Watch Out, Whole Foods: Wal-Mart Goes Organic at a Discount

Source: Getty Images

Source: Getty Images

Wal-Mart (NYSE:WMT) is on the prowl, and it’s hunting organic food retailers like Whole Foods Market (NASDAQ:WFM) and Sprouts Farmers Market (NASDAQ:SFM). Wal-Mart, which is the largest grocer (as well as retailer) in the United States, is expanding its organic food selection, and it will be pricing the new goods as much as 25 percent below the price level of national-brand organic products.

“We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more,” said Jack Sinclair, executive vice president of grocery at Walmart U.S., in a statement. “We are changing that and creating a new price position for organic groceries that increases access. This is part of our ongoing effort to use our scale to deliver quality, affordable groceries to our customers.”

In order to pull off this potentially industry-disrupting trick, Wal-Mart has partnered with Wild Oats, once the nation’s second-largest natural and organic foods chain. Wild Oats was once an operator of actual natural and organic foods stores but was purchased by none other than Whole Foods in 2007 for $565 million. However, in 2009, Whole Foods lost a protracted battle with the Federal Trade Commission, and the chain was sold. Now, it looks like Wild Oats is settling into a position  as distributor to large retailers.

“By partnering with Walmart, Wild Oats is starting a movement that makes it easier than ever for customers to access affordable organic and natural products,” said Tom Casey, CEO of Wild Oats, in a statement. “Our availability at Walmart will allow us to finally pass along scalable savings directly to consumers. We are reinvigorating our brand by bringing great tasting Wild Oats products to more customers than ever before.”

Wild Oats will be providing “nearly 100″ items to Wal-Mart at discount pricing. Here’s a breakdown, provided by the companies themselves.

Wild Oats Product Wild Oats Price Comparable Item Price  Price Difference
Wild Oats Marketplace Organic Tomato Paste (6 oz) $0.58 $0.98 41%
Wild Oats Marketplace Organic Chicken Broth (32 oz) $1.98 $3.47 43%
Wild Oats Marketplace Organic Cinnamon Applesauce Cups (24 oz) $1.98 $2.78 29%
Wild Oats Marketplace Organic Tomato Sauce (15 oz) $0.88 $1.38 36%

The reason for Wal-Mart’s push into the organic foods space seems pretty straightforward. Grocery sales have been lagging at the massive retailer, and one of the reasons why is because of a slow but fairly broad-based shift in consumer interest. More and more people want access to organic food. Organic food, though, usually commands a premium price — a phenomenon that companies like Whole Foods Market and Sprouts Farmers Markets have capitalized on.

But with the introduction of discount-price organic food, Wal-Mart has narrowed the moat around the organic food industry. Shares of Sprouts Farmers Market were off as much as 4 percent on the news, and Whole Foods stock was off about 3 percent.

More From Wall St. Cheat Sheet: