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Geetanjali Gamel
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I am an individual, self-taught investor with a Masters in Economics. I like playing with data and mostly focus on finding companies that are undervalued and provide good opportunities for investment, but at times will also look into high growth companies with compelling stories despite their... More
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  • Going Organic 3 comments
    Apr 21, 2014 12:50 AM | about stocks: WMT

    Walmart recently announced that it was partnering with Wild Oats to sell organic foods in their stores at prices 25% below other organic food brands. If successful this could be a game changer in the organic foods world, typically understood to be a niche market for a premium paying customer. In this regard Walmart has a potential goldmine of untapped customers who shop on a budget and have been keeping away from organic foods due to the cost factor.

    The opportunity that lies open before Walmart is a market that currently makes up about 4% of total grocery sales in the United States and is expected to grow to 5% by 2019. The largest components of these sales are produce and dairy. In the case of dairy, the share of organic to total milk sales ratio in the United States has grown from 1.92 in 2006 to 4.38 by 2013. Interestingly during this period, except for the year 2009, there has been a decline each year in total milk sales while sales of organic milk have been increasing. Since around that time consumers were feeling the direct hit of the Great Recession on their personal finances, it may be possible that it led to a cutback in the purchase of higher priced organic milk. However the fact that every other year the consumption of organic dairy has increasing might suggest that the status of organic foods as "luxury" grocery may be changing. And Walmart could benefit by taking it even further in affordability to a growing number of customers who are willing to try it. In fact Walmart's own survey indicates that 91% of their customers would be willing to buy organic foods if they were available at more reasonable prices.

    But the question is whether the reduction of this price premium by Walmart will pose a threat to the Natural foods stores that have so far been out of reach for a majority of customers. The typical customer who shops at such stores is already willingly paying a higher price not only for their grocery, but also for the ambiance, the healthy cuisine in-store restaurants, and so on. So natural food stores can probably keep this group of customers even if Walmart offers a more competitive price. However, it is the potential "converts" who are not buying organic foods at present but would try it at a more reasonable price that could open up a still largely untapped market with great growth potential.

    Themes: organic food Stocks: WMT
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Comments (3)
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  • Anyoption
    , contributor
    Comments (453) | Send Message
     
    Interesting article. In many aspects, Natural Foods store customers come across to me as similar to Apple customers--VERY brand loyal, even in the face of superior products/prices. Either way, it will be interesting to see what this does for Walmart's revenues in the coming years.
    21 Apr, 10:00 AM Reply Like
  • Geetanjali Gamel
    , contributor
    Comments (35) | Send Message
     
    Author’s reply » thank you for the comment ...Apple is an interesting analogy ... I don't know if Walmart is necessarily competing for market share away from Natural Foods stores, as much as trying to create a new market ..interested to see how this plays out
    22 Apr, 10:51 PM Reply Like
  • Anyoption
    , contributor
    Comments (453) | Send Message
     
    I guess that's true, they've been great at creating new markets in the past, so the strategy just might work again. They're definitely going to need this, though.
    23 Apr, 09:06 AM Reply Like
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