Wal-Mart after bigger bite of organics

BY MELANIE WARNER THE NEW YORK TIMES

Posted on Saturday, May 13, 2006

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Most of the nation’s major food producers are hard at work developing organic versions of their best-selling products, like Kellogg’s Rice Krispies and Kraft’s Mac & Cheese.

Why the sudden activity ? In large part because Wal-Mart wants to sell more organic food — and because of its size and power, Wal-Mart usually gets what it wants.

As the nation’s largest grocery retailer, Wal-Mart has decided that offering more organic food will help modernize its image and broaden its appeal to urban and other upscale consumers. It has asked its large suppliers to help.

Some organic food advocates applaud the development, saying Wal-Mart’s efforts will help expand the amount of land that is farmed organically and the quantities of organic food available to the public.

But others say the initiative will ultimately hurt organic farmers, will lower standards for the production of organic food and will undercut the environmental benefits of organic farming. And some nutritionists question the health benefits of the new organic products. “It’s better for the planet, but not from a nutritional standpoint,” said Marion Nestle, a professor of nutrition, food studies and public health at New York University. “It’s a ploy to be able to charge more for junk food.”

When Wal-Mart sells organic food on a much broader scale, it will have to meet the same Agriculture Department requirements. But nutritionists say the health benefits of many of these new offerings are negligible.

Wal-Mart says it wants to democratize organic food, making products affordable for those who are reluctant to pay premiums of 20 percent to 30 percent. At a recent conference, John Fleming, Wal-Mart’s chief marketing officer, said the company intended to sell organic products for just 10 percent more than their conventional equivalents.

Shoppers who have been buying organic food in steadily greater quantities consider it healthier and better for the environment. Organic food — whether produce, meat or grain — must be grown without pesticides, chemical fertilizers and antibiotics. Then, before it is sold, the food cannot be treated with artificial preservatives, flavors or colors, among other things.

Food industry analysts say that, with its 2, 000 supercenters and lower prices, Wal-Mart could soon be the nation’s largest seller of organic products, surpassing Whole Foods. Already, it is the biggest seller of organic milk.

While organic food is still just 2. 4 percent of the overall food industry, it has been growing at least 15 percent a year for the past 10 years. Currently valued at $ 14 billion, the organicfood business is expected to grow to $ 23 billion over the next three years, though that figure could rise even further with Wal-Mart’s fresh push into organic foods.

“What Wal-Mart has done is legitimized the market,” said Harvey Hartman, president of the Hartman Group, a consulting firm in Seattle that is working with Wal-Mart on its organic food initiatives. “All these companies who thought organics was a niche product now realize that it has an opportunity to become a big business.”

Kellogg and Kraft say they began working on Organic Rice Krispies and Organic Mac & Cheese before having conversations with Wal-Mart. But David Mackay, chief operating officer at Kellogg, says it was helpful knowing that a large customer like Wal-Mart was enthusiastic about the product.

In July, Kellogg is planning to introduce Organic Raisin Bran and Organic Frosted Mini Wheats, with packages featuring the word “organic” at the top in giant letters.

DeDe Priest, senior vice president for dry groceries at Wal-Mart, said the company had been urging food suppliers for the past year to embrace organic foods. At a recent conference near the company’s headquarters in Bentonville, she said, “Once we let the companies know we were serious about this and that they needed to take it seriously, they moved pretty fast.”

Bruce Peterson, head of perishable food at Wal-Mart, said that it aims to change the way people think about the giant retailer. “Consumers that gravitate to organic products don’t always think of Wal-Mart as a top-of-mind destination to pick up those products,” Peterson said. “We want to let customers know, ‘Hey, we’re in that business. ”’

Safeway, Kroger and Super-Valu, which is set to acquire Albertson’s, have private label organic lines with names like Nature’s Best and ‘O’ that they offer at a discount to branded organic products.

Peterson says he thinks Wal-Mart’s method will be more effective in appealing to customers because it relies on powerful brand names that have million of dollars in advertising backing them up.

But Wal-Mart’s new push worries Ronnie Cummins, national director of the Organic Consumers Association, an advocacy group that lobbies for strict organic standards and the preservation of small organic farms. He says Wal-Mart does not care about the principles behind organic agriculture and will ultimately drive down prices and squeeze organic farmers.

“ This model of one-size-fitsall and lowest prices possible doesn’t work in organic,” said Cummins. “Their business model is going to wreck organic, the way it’s wrecking retail stores, driving out all competitors.”

Part of the problem, says Cummins, is Wal-Mart is making a push into organics while there is already heavy demand and not enough supply.

Some 10 percent of the organic food consumed in the United States is imported, according to the Agriculture Department. Kelly Strzelecki, an agricultural economist at the service, says she expects that percentage to increase.

Peterson, the Wal-Mart executive, says Wal-Mart is not getting any of its organic products from overseas, but cannot predict whether that will change. And he says Wal-Mart does not pay organic farmers less than others do, in part because demand is so high.

He says the lower prices offered to consumers are made possible by Wal-Mart’s enormous volume and by having efficient distribution and inventory systems.

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