Organic in the Big Box:
Going from Niche Market to Mass Market

By Kathryn Schuett

Before last summer “Wal-Mart” and “organic” were not often heard in the same sentence. But since the retail empire made the announcement that they wanted to be a major player in organic, that is all the industry seems to be talking about. Some are excited and see this as a chance to not only increase awareness for organic, but also a way to increase revenue. For others in the organic industry, the idea of bigger is not always better and they worry that organic values will be reduced to nothing more than another marketing campaign. Then there are some who have jumped in and are still waiting for the boom of sales that was so anticipated. Surrounding these thoughts are a thousand other questions, concerns and of course, opinions.

The truth is that Wal-Mart has been one of the top sellers of organic milk for quite a while. And not only that, they recently became the largest buyer of organic cotton, purchasing over 6,800 metric tons in 2006 alone. That is more than the entire global organic cotton industry produced just five years ago.

Organic is mainstreaming more everyday. In addition to Wal-Mart, SuperTarget has recently undergone organic certification. Target, Costco, Safeway and others have even gone so far to lauch their own organic private labels. According to the Organic Trade Association’s “2006 Manufacturers Survey,” these type of mass market stores already represent close to half of the total organic food volume sold and that number is likely to continue to grow.

Each type of retail outlet serves different purposes within the spectrum of organic. And, while big box stores such as Wal-Mart may not run their business by the same philosophies as natural food stores, there is no arguing with the fact that the world’s largest grocery retailer, which represents 20 to 30 percent of grocery sales nationwide, meets a certain need for many people.

“Wal-Mart works to bring desired goods to underserved areas at the lowest prices possible. It works this way with organic products and everything else,” said Charles Fishman, author of national bestseller, The Wal-Mart Effect, and senior editor at Fast Company magazine. “64 percent of Americans are within five miles of a Wal-Mart and 94 percent are within only 15 miles. This means that almost all of the U.S. population will now have organic products within 15 minutes from their house. This kind of reach is amazing.”

According The Hartman Group’s “2006 Organic Report,” over 64 percent of mid-level organic consumers don’t feel like there is organic food available where they do the rest of their grocery shopping. National retailer chains such as Wal-Mart have the opportunity to change this and help organic reach a much higher volume of people than ever before.

Cedarlane Farms, whose “made with organic” products are being sold in Wal-Marts across the country, has had a strong response. “Since we started selling in Wal-Mart, we’ve been getting letters that sound more like fan mail, with people expressing how thankful they are to have organic available close to home,” said Brian Gansmann, Cedarlane’s marketing director. “One customer, for instance, said that she used to have to drive 100 miles to the closest city to get organic. We get letters like this everyday.”

Beside’s making organic more available, many say that Wal-Mart—or any big box chain—getting involved is a chance to educate a new group of people about organic ideals. The demand brought on by these mass markets will also result in more acres of land being farmed organically. “With their size, they have the power to do a lot of good and they are trying. We should be constantly feeding them opportunities to get more involved. If Wal-Mart takes a stand on something positive like not allowing GMO products in their store or protecting the environment, then they could be a huge catalyst for change,” said Theresa Marquez, chief marketing executive at Organic Valley Dairy.

Wal-Mart has already developed a sustainability program which includes encouraging suppliers to use less packaging and launching “green” pilot stores that are testing the use of wind and solar power. Who knows what could come next if they continue down this path?

Wal-Mart: The Final Frontier of Mainstreaming
While Wal-Mart’s presence in the organic market has potential, it may take a while to get there. It’s the belief of many of those in the industry that the Wal-Mart consumer is just not ready for organic. Sales for some companies have backed up this belief. While milk may do really well, many other products are sitting on the shelf much longer than anyone would like. Even though Wal-Mart has recently become the largest purchaser of organic cotton, will they also become the largest seller, or will the price difference between organic and conventional leave organic cotton hung out to dry?

