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WAL-MART EYES ORGANIC FOODS

Starting this summer, there will be a lot more organic food on supermarket shelves, and it should cost a lot less.

Michelle Philips and her daughter Madison at a Wal-Mart in Plano, Tex. Wal-Mart has decided that organic food will helpmodernize its image.

Wal-Mart has asked suppliers to help it offer more organic food.

Most of the nation's major food producers are hard at work developing organic versions of their best-selling products, likeKellogg's Rice Krispies and Kraft's macaroni and cheese.

Why the sudden activity? In large part because Wal-Mart wants to sell more organic food and because of its size andpower, Wal-Mart usually gets what it wants.

As the nation's largest grocery retailer, Wal-Mart has decided that offering more organic food will help modernize its image andbroaden its appeal to urban and other upscale consumers. It has asked its large suppliers to help.

Wal-Mart's interest is expected to change organic food production in substantial ways.

Some organic food advocates applaud the development, saying Wal-Mart's efforts will help expand the amount of land that isfarmed organically and the quantities of organic food available to the public.

But others say the initiative will ultimately hurt organic farmers, will lower standards for the production of organic food and willundercut the environmental benefits of organic farming. And some nutritionists question the health benefits of the new organicproducts. "It's better for the planet, but not from a nutritional standpoint," said Marion Nestle, a professor of nutrition, foodstudies and public health at New York University. "It's a ploy to be able to charge more for junk food."

Shoppers who have been buying organic food in steadily greater quantities consider it healthier and better for the environment.Organic food whether produce, meat or grain must be grown without pesticides, chemical fertilizers and antibiotics.Then, before it is sold, the food cannot be treated with artificial preservatives, flavors or colors, among other things.

When Wal-Mart sells organic food on a much broader scale, it will have to meet the same Agriculture Departmentrequirements. But nutritionists say the health benefits of many of these new offerings are negligible.

Wal-Mart says it wants to democratize organic food, making products affordable for those who are reluctant to pay premiumsof 20 percent to 30 percent. At a recent conference, its chief marketing officer, John Fleming, said the company intended to sellorganic products for just 10 percent more than their conventional equivalents.

Food industry analysts say that with its 2,000 supercenters and lower prices, Wal-Mart could soon be the nation's largest sellerof organic products, surpassing Whole Foods. Already, it is the biggest seller of organic milk.

While organic food is still just 2.4 percent of the overall food industry, it has been growing at least 15 percent a year for the last10 years. Currently valued at $14 billion, the organic food business is expected to increase to $23 billion over the next threeyears, though that figure could rise further with Wal-Mart's push.

Harvey Hartman, president of the Hartman Group, a consulting firm in Seattle that is working with Wal-Mart on its organicfood initiatives, asserted: "What Wal-Mart has done is legitimized the market. All these companies who thought organics was aniche product now realize that it has an opportunity to become a big business."

Kellogg and Kraft say they began working on organic Rice Krispies and organic macaroni and cheese before havingconversations with Wal-Mart. But David Mackay, chief operating officer at Kellogg, says it was helpful knowing that a bigcustomer like Wal-Mart was enthusiastic about the product.

In July, Kellogg is planning to introduce organic Raisin Bran and organic Frosted Mini Wheats, with packages featuring theword 'organic' at the top in giant letters.

Other food companies say they are working on products at Wal-Mart's direction. General Mills and Pepsi say they plan tointroduce new organic versions of some of their well-known brands late in 2006. These products are expected to appear inWal-Mart first and then at other major retailers.

Officials at General Mills, the producer of Cheerios, Yoplait yogurt and Green Giant vegetables, among other things, and atPepsiCo, which owns the Tropicana and Quaker brands, declined to identify those products.

DeDe Priest, senior vice president for dry groceries at Wal-Mart, said the company had been urging food suppliers for the lastyear to embrace organic foods. At a recent conference in Rogers, Ark., near the company's headquarters in Bentonville, shesaid, "Once we let the companies know we were serious about this and that they needed to take it seriously, they moved prettyfast."

