The Future of Organic Sales at WalMart, Safeway, Publixand Walgreen’s

Sales of organic foods have grown from 3.6 billion dollars in 1997 to over 24.8 billion in 2009 according to the USDA. Much of this is due to big retailers like WalMart, Safeway, Publix, and even Walgreen’s getting in on the organic act.  But how profitable has that rise in sales really been, and is the trend here to stay?

There’s no doubt that the big retailers got into the organic market due to pressure from fast growing chains like Whole Foods and Trader Joe’s. Branding and organized expansion got the attention of industry leaders. The small independents that made for most organic sales until the early 1990’s were never perceived as a threat, explaining the big stores late entry into the category.

Now with more than half of organic sales coming from the large retailers we can begin to get a picture of the profitability and sustainability of this specialty market.  While rife with false starts and market misinterpretations, the leaders have made their mark.

Back in 2006 when WalMart began carrying organic offerings in it’s stores nationwide, the other big grocery retailers held back.  This proved to be a prudent move. Within a year WalMart announced that it was ending it’s nationwide program due to disappointing sales, opting to give local managers discretion in stocking of organics. This resulted in most products completely disappearing from WalMart shelves, it seemed that WalMart’s price conscious base wasn’t willing to pay a premium for products perceived as healthier.

Some thought this would be the end of organic products for major food retailers, but WalMart, and all the others, learned from experience, and market research.

WalMart Organic Food Sales

While WalMart currently holds 54% of the organics market, and is recognized as the leader in local farm produce sales nationwide, it’s program may not be the most profitable of the giant retailers.  Unable to move away from it’s long held market position as the price leader has forced down mark-ups and focused concentration on quantity.

Intense scrutiny by market watchdog groups has also contributed to problems with consumer trust. Combined with what seems to be a reluctance to aggressively market these products, WalMart may be holding itself back in the quest for profitability.

Safeway Organic Sales

While less aggressive than WalMart in the local produce sector, Safeway has done more to expand organic sales in the grocery category. Private labeling and full sections of many stores dedicated exclusively to organics have brought moderate success.

Older locations in areas where consumers are less educated, and therefore somewhat less likely to purchase organics, has limited growth. Safeway has taken some measure to correct this by downsizing departments in some areas while expanding selection in others.

Publix Organic Sales

Smaller and more maneuverable entities like Publix have taken to a overall marketing approach which includes almost all store categories and private labeling. Given great control over all aspects of production and marketing in it’s GreenWise line, Publix has found profitability.

Expansion of the private label and fresh offerings may be a different story.  Publix seems to be taking a conservative approach, growth in the category may very much depend on then growth of the economy in general.

Walgreen’s Organic Sales

While not a traditional food retailer, Walgreen’s has expanded into many categories that were the exclusive ground of grocery operators in the past, organics included.  Careful location choices and rebranding as more than just a drug store has opened up potential for marketing organics in the health and beauty aids category.

While not particularly focused on organics, Walgreen’s distribution system has made it possible to offer an organic choice in almost all of their personal care products. Continued expansion of these lines would look to Walgreen’s finding these profitable.

Overall Organic Sales

While the future may be bright for an overall expansion of buyers in the organic category, especially if economic recovery takes hold, the future of profits are uncertain. Less than ideal delivery systems, shorter self lives, and even weather conditions play a large part in the profitability of organics for any retailer.  All of these factors are amplified for the largest retailers.

There is no doubt that industry sales leaders will continue to handle organic products, but it may be viewed as more community service than profit machine by the bean counters.

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When I came into work last Monday and glanced at the individual pastry rack I was mortified.  You know we all have that section up by the cash register with the cheapy honey buns and so-called cheese danishes made to attract the eye of our immediately hungary and less than health concerned customers.  We refer to this section as the calorie credenza at my store, if you check the labels on these things you’ll know why.  Trust me they aren’t going to have any Weight Watchers points printed on them any time soon.  

But I digress..

The thing was that my calorie credenza had gained wight of it’s own over the weekend.  The rack was completely crammed.  A quick count revealed there were (seriously) 3000 individually packaged danishes, cake rolls, and honey buns on a four foot shelf.  When I questioned a checker that had worked the day before I was told that The Old Man had decided since these were an impulse item, every one of them needed to go out.  Now this is a small town and there was a sugary delight for every single man, woman, child, and mostof the stray cats in my little burg on that shelf.  We do a good business here, but I had my doubts every citizen would wake this morning with a hankering for the empty fat and calories that only a 2 for a dollar danish can provide.  And as prone as those things are to mold, I was certain that they wouldn’t hold up long enough to satisfy that need even if it happened over the next week.  

I had visions of my towns people in a zombie like state shuffling slowly when arms outstretched into my store moaning, ‘Honey buns, honey buns, honey buns”, but dismissed them as wishful thinking.  That’s the kind of impulse buying that hardly ever happens in a small town, no matter what they tell you.

So the checker and I packed up about thre-quarters of the sweet delights and boxed them neatly.  It wasn’t until I retuned them to the freezer that the trouble started….

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