What’s Next for Organics?

The Lempert Report
April 22, 2014

The world of organic foods is about to get a lot bigger.

Two retail giants have recently laid out their plans to expand into organic products. First, Walmart announced a new organic initiative under the Wild Oats brand, then Target a day later shared details of its “Made to Matter” program with 17 handpicked organic brands. Both chains are hoping to appeal to the ‘average’ shopper who may be interested in organics, but can’t quite make the jump to Whole Foods.

These two announcements might give a needed nudge to the industry.  According to the USDA, organic foods and beverages now represent just over 4 percent of total at-home food sales.  Market share for organics has stayed relatively stable over the past decade.  This year, the California drought has had a major effect on the availability and price of organic produce and organic meats; it’s likely that as a result shoppers may have switched to their less expensive non-organic counterparts.

The big question is will the shoppers come to Walmart and Target for organics?

According to Walmart, the Wild Oats brand will retail for 25% less than other organic brands. But despite the price, does the Walmart shopper even care about organics? 
In our view, Walmart has credibility in organics.  The chain is a retail leader in sustainability through its Sustainability 360 initiative, and organic food fits culturally under this umbrella.  The chain is an obvious pricing leader too: the 25% price differential might strike just the right note to attract shoppers from the broad economic spectrum to its grocery departments.

But as more consumers find the perceived nutritional advantage of organics untrue, and discover that even organics can use over 100 specified pesticides, the organic industry may need to do a better job of showcasing their attributes. Some brands, for example, have already begun touting their Non-GMO status on packaging and in their advertising hoping that will attract a broader audience.

As Walmart and Target begin their organic battle one thing is for sure; the price of organics everywhere, even at Whole Foods, will be lowered. As a result, will we see some manufacturers step away from this once extremely profitable category? There’s also the theory that giving Walmart the Wild Oats brand fuels the path to convert Fresh & Easy to an all organic and affordable Wild Oats chain; and then sold off to Walmart. 

However this plays out, the world of organics is expanding and changing, so look for increased advertising and support for a more affordable pricing strategy to attract new consumers.