When entering new markets, Wal-Mart has typically been confronted with a cakewalk. Will it be the same as it rolls out organic groceries this fall in Canada? Not likely. It has the wrong customers and faces a challenge getting the ones it needs.
The wrong customers
Wal-Mart has been terrifically successful catering to Canadians in search of the lowest possible prices on a wide range of general merchandise and more recently, groceries. To a very considerable extent, these shoppers are not motivated by high quality. They want the lowest price, period.
In contrast, the organic food shoppers I’ve encountered take pride in buying healthier food. In fact, they’re even proud to pay a few more dollars to, in their view, fairly reward organic food producers for the extra TLC they put into their products. Indeed, organic groceries are typically about 30% more expensive than their non-organic counterparts.
These higher prices accrue as profit to the retailer. In a very competitive grocery retail environment, the “majors” (Loblaw, Sobeys, et al) continue to protect the margin integrity of organics-because it is one of the few profitable categories remaining. John Fleming, Wal-Mart’s chief marketing officer, indicates that Wal-Mart’s organic groceries will sell at a premium in the range of 10% over their conventional products.
So Wal-Mart intends to market healthier, higher quality foods to customers who are not driven by health or quality, at higher prices they are unwilling to pay? Right.
The customers it won’t get
Organic “lifestyle” shoppers are the most dedicated and educated consumers of organic foods. They are deeply passionate about sustainability, fair trade and food that is free of all synthetic inputs. They tend to judge harshly companies they perceive as lacking in corporate responsibility.
This sort of attitude presents a serious marketing challenge both for Wal-Mart and the organic brands it chooses to sell. Wal-Mart, while introducing products whose value proposition derives considerably from a sense of social and corporate responsibility, is in the unfortunate position of being perceived-fairly or unfairly-as dreadfully low on the responsibility scale.
Other large corporate, organic brands may face similar challenges selling through Wal-Mart. Large corporations are increasingly dominant in the organic food business. All too aware of their image problem in this context, a host of multi-billion dollar organizations including Unilever, Kellogg and Cadbury-Schweppes have been buying up-and to a degree, hiding behind-once-independent brands like Ben & Jerry’s, Kashi and Nantucket Nectars, respectively.
Squeezing out suppliers
It’s been said that the best thing, and the worst thing, that can happen to a supplier is to get Wal-Mart as a customer. Its prevailing business strategy and monumental scale mean it will seek massive inventory from its suppliers, but at considerably lower margins than a traditional provider is accustomed to. You simply will not see Rowe Farm Meats, a Guelph, Ont. organic producer, lining the shelves of your local Wal-Mart.
Instead, Wal-Mart will turn to its large corporate partners who have the capital and scale already in place to produce mass quantities at very low margins. The smaller organic food players will drop by the wayside, serving to further antagonize traditional organic food shoppers and chip away at the authenticity of Wal-Mart’s organic offering.
Wal-Mart’s marketing challenges
What hope is there for the success of Wal-Mart’s organic food foray? Its greatest marketing leverage resides with upscale conventional shoppers. These folks now pay well for groceries, care about healthy eating, and are interested in, but not driven by, corporate responsibility.
Wal-Mart’s core customer base is interested in low prices, full stop. And the company can forget about the organic lifestyle crowd. They don’t believe Wal-Mart will support comparatively small-time producers anyway. It is upscale conventional shoppers who may be the sweet spot for Wal-Mart. I wish Wal-Mart luck.
DAVID GOODBAUM is president of Organic Garage in Oakville, Ont.
