Look out, Whole Foods. This month, Walmart will start offering a new line of organics about 25 percent cheaper than the national organic brands it already carries, and those sold by its competitors.
The giant retailer is partnering with Wild Oats to bring in a new line of organic products. Wild Oats was a popular health brand in the 1980s and was acquired by Whole Foods in 2007.
But the Federal Trade Commission challenged the purchase, saying it was concerned about loss of competition. Ultimately, Whole foods sold its holdings in Wild Oats in 2009.
Now, Walmart and Wild Oats are poised to offer big competition for Whole Foods and other stores like Trader Joe’s. Atlantic senior editor Derek Thompson joins Here & Now’s Jeremy Hobson to take a look at what this might mean for consumers, competitors and the organic supply chain.
JEREMY HOBSON, HOST:
This is HERE AND NOW.
And Wal-Mart is making news today with a new partnership. The world's largest retailer says it is joining forces with the organic food maker Wild Oats to sell an exclusive line of organic products for as much as 25 percent less than the products cost elsewhere. Derek Thompson is senior editor at The Atlantic. He's with us from New York to discuss. Derek, welcome back.
DEREK THOMPSON: Hi, Jeremy.
HOBSON: So everything Wal-Mart touches, it seems, changes the industry altogether. It becomes a real game-changer. Why is Wal-Mart doing this with organics?
THOMPSON: I think it makes sense to look at what each side is getting out of this deal. Why does organic think it needs Wal-Mart, and why does Wal-Mart think it needs organic?
THOMPSON: Organic is healthy, not merely as a food but as a business. Organic sales grows faster than overall grocery sales by 10 percent, 29 billion last year. It's healthy, it's small, it's growing fast. Wal-Mart isn't so healthy in terms of a lot of the food that it serves. It isn't so small, and isn't growing so fast. It's actually had a rough few years, enough so that when the government ended its payroll tax holiday early last year and cut food stamps, Wal-Mart said this was having an appreciable effect on its business, that is Wal-Mart is so dependent on shoppers receiving government aid that when government aid falls, Wal-Mart's business suffers.
So - and once again, just this February, they announced they had another quite bad quarter. So what they need is growth. And where better to find it, really, than in this organic market where you can partner with an old trusty name, mark down prices, you know, and ride this organic wave, bring in more customers who aren't among the poorest households in the country.
HOBSON: Well, and Wal-Mart actually has research to back up the idea that it's going to get more customers out of going into more organic products, right?
THOMPSON: Yes, they do. I think 80 percent of U.S. customers shop at Wal-Mart at some point during the year. And something like 90 percent of them said that they would buy organic if offered at the right price. But I don't think this is just about offering organic food at the right price to its existing customers. Again, its existing customers, its core customers, are people poor enough that the company itself acknowledges that cuts to food stamp, which now go out to 48 million Americans, cuts to food stamps are enough to affect the overall bottom line at this company.
I think it's really partly about Wal-Mart wants to grow into new, richer, higher-income markets, and they want to offer organic food that people can trust at cheap prices. They want to lure people in or maybe they end up buying the kind of food at Wal-Mart that isn't so marked down, that's a little bit more expensive.
So I think it's about broadening this core customer base and getting some people with a little bit more cash into these stories in addition to being the sort of most dependable place for people who are lower income to buy everything that they need.
HOBSON: Well, and it's got to be a scary day for Trader Joe's, Whole Foods and other retailers that really specialize in these kind of products.
THOMPSON: You know, it could be. At the same time, you know, Trader Joe's, Whole Foods, these are healthily growing, you know, grocery chains. And they're growing partly because look at where they are and look at what their demographics are. You know, they're located in cities and suburbs who tend to have richer households.
And as you've seen through this recovery, in the decades before the recession and in the years after the recession, a lot of the income growth is happening at the top. The poorer are staying poorer, and the rich are getting richer. That's just the way the macroeconomics are playing out, both on a global stage and on a city by city stage.
So those demographics are underpinning the overall grocery business. And they're helping these chains that are naturally serving richer people because the richer people are getting more and more money every year. You know, Wal-Mart is a remarkably efficient and just remarkably rich company that's done a lot for the retail industry in the last few decades. But it's done - it succeeded by catering to a middle- and lower-class demographic in parts of the country that just aren't growing. And so I think it's only responsible and necessary for them to begin to edge into markets that are seeing this double-digit growth.
HOBSON: We're talking with Derek Thompson of The Atlantic about Wal-Mart's decision today or announcement today to partner up with Wild Oats and unveil this cheaper organic line of products. Derek, what do we know about Wild Oats other than the fact that it used to be owned by Whole Foods?
THOMPSON: Man, this is rather ironic. So Wild Oats was - it was founded in 1987, which, you know, is before the organic craze really took off. It's one of the granddaddies of organic. Whole Foods tried to buy them in 2007 - did buy them. And the government said, nah-ah, you can't do that. You can't merge two enormous organic food companies. You'll create an organic monopoly. And so after a few years Whole Foods had to sell Wild Oats. And now, somewhat ironically, it's run straight into the arms of another behemoth, Wal-Mart. So the government tried to keep Wild Oats out of the hands of one of the big players, and it ran into even a bigger player.
HOBSON: What is all of this going to mean for the production side of things, for organic farmers and distributors?
THOMPSON: It's hard to say at this point. You know, I think that right now, organic accounts for four percent of the total grocery market. So it's small, but it is growing faster, considerably fast than the overall market. So as you see greater demand happening, as you see more people streaming into Wal-Mart and buying this stuff, you should see that affect the supplier incentives, as well, for them to produce more of this stuff to meet the demand.
It's too early, though, I think, to guess whether or not this is going to be a successful foray. You know, what we know is that Wild Oats was in a position where they wanted to partner with a big retail chain. Wal-Mart is in a position right now where they really need to find a growth category so that they can get out of selling really low-margin stuff to people who are just extremely strapped for cash. And so this is a good marriage for them. It remains to be seen, I think, whether this is going to sort of trickle down and have a big effect on the suppliers.
HOBSON: Well, and we should say, it's not just Wal-Mart that's doing this. Target is also getting into this game as well.
THOMPSON: Target is getting into this game as well, exactly. And at Target, organic isn't just growing at 10 percent. Organic is growing something like 20 percent. So you really are seeing, just across the board, a really voracious interest in organic, you know, putting the science aside, which I know much less about whether this stuff is actually better for you, will have lower cancer rates and everything like that.
The fact is that there is a shine to this sort of food. People want more of it, and they want more of it whether they're shopping at, you know, yuppie places like Whole Foods and Trader Joe's, or whether they're shopping in places like Target and Wal-Mart. Everyone is recognizing that there's this demand for food that's safer. And we're in sort of a place right now where there is more awareness of health in the media. There's more awareness of wellness plans, and finding ways to eat healthily and cheap. This is seen actually in the, sort of, Chipotle movement. And we're seeing...
HOBSON: They've got tofu now at Chipotle, yes.
THOMPSON: They've got tofu now at Chipotle. You're seeing more places like Chipotle, which are serving, you know, quick to make salads, quick to make sandwiches that are faster and cheaper to make.
So, you know, this is really something that's happening across the entire ecosystem of food. And Wal-Mart, which is the greatest and biggest grocer in the country, they want to get into this game even more, and that's why, I think, this deal absolutely makes sense for them.
HOBSON: Derek Thompson, senior editor at The Atlantic. Thanks so much as always.
THOMPSON: Thank you.
HOBSON: This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.