The biggest question is that with prices that are oftentimes quite higher than Wal-Mart’s traditional offerings, will the value of organic ever really resonate with the price-driven consumer?

This was the same question that was asked when organic made its first push into conventional mainstream grocery stores back in the mid-nineties.

“We’re running into many of the same challenges we did when we first started going into conventional stores,” said Jeff Davis, national sales director for Nature’s Path. “The consumer doesn’t really understand the value of organic. The main difference is that Wal-Mart wants to be involved with organic this time. In the early days, the conventional grocery stores didn’t understand organic and didn’t want it. At that time we had to educate the buyer as well as the consumer.”

But who is the Wal-Mart consumer? Nature’s Path, who currently has three SKUs in Wal-Mart, is launching five focus groups, at a cost of $10,000 each, to try and learn more about what Wal-Mart consumers want. The company formulated certain products such as their Optimum line to go into other conventional stores and these products are doing well in most supermarkets. Wal-Mart customers, however, seem to differ quite a bit even from the typical conventional shopper and may require a different approach, Davis commented.

When it comes to awareness and acceptance of organic, Wal-Mart shoppers may be at the low end of the spectrum, but just 10 years ago, many people were saying the same thing about conventional grocery shoppers in general. Today, many of those who didn’t understand the value of organic years ago now embrace it. Who can say what will happen in 10 more years?

Many say that this all comes down to education and that Wal-Mart really needs to advertise and communicate the value of organic to consumers. If suppliers joined this effort in full force it might be the push it takes to break through the walls of the Wal-Mart customer.

Will Lower Prices Cost Us Too Much?
Besides the consumer connection, there is the concern Wal-Mart’s price-driven market positioning and history of pressuring suppliers to cut costs, may in turn affect the quality of organic products. When the retailer said they were going to offer organic at only a 10 percent premium, it caused quite a stir because many of those in organic know that the cost of production alone is often much higher.

But experts say not to worry. If retailers compromise the integrity of organic, they also compromise the marketing message, and then they have nothing. Plus, right now it’s a supplier’s market, said George Kalogridis a principal of Organic Partners International consulting group.

“With the limited supply of organic ingredients, Wal-Mart and other retailers have actually been paying up or offering long term contracts to assure themselves of supplies,” he said. “Will prices come down in the future? I’m sure, but organic prices have come down dramatically from 10 years ago due to economies of scale not only in processing but distribution, and Wal-Mart is a leader in this area. In the meantime, if Wal-Mart is willing to take a loss to build the category of organic it won’t have much effect on their bottom line.”

Wal-Mart also says that they are committed to supporting the standards and that their goal is simply to offer the best prices comparable to other retailers, and not to drive down organic prices overall. “Our pricing strategy is not to set a spread or create a link between prices of organic products and corresponding non-organic products. It is, rather, to offer the best price in the marketplace on each product,” said Jami Arms, media manager for Wal-Mart.

But Fishman says that you can’t be naive and that organic companies should be careful when entering into business with any bigger companies.

“Wal-Mart changes every industry it enters, sometimes in a good way, sometimes in not so good ways. It will probably make organic more efficient, but efficiency and low prices are only two values, and not always the most important, compared to the quality of the food produced, or the manner in which it is made, and what impact raising the food has. We should hope that Wal-Mart understands that, and doesn’t lose sight of it. But in the end, it’s the job of the producers, first, to preserve those values, and to keep explaining them not just to big-box retailers, but to consumers as well.”

From Natural Markets to National Distribution
“It’s all a continuum. Natural and independent retailers are known for being launching grounds for unique products. Their role is to be the editor and bring to market the coolest, highest quality and best tasting products,” said Jay Jacobowitz, president of Retail Insights, a consulting service for natural product retailers. “The ones that become the superstars in a natural foods store get noticed by the bigger guys and go national. It’s the natural progression for many products to go mainstream.”

