Are Wal-Mart's "Organics" Organic?

Wisconsin officials have launched an investigation into the giant retailer's practices after complaints that it may be misleading consumers

by Pallavi Gogoi

A year after Wal-Mart (WMT) laid out ambitious plans to become a much bigger player in the organic foods business, the giant retailer is running into trouble over its organic effort with consumer activists and government regulators.

It was March of 2006, at an analysts' conference, when Wal-Mart's vice-president of marketing, Stephen Quinn, said that the company would double its offerings of organic products within weeks. The company promised to make organics affordable to more consumers by offering what executives called "the Wal-Mart price." In July, the Bentonville (Ark.) retailer even launched an ad campaign on The Food Network, HGTV, and parenting and women's magazines, with tag lines like: "Know what goes well with organic milk? Organic cereal and knock-knock jokes" (see BusinessWeek.com, 3/29/06, "Wal-Mart's Organic Offensive").

"An Isolated Incident"

Now there are questions about whether "the Wal-Mart price" might come at a cost to organic foods. State officials in Wisconsin have launched an investigation into the retailer's practices after complaints that Wal-Mart may be misleading consumers. A central question is whether signs on store shelves and banners above the shelves describe foods as "organic," while the foods nearby do not qualify for the label, under federal guidelines. "We are beginning an investigation that will look into signage and whether it can be considered misleading," says Jim Rabbitt, director of the Bureau of Consumer Protection at the Wisconsin Department of Agriculture, Trade & Consumer Protection in Madison. The bureau plans to examine the practices of Wal-Mart and other retailers for 30 to 60 days to determine how big an issue this is.

The U.S. Agriculture Dept. is reviewing a complaint about Wal-Mart's practices from the same watchdog group that notified Wisconsin officials. The USDA has not decided whether to pursue its own investigation. "We are seeking more information to determine what action should be taken," says Joan Schaffer, spokeswoman for the national organic program at the USDA.

Wal-Mart officials say that the company has done nothing wrong. A spokeswoman points out that the company has more than 2,000 locations that offer up to 200 organic selections, in addition to thousands of nonorganic offerings. Karen Burk, company spokeswoman, wrote in an e-mail that if there were any inaccurate signs or banners around organic foods "we believe it to be an isolated incident." She added that, "The USDA certification label is featured on the packaging of the organic selections we offer for further customer information and verification. We have sent procedural guidelines to our stores for proper management of these identification tags."

Strict Requirements

Retailers and farmers involved in organic foods worry that giants like Wal-Mart may muddy the waters about what is and is not organic. Some are upset over the allegations and wonder whether other supermarkets will take steps similar to those alleged. "A huge amount of work went into coming up with a standard of quality in the organic industry," says Randy Lee, CFO at PCC Natural Markets, the largest co-op operating in the U.S., which runs eight stores in the Seattle area. "If these allegations are true, then it very easily erodes those standards and comes with a significant business impact on other retailers that have higher standards."