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A Solution For Wal-Mart’s Organic Woes

Jim Prevor’s Perishable Pundit, June 14, 2007

With Whole Foods now open in London, it can make Americans think about the prospects for the organic industry in the United States. Business Week ran an interesting article entitled Organics: A Poor Harvest for Wal-Mart that told an interesting anecdote:

Last fall, Peter Ricker got an order from Wal-Mart Stores for organic apples that was the biggest he had ever seen. “I’m talking trailer truckloads,” says the 34-year-old, eighth-generation apple farmer in Maine. Ricker had heard of the giant retailer’s push into organics, and he thought the order could be the beginning of a surge in demand. But that wasn’t the case. While most retailers place orders with Ricker Hill Orchards once a week, Wal-Mart never came back…

Farmers like Ricker are now dealing with the fallout from Wal-Mart’s faltering demand. He has decided to pare back his organic apple farm, from 150 acres to 120 acres. He says organics are just tough to grow. Without pesticides, insects and disease attack his McIntosh, Gala, and Honeycrisp apples. Production per acre dropped about 30% when he switched from regular farming methods 10 years ago. Now he plans to switch back. “The grocery stores want the perfect, blemish-free apple,” he says, “and that’s difficult to produce.”

The story is intriguing but also makes no sense at all. We never had the pleasure of meeting Peter Ricker, but the spin that Business Week put on this anecdote — that Ricker had to switch back to conventional production because Wal-Mart didn’t come through with orders — makes no sense.

We are in the midst of a high demand period for both organics and locally grown, and the fact that Wal-Mart ever found Ricker is evidence of the lengths it has gone to in order to get organics. With very few supercenters in New England, Wal-Mart is one of the least logical buyers for this product.

Business Week didn’t know enough about the business to ask him why Hannaford, which as we profiled in Hannaford Becomes first Organic-Certified Mainstream Retailer, didn’t pick up the slack, or Whole Foods, which not only opened a store directly behind Hannaford’s flagship in Portland, Maine, but whose London store opening was facilitated by David Doctorow who came to Whole Foods as a result of its acquisition of a Boston area chain, Bread & Circus. Where were Stop & Shop and Shaws?

For that matter, who did Ricker sell the apples to the year before that he could just take an order that was “the biggest he’d ever seen” without leaving his longtime customers in a lurch? The whole thing doesn’t make sense.

Which is a shame because by pointing to Ricker’s turnaway from organics and connecting it to Wal-Mart’s pullback from organics, the Business Week article seems to imply that there will be a decline in organic production — which is not true.

In all probability, Ricker’s pullback from organic production is a function of the great difficulty east coast apple growers have had, in a horticultural sense, with producing organic apples. It is one reason eastern apple growers have been promoting locally grown so hard, trying to play their environmental advantage over their western competitors who seem able to grow certified organic product more easily.

In Pundit sister publication PRODUCE BUSINESS, the Pundit wrote a piece entitled Wal-Mart’s Organic Woes that defined Wal-Mart’s organic woes more clearly:

First, it threw out Sam Walton’s rulebook of trying to please the customer and sell what they wanted to buy. Instead it approached the issue of organics as a geo-political issue, and top Wal-Mart executives felt the need to push organics into the stores as part of its sustainability initiative. This was driven not by customers demanding sustainable practices but by political concerns, such as anti-Wal-Mart legislation and difficulty getting site approvals for new stores.

This transformed what should have been a “Store of the Community” initiative, in which organic products were added to serve the purchasing desires of customers in certain neighborhoods, into an effort in which Wal-Mart was attempting to “push” product into the market baskets of consumers who often were indifferent to organics and unable to see the benefits of such purchases.

Second, at the highest levels, Wal-Mart executives forgot that Wal-Mart, with its extraordinary reach, cannot just do every nifty thing. It can only do those things that are scaleable. And organic agriculture, living under the tyranny of an iron-clad three-year transitional requirement before conventionally farmed land can be certified organic, is practically the least scaleable thing in agriculture. If Wal-Mart wants more Tickle Me Elmo dolls quickly and wants them bad enough, it can have its suppliers run three shifts a day and fly them on planes rather than ships, etc.

But for all its might and all its money, Wal-Mart can barely influence the amount of certified organic apples available this fall because that quantity is based on decisions made three years ago. Add to this that many organic growers feel culturally alienated from Wal-Mart and are uncertain of “Wal-Mart’s commitment to organics — which means they are unlikely to simply abandon long time users because Wal-Mart comes to town — and it is instantly obvious that it would be impossible for Wal-Mart to procure enough organic fresh produce to fulfill the hype.

In fact so many organic producers are so small and seasonal that Wal-Mart’s buyers were spending wildly disproportionate amounts of time attempting to track down tiny bits of supply to fulfill the announced plans.

Which brings us to the third problem: a PR machine that simply went out of control.

Because it was a message they enjoyed talking about and because the whole purpose of the organic initiative was to enhance public relations, it was portrayed as if Wal-Mart was going to make a major commitment to organic and become an organic leader. Four hundred organic SKUs were talked of and all would be priced within 10 percent of conventional items.

Call it the arrogance of a big company. At the top corporate level, executives were used to thinking they could tell suppliers to jump and the suppliers would ask “how high?” The plan became detached from any tie to the difficulties on the ground of executing such a strategy.

Despite the many problems Wal-Mart has experienced with its organic initiative, the word is that Lee Scott, Wal-Mart’s CEO, still thinks a focus on organics is important as a way of positioning Wal-Mart as environmentally friendly.

If that is his motivation, then there is a major opportunity for Wal-Mart.

Wal-Mart can’t be a major player in organics because there is not enough organic product in the world to account for a significant portion of Wal-Mart’s sales.

We would estimate that less than 25% of the food sold at Whole Foods is organic — Whole Foods is a relatively small chain that actively seeks organic product.

For Wal-Mart, organic food is, at best, a “store of the community” initiative in which a few stores in appropriate neighborhoods will get stocked.

What is the opportunity? Well take a look at the ad of one of our Pundit advertisers, Stemilt, on the side of this page. Note that one of the things Stemilt is promoting is a line called Artisan Naturals which is billed as “Stemilt’s new transitional fruit program.” We discussed this in a piece entitled What If We Only Had Organic Fruit?

Every retailer is pushing organics now. What if Lee Scott went on television and explained to the American people that for farmers to convert to organic, they need to transition their land for three years and that most farmers being in a netherworld of not getting the yield of conventional growing, but not getting the price of organic growing, just can’t afford to make the leap.

What if Lee Scott said that Wal-Mart was going to take the lead in helping America support farmers in their transition to organics by promoting the country’s largest transitional fruit and vegetable program?

It would place Wal-Mart in a position of environmental leadership that Tesco would like to seize and would give Wal-Mart an opportunity to raise awareness among its own shoppers on this whole issue.

Because Wal-Mart could work with its existing suppliers, we wouldn’t have the food safety worries that can come with fragmented production.

Instead of being just another retailer doing the same thing everyone else is doing — pushing organics — Wal-Mart would be positioning itself as both a friend of the farmer and one really helping to move society on environmental issues.

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