Of course, there are some products that should not go into mass market for some reason or another. “For some, their success may bring them to a strategic crossroads,” said Jacobowitz. “When there is an opportunity to double your sales practically overnight, it’s hard to say no, but for some products it may not be the right choice.” Items that require hard to source ingredients or use special techniques that can only be done in small volume processing are some examples of this. Jacobowitz has known of many products that in going mass market have ended up having to switch to lower quality ingredients—such as going from pure organic cane sugar to high fructose corn syrup—to keep up with demand or other pressures from retailers or stakeholders. “It’s a dance between quality and conscience,” he said.

Organic Valley faced a similar crossroads when they had to make a decision to either try to supply milk to Wal-Mart or to continue to supply natural foods stores. There was not enough supply for both. “We chose to continue to support the natural food stores that have supported us as we have grown. That was important to us,” said Marquez.

Big Things to Remember When Working with the Big Boys
For those who want to make the jump into the big box, there are many things to think about.

Understand your market. “Many consumers go into natural food stores and supermarkets seeking different experiences. At a natural foods store, they take their time and see it as kind of a treasure hunt. At a supermarket it’s all about getting the basic products and price shopping,” said Laurie Demeritt, COO and president of The Hartman Group.

“Working with Hy-Vee, the major grocery chain in the Midwest, we knew we had to focus on the lowest priced, basic products,” said Wende Elliot, founder of Wholesome Harvest, an organic meat processor. “Our organic lamb does really well with the foodie types, but with the conventional stores we focus on things like hot dogs and chicken nuggets. We don’t even try to sell our organic steak in these markets because we know the price point wouldn’t work, but that’s fine because specialty items that cost a little more like this go over great in natural food stores.”

This trend carries over into organic clothing. Earlier this year, Levi’s launched their new “Eco” organic jeans that go for as much as $245 at specialty boutique shops and their signature stores. By fall of 2007, they plan to extend their distribution of more basic styles in the $65 to $68 range to retail department stores throughout the United States.

While these may sell at a department store, many think that a price-driven Wal-Mart shopper understanding and caring about the environmental effects of cotton might be just too big of a jump. “Big box is price driven and our products are driven by core values,” said Doug Wilson, vice president of sales for Maggie’s Cotton. “Even if Wal-Mart tried to educate people about our product they’d probably say, ‘thanks for the education, but I’d rather save my $10.’ Then they’d go and buy the conventional version.”

Find the right partner. “We want to work with people who appreciate the social and environmental values behind the product and these seem to be better understood in natural or progressive conventional markets,” said Wilson. He said that along with natural products stores, Maggie’s products are being sold in Safeway, Wegmans and H-E-B.

Not only does there need to be corporate support, but even more important is having a buyer at the store level who understands your mission. “Oftentimes someone is being told by their boss in the corner office that they need to get more organic foods in their department but they don’t really understand the category,” said Stephen McDonnell, president of Applegate Farms, whose meat products are sold throughout many conventional stores including Wal-Mart. “Look for a purchaser who really believes in the trend, who is eating organic and has the commitment. They’ll give it the effort and commitment to make it successful like better employee trainings, more attention to merchandising and running more promotional materials.”

Then after you find a partner, find a few more. “It is important to have diverse markets otherwise if you lose that one major market, then you are dead. Just as in agriculture, you don’t want to be too dependent on one partner,” said Bob Anderson, president of Sustainable Strategies Consulting. “I know of a company that only offered their major retailers a portion of their product line. This way the volume didn’t get so large that one retailer could dictate price or have too much control.”

Start slow. When you introduce product to any new retailer, don’t be rushed. “Sometimes conventional retailers get a little too aggressive with their rollout plan. Their preference is to hit one button and light up all their stores, but the phase-in rollout is much more successful in the long run,” said McDonnell. “Get them to index their best stores and start there. Organic products don’t turn as fast as commercial so they have to adjust.”

