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Walmart announced yesterday that it has struck a deal with Yucaipa-owned Wild Oats that will lead to it dramatically expanding its selection of organic packaged products and selling them at prices as much as 25 percent less than brand-name organic competitors, and at about the same price as non-organic products.

“We’re removing the premium associated with organic groceries,” says Jack L. Sinclair, executive vice president of Walmart U.S.’s grocery division.

The New York Times reports this morning that more than 90 percent of the Wild Oats items sold at Walmart will be organic, "while the rest will adhere to company standards about ingredients and additives, a Wild Oats executive said, but not to any government regulations."

The Times writes that "instead of hitting the entire national market at once, Walmart will first introduce Wild Oats at 2,000 stores in the coming months, only half of its national footprint, and then roll it out to the rest of the country." The reason: supply issues.

“What we don’t want to do is launch it in 4,000 stores and then not be able to supply those 4,000 stores in the short term,” Sinclair says. “Certain commodities are challenging in terms of being able to access both the raw material and the processing capacity.”

The announcement comes the same week as Target announced that it plans to expand its selection of organic products. Walmart says that nine out of ten of its shoppers say that they would buy organic products if they were both affordable and available.

The Los Angeles Times this morning reports that "the Wild Oats brand is familiar to many consumers who buy organic. It is the same brand as the chain of stores that Whole Foods acquired in 2007. Now, Wild Oats is relaunching as a line of foods focused on organic items such as tomato sauce, chicken broth and spices, with Wal-Mart as its only national retailer."

Yucaipa Cos., owned and controlled by Ron Burkle (who often is referred to as "the supermarket magnate" for his buying-and-selling of various chains over the years), has owned the Wild Oats brand name, and recently has begun rolling out certain Wild Oats branded items in the Fresh & Easy stores on the west coast that it acquired last year from Tesco.
KC's View:
There are several things going on here.

For one thing, there is speculation that because Walmart is going to create greater demands on the organic supply chain, the short-term impact of this decision will be an increase in organic prices. Which could, I suppose, create an even greater gap between organic prices charged by Walmart and Target and those charged by Whole Foods.

On the retail side, I suspect this is just an opening foray from Yucaipa as it looks for ways to make the Wild Oats brand vibrant and relevant again. I've long believed that the company has plans to grow the retail brand, perhaps by re-branding the Fresh & Easy stores, and perhaps by acquiring and/or re-branding other retailers around the country. It already owns A&P, for example … and maybe the best thing it could do with that brand name is blow the damn thing up and start over under the Wild Oats name.

It is interesting that the Walmart deal, growing the brand name through a distribution model, is getting greater emphasis for the time being than a retail model. But, on the other hand, this can happen a lot faster, and perhaps allows Wild Oats/Yucaipa to gauge the potential. And I'm sure the contract allows Yucaipa to continue retail development on its own timetable.

On both levels, this week's events certainly have gotten the attention of the folks at Whole Foods, not to mention other retailers around the country that have been investing more time and energy in organic products. The premise that such products will become more mainstream when made more affordable is about to be tested on a grand scale … but the various players in the market should not kid themselves that this Walmart-Wild Oats deal is in any way the end game. It is, I suspect, just the opening move in what is likely to be a long-term play.