Bruce Peterson, head of perishable food at Wal-Mart, said that it aimed to change the way people think about the retailer.

"Consumers that gravitate to organic products don't always think of Wal-Mart as a top-of-mind destination to pick up thoseproducts," Mr. Peterson said. "We want to let customers know, 'Hey, we're in that business.' "

The strategy of working with food makers to tie in organic products with well-known brands represents a departure from theapproach many of Wal-Mart's competitors are taking. Safeway, Kroger and SuperValu, which is set to acquire Albertsons,have private label organic lines with names like Nature's Best and O that they sell at prices below those of brand organicproducts.

Mr. Peterson said he thought that Wal-Mart's method would be more effective in appealing to customers becauseit relies on powerful brand names that have million of dollars in advertising backing them up.

Food industry analysts say Wal-Mart, with its 2,000 supercenters, could soon become the nation's largest seller oforganic products.

But Wal-Mart's new push worries Ronnie Cummins, national director of the Organic Consumers Association, anadvocacy group that lobbies for strict standards and the preservation of small organic farms. He said Wal-Mart didnot care about the principles behind organic agriculture and would ultimately drive down prices and squeezeorganic farmers.

"This model of one size fits all and lowest prices possible doesn't work in organic," Mr. Cummins said. "Theirbusiness model is going to wreck organic the way it's wrecking retail stores, driving out all competitors."

Part of the problem, Mr. Cummins said, is that Wal-Mart is making a push into organics at a time there is alreadyheavy demand and not enough supply.

"They're going to end up outsourcing from overseas and places like China," he said, " where you've got verydubious organic standards and labor conditions that are contrary to what any organic consumer would considerequitable."

Currently, some 10 percent of the organic food consumed in the United States is imported, according to theAgriculture Department. Kelly Strzelecki, an agricultural economist there, said she expected that share toincrease.

Mr. Peterson, the Wal-Mart executive, says Wal-Mart is not now getting any of its organic products fromoverseas, but cannot predict if that will change. And he says Wal-Mart does not pay organic farmers less thanothers do, in part because the demand is so high. He said the lower prices offered to consumers were madepossible by Wal-Mart's enormous volume and by having efficient distribution and inventory systems.

Some organic food advocates also fear that large-scale organic farming will not use the crop-rotation practices ofthe small farms, hurting the fields and reducing the health benefits of organic food.

Mr. Peterson's view of organic agriculture is markedly different from many of those involved in the field.

"Organic agriculture is just another method of agriculture not better, not worse," he said. "This is like any othermerchandising scheme we have, which is providing customers what they want. For those customers looking for anorganic alternative in things like Rice Krispies, we now have an alternative for them."

Organic agriculture arose in the 1970's as a reaction to large-scale farms that confined animals and the increaseduse of pesticides and chemical fertilizers on crops. Many advocates of organic produce consider conventionalagriculture to be harmful to the environment and to human health.

But Wal-Mart and some large food manufacturers are careful not to position their organic versions as superior tothe original. "We have no intent to send a message that the standard Rice Krispies are somehow not greatbrands," Mr. Mackay of Kellogg said.

Organic Rice Krispies are made with cane juice instead of high-fructose corn syrup and without the artificialpreservative BHT.

Mr. Hartman, the Seattle consultant, said organic now means different things to different people. "It's amultifaceted symbol representing everything from quality to health to ideology, and everything in between," hesaid. "It's something that lets people feel even better about their choices."

With processed products like organic Rice Krispies and organic macaroni and cheese soon to appear on storeshelves, the organic movement seems to be fitting itself more into the wide variety of food available to Americans.

"People want you to offer them organic and natural," said David Driscoll, a food analyst at Citigroup. "Butsometimes, they just want to eat a Pop-Tart."

Written by: Melanie Warner, New York Times

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