Will healthier food be good for Wal-Mart?
The retailer plans to offer cheaper, better eats. But past efforts to boost product quality and lower prices didn't help sales.
By Jeff Reeves, editor of InvestorPlace.com
The company announced a plan today that will give shoppers healthier food options at lower prices, cutting out some of the most unhealthful foods packaged under its store brands. Coupled with better food on the shelf is a better PR push for the company's healthful offerings -- led by a partnership with Michelle Obama, who will attend the official Wal-Mart announcement, according to reports.
The in-store plan involves taking unhealthful salts, saturated fats, transfats and sugar out of Wal-Mart store-branded 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, as well as an implicit push for major Wal-Mart suppliers to follow suit. For instance, Kraft 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 better options -- but whether it's good for the company.
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Wal-Mart will slice into its own profits not just by including better ingredients in store-branded 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 healthful-food push by Wal-Mart, it's hardly the first time the company has tried to lure customers with the promise of cheaper eats. Aside from a general companywide focus on the lowest prices, Wal-Mart made a series of highly publicized price cuts in early 2010, including $1 ketchup bottles and cases of Coke and Sprite for less than $4. The move came amid slowing U.S. sales growth and marked down 10,000 items at the company's 3,700 U.S. stores.
But the lower prices didn't help the company. In fact, about six months later, Wal-Mart tried to reverse course 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 healthful-food option seems to use both approaches -- better products through a revamping of store brands and better pricing from the company's patented rollbacks. Throw in the star power of Michelle Obama, and the move could pay off.
The real test will be in the sales numbers. In October, we learned that 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 was drying up, there's a good chance this healthful-food effort will flop, too -- no matter how much it makes sense on paper.
What is wrong with them carrying healthier foods and trying to sell them for a better price? I watch what I eat and I might buy more from Wal Mart. It all depends on their quality, selection and pricing. I am not a rich liberal who can afford to shop at a Whole Foods or Earth Fare type store.
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