Wednesday, November 15, 2006

Wal-Mart's Organic Difficulties

Wal-Mart (NYSE:WMT) has run afoul for potentially misrepresenting non-organic food as organic. Much skepticism about Wal-Mart’s true commitment to organic and whole foods greeted Wal-Mart’s original announcement that they are embracing the organic food sector. Traditionally Walmart has been very demanding of its suppliers. They frequently have demanded and received substantial product changes. Such was/is their power with traditional consumer goods manufacturers. But the organic food industry has a passion that may match Walmart’s purchasing behaviour. In any event there is now more doubt and skepticism about Walmart’s entry into this food category.

The Cornucopia Institute based in Wisconsin leads this charge. Their announcement reads as follows:

The Cornucopia Institute, the nation's most aggressive organic farming watchdog, has filed a formal legal complaint with the USDA asking them to investigate allegations of illegal "organic" food distribution by Wal-Mart Stores, Inc. Cornucopia has documented cases of nonorganic food products being sold as organic in Wal-Mart's grocery departments.

"We first noticed that Wal-Mart was using in-store signage to misidentify conventional, nonorganic food as organic in their upscale-market test store in Plano, Texas," said Mark Kastel of The Cornucopia Institute. Subsequently, Cornucopia staff visited a number of other Wal-Mart stores in the Midwest and documented similar improprieties in both produce and dairy sections.

Cornucopia notified Wal-Mart's CEO Lee Scott in a letter on Sept. 13, 2006, alerting the company to the problem and asking that it address and correct the situation on an immediate basis. But the same product misrepresentations were again observed weeks later at separate Wal-Mart stores. Fines of up to $10,000 per violation for proven incidents of organic food misrepresentation are provided for in federal organic regulations.

Earlier this year, Wal-Mart announced a sweeping organic foods initiative and declared that they would greatly increase the number of organic offerings for sale in their stores — at dramatically lower prices than the competition. The move by the giant retailer has been under close scrutiny from members of the organic community.

"This is disturbing and a serious problem," Kastel said. "One can question whether Wal-Mart has the management and staff expertise necessary to fully understand organics and the marketing requirements essential to selling organic food. Given their size, market power, and market clout, this is very troubling."

A number of other organic food retailers throughout the country, including Whole Foods Markets and many of the nation's member-owned grocery cooperatives, have gone to the effort to become certified organic in terms of the handling of their products and have invested heavily in staff training.

This past September, The Cornucopia Institute also issued a white paper, "Wal-Mart Rolls Out Organic Products — Market Expansion or Market Delusion?" The report accuses Wal-Mart of cheapening the value of the organic label by sourcing products from industrial-scale factory-farms and Third World countries, such as China."

Wal-Mart does not have this category under control.