Organics: A Poor Harvest for Wal-Mart

After the retailing giant laid out ambitious plans to offer organic food last year, farmers say it's backing off

by Pallavi Gogoi

Last fall, Peter Ricker got an order from Wal-Mart Stores (WMT) for organic apples that was the biggest he'd ever seen. "I'm talking trailer truckloads," says the 34-year-old, eighth-generation apple farmer in Maine. Ricker had heard of the giant retailer's push into organics, and he thought the order could be the beginning of a surge in demand. But that wasn't the case. While most retailers place orders with Ricker Hill Orchards once a week, Wal-Mart never came back.

He's hardly alone. A number of organic farmers across the country say that Wal-Mart has backed off of aggressive plans to offer more organic foods. After placing large orders for organic apples and juices last year, the retailer is cutting back or stopping orders altogether. Wade Groetsch, president at the Florida juice producer Blue Lake Citrus Products, says he stopped shipping his organic orange-tangerine blend to Wal-Mart after a few months. "The sales there just weren't enough to justify our costs of packing and shipping," he says.

Scaled-Back Ambitions

A year ago last March Wal-Mart grabbed headlines by announcing its organic push. Stephen Quinn, a top marketing executive, told investors at a Bear Stearns (BSC) conference that the company would double the number of organic food items in its stores to 400 and offer them "at the Wal-Mart price" (see BusinessWeek.com, 3/29/06, "Wal-Mart's Organic Offensive"). But now Karen Burk, a spokeswoman for the company, says that the majority of Wal-Mart stores are offering between 100 and 200 organic food items. She says the company does not have a target, at least not a public one, of stocking 400 organic items in the average store.

Burk denies that this means the company has fallen short of its goals. She said Quinn had been misinterpreted and hadn't meant to suggest that Wal-Mart stores would actually carry 400 organic items. He meant that the company would make as many as 400 organic items available to store managers; if they choose to stock only 25% to 50% of those items, it is simply a reflection of local demand. "It has always been our goal for our locations to be 'stores of the community,'" she wrote in an e-mail.

Burk said that in some cases, stores have doubled the number of organic products that they offer. She said that there are Wal-Mart stores that do stock roughly 400 organic items, including locations in Rogers, Ark., Rockwall, Tex., and Plano, Tex. "We are continuing to see a demand by many of our customers for organic alternatives and will tailor each store's assortment to meet the demand," she wrote.

High-End Strategy Flops

Wal-Mart has been struggling to move upscale in a number of product categories. Last year, Wal-Mart found through internal research that it had high-income customers, with incomes of more than $75,000, in its stores shopping for staples like milk and detergent, and it set out to sell them more high-end merchandise. Besides its organic push, the company introduced a new apparel line called Metro 7 and started stocking higher-end bedding. But Chief Executive Lee Scott concedes that the company has struggled to persuade customers that Wal-Mart can mean high-quality, rather than simply low price. "I think we went too far too fast," he said (see BusinessWeek.com, 3/30/07, "Wal-Mart: 'On the Side of the Angels'").