WMT is partnering with Wild Oats Market (originally bought out by Whole Foods, but the deal was nixed by the government) to lower the price on a line of organic foods in the megastore chain. At the moment, the plan rolls out about 100 products in the Wild Oats line. It’s unclear whether it will expand to others.
Yeah, that’s the “big news.”
So that we’re clear, the market has chewed away roughly $1.5 billion in WFM market cap because Walmart — which already sells some 1,600 organic products — is going to sell about 100 new ones via a new label and at lower prices.
This couldn’t have been more of an overreaction … especially for the two reasons I’m about to express:
Whole Foods (WFM): It’s More Than Just Quinoa
First, the market took this move to discount 100 products as some all-out assault on Whole Foods’ market share. That’s ridiculous. Whole Foods is a brand, not just 100 products. Considering WMT already offers well more than a thousand such products, that’s not enough new offerings to make a dent in WFM.
Next, the customer that shops at WFM does not shop at WMT. There’s a reason why Whole Foods is jokingly referred to as “Whole Paycheck Foods.” The chain is a premium brand, attracting high-end consumers, willing to pay the extra money for their Step 4 beef and free trade coffee beans.
You’ll note that none of the emphasized words have anything to do with Walmart customers.
Not to mention, Whole Foods is an immersive experience, offering the best of fresh meats, prepared products, the whole nine yards.
But you’re going to pay for it.
WMT stock has done well over the ages because Walmart appeals to a broad swath of the global demographic — middle class on down.
Whole Foods will not lose market share because, all of a sudden, its customers hear that WMT is offering that can of green beans for 50 cents less.
Walmart (WMT) Doesn’t Know Best
Next, WMT does not understand the organics space. It specializes in being all things to all people, and it’s a master of discounting — in all other things, it’s a jack-of-all-trades.
Just by browsing it and browsing Whole Foods, it’s apparent that Walmart doesn’t know, or care about, the subtleties that the organic food world has in its terminology (whether nonsensical or otherwise).
It just knows that “organic” seems to have some importance to some shoppers, so it throws a few products into the mix.
Then there’s the WMT consumer himself. He likely doesn’t give two cage-free chickens about organic foods. He has the same mentality as Walmart, and has been fed the same marketing message by the organic industry: “Organic is better for you.” Sure, that means the Walmart consumer might occasionally grab an organic product off the shelves instead of the traditional version.
But so what? He wasn’t going to step into a Whole Foods in the first place!
Walmart’s latest move smells to me like nothing but a gigantic marketing ploy to boost WMT stock. It smells of desperation in a period where WMT stock has been struggling, the brand is being hit with bad PR for its wage practices, and it is facing competition from Target (TGT), merging grocers and Amazon (AMZN).
Ignore the hype. WMT stock is where the trouble is, not WFM.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.