Why Whole Foods isn’t worried by Walmart’s organic initiative

Whole Foods Market might as well declare bankruptcy now judging from widespread media coverage of Walmart’s decision to sell roughly 100 organic dry grocery items under the Wild Oats brand.

Walmart’s own press release said, “Walmart and Wild Oats launch effort to drive down organic food prices.” Others took its step further. The Wall Street Journal said, “expensive organic food beware: Wal-Mart declares a price war.” Marketwatch characterized the announcement as, “Walmart, Wild Oats aim to disrupt the organic food industry.” And Forbes went with, “Watch out Whole Foods? Walmart aims to drive down organic prices with new cheaper line.” The curious choice at Fortune was, “Wal-Mart goes all, like, ‘granola’ on us.”

The last time there was this much hype associated with a food merchandising initiative at Walmart was in early 2006 when the company first expanded its offering of organic items. Had any of the company’s senior food merchants been in their current roles back then they would be experiencing a sense of déjà vu right now. In early 2006, Walmart was just beginning its sustainability push and looking to increase its appeal to a broader range of shoppers. Adding organic items to the fresh department was a good idea and served both objectives. Walmart even supported the initiative with a national ad campaign.

Then, as now, there were several reasons why the hype is unwarranted, especially Fortune’s assertion that Walmart “is making a huge push into Whole Foods’ territory of organic food.” For starters, adding 100 items is not a huge push, especially considering the products are dry grocery items where the organic designation is less of a determinant in product selection than in the fresh area.

Product attributes such as reduced sugar and sodium are important in dry grocery and Walmart is pursuing initiatives on both fronts. Fresh fruits and vegetables is where organic plays a greater role in shoppers’ consideration because they can taste the difference. The same can’t be said of pasta made from organically grown wheat or a can of organic green beans.

Another key challenge facing the Wild Oats launch at Walmart is the brand’s lack of awareness with Walmart shoppers. At its peak in 2007, Wild Oats operated 110 retail stores, but it wasn’t particularly successful. That’s why the company’s stock was trading in the mid-single digits in 2005 and 2006 and Rob Burkle’s Yucaipa Companies was able to acquire an 18% ownership position on the cheap. He profited handsomely in early 2007 when Whole Foods agreed to buy Wild Oats for $18.50 a share in a deal valued at $700 million.

The Wild Oats brands vanished until 2011 when it was revived by Yucaipa because Whole Foods had been forced to divest it earlier to satisfy Federal Trade Commission concerns related to the merger. Once Wild Oats is on store shelves, a considerable marketing effort will be needed to promote awareness, generate trial and drive repeat purchase behavior among Walmart shoppers. Whole Foods customers may shop at Walmart occasionally for hardlines, but most are not going to cross the aisle for food and no amount of marketing of the Wild Oats brand is likely to change that.

For those who are inclined to buy the Wild Oats brand at Walmart, the challenge will be finding the items on store shelves as the 100 items will be part of an extensive assortment.