RETAIL VIEW: Wal-Mart to increase organic offerings
- March 12, 2006
If raw figures weren't enough, a clear signal that organic produce is on the rise is a revelation by the nation's largest retailer that it will be doubling the offerings in its "organic cluster" stores.
Ron McCormick, vice president and divisional merchandise manager for produce and floral for Wal-Mart Stores Inc. in Bentonville, AR, told The Produce News
that in the week following Easter (April 16), the retailer will be significantly increasing the SKUs in its organic produce sections.
Mr. McCormick explained that Wal-Mart internally organizes its stores by clusters, which groups stores with similar demographics, regional preferences or other similarities that deserve marketing attention. For example, one such grouping is called the "Cajun cluster," which includes 15 stores in Louisiana that receive specific products associated with Cajun cooking.
Under the large umbrella of "organic cluster," the Wal-Mart produce executive said that there are about 300 stores that receive the top number of organic items that the retailer stocks. He called these the "top tier" in the organic category and each currently receives approximately 45 SKUs of organic produce. On April 17, that number will expand to between 70 and 100 organic produce SKUs, depending upon the store and the various demographic factors that define it.
As further clarification, Mr. McCormick said that virtually all Wal-Mart supercenters in the country carry 15 organic produce SKUs. These are staple items such as organic red apples and packaged organic Romaine hearts. He said that a few of these items, such as the organic Romaine hearts, might be the only Romaine hearts in the department that day. Because there is price parity between organic Romaine hearts and conventionally grown Romaine hearts, Mr. McCormick said that Wal-Mart will carry the organic SKU satisfying both customers with one SKU.
But typically the base-level organic produce items that Wal-Mart carries are in addition to conventionally grown product of a similar SKU.
One tier up -- medium-level stores -- is another cluster that currently carries about 30 SKUs of organic produce. But it is the top tier that is getting an organic products makeover within all the departments of Wal-Mart.
While Mr. McCormick primarily discussed the produce department with The Produce News
, these stores are expanding their natural and organic food offerings throughout the store, too, he said. In fact, the produce executive noted that the increased organic SKUs in the produce department are directly related to how well organic milk and baby food sold in those stores. Stores with a high index of sales in those two product categories were slated for the across-the-board organic makeover.
He said that in most situations, the makeover will not involve enlarging the space devoted to organics but rather reshuffling space allocation. Because there are more SKUs within the same space, and thus less space devoted to some SKUs than was allocated before, management of the organic department will require more care and probably more attention to restocking.
But Mr. McCormick said that "it is not that difficult and it usually works out fairly well. For example, in a Hispanic-cluster store, we might increase space allocation for jalape?o peppers, but that usually means there is a product bought typically by anglos not doing as well that can have its space allocation decreased."
He said that most of the increases in organic produce SKUs will be expanded SKUs within a category.
For example, the top-tier organic stores already carry an organic russet potato, and the expansion will include the addition of an organic red and an organic white potato. The citrus category will be expanded to include an organic lemon.
Mr. McCormick said that the largest SKU expansion is in the packaged salad category, which will see a handful of organic items added to the mix.
While one might expect that the organic cluster stores would skew toward the coasts rather than the middle of the country, Mr. McCormick said, "Surprisingly, they are geographically diverse. In fact, our top-volume store in organic sales is in South Dakota."
The longtime Wal-Mart produce veteran explained that the South Dakota store is also one of the better total volume stores for Wal-Mart, so it doesn't necessarily mean that there is a secret organic community lurking in the Upper Midwest. But it does mean that consumption of organic products in general -- and organic produce specifically -- continues to grow throughout the country.
To get a handle on current growth patterns, the Organic Trade Association, in conjunction with Nutrition Business Journal, is in the process of launching a new survey on organic retail sales.
"Our last survey was done in 2004 and involved figures from 2003," said Barbara Haumann, senior editor/writer for the association. "That year, the survey revealed that there was $10.38 billion in retail sales in organic products. Using the growth figure that we estimated then of 20.7 percent annually, that would make organic retail sales in the $15 billion range now."
But Ms. Haumann said that those are just projections. The new survey of manufacturers, which will take place this spring, should quantify what the growth has been for the past two years. The 2003 survey estimated retail produce sales at $4.34 billion. Using the 20.7 percent annual growth figure, 2005 sales should come in approach $6.3 billion. However, there is reason to believe that this figure is an underestimation. The methodology used in determining retail sales in the manufacturers survey of 2004 was to take the wholesale prices as reported by the sellers and add a 55 percent mark-up factor.
Other surveys have indicated that produce typically has a much higher markup, meaning the $4.34 billion figure of 2003 could have been substantially higher.
Ms. Haumann said that the association was hoping to have the results of the survey by the time it holds its All Things Organic trade show in early May in conjunction with United Fresh Fruit & Vegetable Association and the Food Marketing Institute annual conventions.
"But the final draft of the questions has just been approved, and I'm not sure we will have the final report before the end of May," she said March 8.