Wal-Mart to Unveil Cheaper, Healthier Food Options

by Jeff Reeves | January 20, 2011 9:57 am

Wal-Mart Stores Inc. (NYSE: WMT[1]) is looking to prove you can be a big box retailer and still believe in smaller waistlines. And to help it achieve this goal, Wal-Mart is asking the First Lady for help in its campaign.

The company just announced a plan today that will give shoppers healthier food options at lower prices, cutting out some of the most unhealthy parts of its packaged foods under store brands. Coupled with better food on the shelf is a better PR push for the company’s healthy offerings – led by a partenership with Michelle Obama.

The in-store plan involves taking unhealthy salts, saturated fats, transfats and sugar out of Wal-Mart store brand products under the Great Value and Sam’s Choice labels. The retailer also has pledged to lower prices on fruits and vegetables.

The out-of-store effort involves Mrs. Obama standing alongside corporate execs as they unveil the plan today – as well as an implicit push for major Wal-Mart suppliers to follow suit. For instance, Kraft (NYSE: KFT)[2] delivers about 16% of global sales through the big box retailer according to some reports, and it’s likely they will also reduce salts, fats and sugars in kind rather than look like they are dragging their feet.

But the real question for Wal-Mart is not whether this move is good for customers – it undoubtedly is, with lower costs and healthier options – but whether it’s good for the company. Walmart will slice into its own profits not just by including better ingredients in store brand foods but also by cutting prices. Management is on the record saying Wal-Mart will make up the price markdowns through an expected increase in sales volume, but only time will tell.

Though this is the first healthy food push by Wal-Mart, it’s hardly the first time the company has tried to lure in customers with the promise of cheaper eats. Aside from a general company-wide focus on the lowest prices, Wal-Mart made a series of highly publicized price cuts in early 2010[3] – including $1 ketchup bottles and cases of Coke and Sprite for under $4. The move came amid slowing U.S. sales growth, and marked down some 10,000 items at the company’s 3,700 US stores.

But the lower prices didn’t work. In fact, about six months later Wal-Mart tried to reverse course[4] and focus on better products and not just cut-rate prices. Wal-Mart added 5% to 25% more items in various areas of the store to appeal to a wider audience of consumers.

This healthy food option seems to use both approaches – better products through a revamping of store brands, and better pricing due to the company’s patented rollbacks. Throw in the star power of Michelle Obama, and the move could pay off.

But the real question, of course, will come in the sales numbers. In October, we learned same store sales at Wal-Mart have been sliding since August 2009. That’s a counterintuitive development, considering cash strapped consumers should be shopping for the best deals and not avoiding Wal-Mart’s “everyday low prices.” If the big box retailer missed the mark as unemployment was skyrocketing and consumer spending drying up, there’s a good chance this health food effort could flop too – no matter how much it makes sense on paper.

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter at http://twitter.com/JeffReevesIP.[5]

Endnotes:
  1. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  2. KFT): http://studio-5.financialcontent.com/investplace/quote?Symbol=KFT)
  3. price cuts in early 2010: http://investorplace.com/5058/walmart-lowers-prices-wmt-stock/
  4. Wal-Mart tried to reverse course: http://investorplace.com/16432/walmart-wmt-pushed-product-selection-not-price/
  5. http://twitter.com/JeffReevesIP.: http://twitter.com/JeffReevesIP

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