network of organic suppliers but was not prepared to stock a full range of organic products in all of its stores from the campaign's onset. "It's been very well received everywhere we've been able to do it," Holder says.

In the coming months, Wal-Mart will send teams of produce buyers "to look at everything Oregon has to offer," she says.

But the company's move toward organics goes beyond fruits and vegetables. Holder cites options for organic fabrics in everything from infant clothing to yoga wear, as well as a new emphasis on sustainability and energy efficiency.

"(The company president) has been working on outreach into sustainability in different areas for about a year now," Holder says. "It's been in every little piece of how we do business, and how we operate."

Mark Lew, owner of Eugene's Capella Market on South Willamette Street, takes all that with a grain of salt.

"They're dabbling in everything," he says. "They're trying to grab a piece of the pie."

Wal-Mart may succeed in selling organics to their existing customers, but Lew says he doubts the company will make inroads into the customer bases of local stores already selling natural foods. Specialized stores such as Capella can provide advice for customers with restricted diets, or with specific nutritional goals, while the employees of giant grocery chains are unlikely to have the same level of training, he says.

"It takes a little more than just putting things on the shelf," Lew says. "It takes customer service, and it takes education."

At Oregon Tilth, the Salem-based nonprofit organization that certifies as many as 90 percent of all Oregon farms seeking status as organic growers, Executive Director John Foster sees Wal-Mart as a two-edged sword.

The discount retailer will help spread an organic gospel to the masses simply by carrying an expanded line of organic products, Foster says. That will lead to more demand for organic food, increased acreages on organic farms and a reduction in the use of herbicides, pesticides and even petroleum products in agriculture.

"We're talking about just tremendous volume, something that was never imagined," he says. "To that extent, I like that. It's a favorable thing. "But the fear I've heard expressed ... is how those very large companies have the ability to control prices. There's a fear prices will drop to the point (organic farming) is not as profitable as it has been."

And in the short term, there's the matter of supply. Farmers produce enough to take care of their existing market, and when a big new player gets into the game there may not be enough to go around.

"It depends on the rapidity with which these relatively new retailers come into the game," Foster says. "But I wouldn't be surprised if there were some interruptions in the supply chain, at all. You can suck up a supply of perishable goods pretty darn quick."

For Lively, at Eugene's Organically Grown Co., the Wal-Mart issue comes down to "the 55-gallon drum rule." Back when he started growing organic vegetables in the late 1970s, he realized that every crop he grew reduced the barrels of herbicides and pesticides that are used to feed America.

"I'm not a real Wal-Mart fan," Lively says. "I won't go into their stores, because of the way they've beat down so many American producers. But I definitely would applaud them for embracing the organic industry. If Wal-Mart drives more growers toward ecologically sound growing practices, who am I to criticize?"