Dive Brief:
- Wal-Mart's Wild Oats organic food brand will gradually disappear from store shelves in the coming months, people familiar with the matter told The Wall Street Journal.
- Wal-Mart debuted the Wild Oats line two years ago as an option for value-priced organic products that more consumers could afford.
- The retailer hasn't abandoned organic foods altogether. It instead plans to sell more fresh produce and integrate organic options into its own private-label store brand, Great Value, these people told WSJ.
Dive Insight:
Organic private-label brands are an increasingly common tactic for retailers to target health-conscious consumers. They are threatening sales of organic food producers by undercutting prices.
Wild Oats was positioned at prices about 25% lower than national brands, with some staple products priced as low as nonorganic brands, The Wall Street Journal reported. Even online retailers like Thrive have begun launching their own lower-priced private-label natural and organic products, which means manufacturers feel pressure with e-commerce too.
Private-label organics may not be as devastating to producers' sales as once thought. The organic supply chain is more limited and complex than for nonorganic products, and manufacturers often have the upper hand. Also, production costs tend to be higher, which could make organic products not profitable enough for retailers to pursue on the lower-priced private-label level.
Lower-cost organics sold under retailers' own brands could be troublesome, but manufacturers are often still better positioned within supply chains to innovate. This enables manufacturers to bring new organic products to market more quickly while staying on top or ahead of health, flavor, and packaging trends in the industry.
In terms of pricing, manufacturers can compete in two ways. They can match or beat the pricing by cutting costs throughout the supply chain to maintain profitability or by generating less profit on those items to encourage customer loyalty that spreads to other products from that brand or company. Or, they can position products in a way that encourages consumers to ignore the higher price tag in lieu of the benefits.