Local purchasing programs also offer a great way to start small within a big box. This can often be done by approaching the local store manager and pitching your product. Even Wal-Mart works this way. “If it sells well in one store then other stores will pick it up, and maybe corporate will pick it up nationally,” said Denny Ahan, assistant manager at the Wal-Mart Neighborhood Market in Mesa, Ariz. “That is how a lot of products get started with Wal-Mart.”

Looking at stores that purchase regionally is another way to build your market without overloading yourself. There are many regional distributors and some retailers, such as Whole Foods, are actually divided into 10- and 20-store regions, with each responsible for its own supply chain.

Test it out. “I think organic suppliers need to encourage the big box stores to always do a test. Set the parameters for what makes the test successful and then roll it out in a strategic way to more and more stores,” said Graham Mitchell, who before starting his consultancy, Sustainable Innovations Inc., developed an organic program for Ahold, one of the Northeast’s largest conventional grocery chains.

“Find out where products should be located within the store and how your customers react to the assortment. Can they find it? How does it compare to other brands? The big boxes are probably not used to doing this kind of preliminary research test, but they better get used to doing it. The ones that really know their customer and anticipate their needs can launch a successful concept,” he said.

Make a Plan. After a few trials, make a plan. “It’s important to really understand the retailer’s expectations including how much they are looking to sell and what margins they want for both for regular sales as well as promotions,” said Mitchell. He also says to discuss when you’ll be on incremental display, the expected average category velocity and where you’ll be in the the shelf layout.

Marketing and distribution are also key areas to plan. Make sure that your product and your marketing dollars are being put into programs that will build your brand and locations shown to be receptive to your category of product.

Retailers often want to see a plan for growth as well. “Organics launched in the right market can do very well, but oftentimes when they do well, they are not prepared for the next step; there is no plan to scale up. If a product does well the retailer is not going to want to be restricted to one local market,” said Mitchell.

He suggests suppliers think about having warehouses at locations across the country to keep product closer to key retailer, or even having a supply agreement with someone who can make your product in other regions. Besides rolling out to other stores, suppliers should also think about what other new categories they could branch out into and how to make their brand a key brand for that retailer; for example, going from cereal to bars to ready-made meals.

Ensure strategic placement. With organic, placement is especially important. Over half of supermarket shoppers prefer to have organic products integrated throughout the store so they can comparison shop and easily find products where they are used to looking. However, consumers who prefer “store in store” merchandising find that it’s more convenient and saves time because they can purchase all their organic in one section. “To be successful the retailer must balance shopping preferences by category for their most loyal and valuable customers,” Mitchell said.

As the founder of Walnut Acres, one of the first nationally distributed organic lines, Anderson of Sustainable Strategies said one important step in making sure his product was launched successfully was to negotiate endcaps with retailers. “I’d give discounts on the first set and then it was the responsibility of my product to keep the space,” he said. He found that just by being on an endcap, he would have 50 to 125 percent more sales, and then once the brand identity was established he’d shift to inline placement.

Forecast. Another part of planning is making an educated guess as to how much supply is going to be needed to meet demand, or “forecasting.” Retailers don’t want to run out of product and lose possible revenue, but they also don’t want to have a product taking up valuable shelf space for too long. Many companies, such as Cedarlane Farms, have a full time staff person just to forecast. Working with Wal-Mart, Cedarlane was also able to incorporate the retailer’s proprietary program “Retail Link,” allowing them to access minute-by-minute sales data to make better predictions. Check with your retailer to see what information they might have to aid you in forecasting.

Educate. Although many of the orginal organic consumers came around to organic enlightenment on their own or through word of mouth, in order to get through to this next level of conventional-minded consumers, processors need to work with retailers to get the word out.

Get involved with special promotions surrounding Earth Day, or healthy eating. Get out to the stores and demo your product as much as possible, creating an attention-grabbing presence and giving the consumer the chance to taste and learn about organic.
Part of leading a revolution is not just making a change, but telling the world about it. The big box market can be a stage to tell the organic story.

Kathryn Schuett is the editor of Organic Processing Magazine. She can be reached at kat@organicprocessing.com.