Wal-Mart looks to organics to revive grocery

As consumer preferences have shifted toward healthy, authentic foods, the high cost associated with going organic has kept many would-be converts stuck in the lower-priced, traditional aisles.

For Wal-Mart, that served up a plate of opportunity.

On Thursday, the big-box retailer announced that it will expand its organic grocery category by adding a new brand, Wild Oats.

Source: Walmart

Selling for at least a 25 percent discount compared to the retailer's other organic offerings, the brand will provide shoppers with organic food options at the same price as its nationally branded non-organic items.

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"We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more," said Jack Sinclair, executive vice president of grocery at Wal-Mart U.S. "We are changing that."

According to the Organic Trade Association, sales of organic food and beverages in the U.S. reached $31.5 billion in 2012—the latest data available. That includes a 10 percent on-year jump.

Although the category only makes up about 4.2 percent of food sales, a report by industry research firm IBISWorld said it is projected to make up over 5 percent of the domestic food market at the end of 2019. That's despite the fact that organic food prices are typically 10 to 40 percent higher than non-organic food.

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"Consumers are increasingly interested in making healthy choices, they're more aware of food labels, [and] more interested in fresh/organic foods," said Sherry Frey, vice president of the Nielsen Perishables Group.

The Wild Oats launch, which will begin its rollout at 2,000 of Wal-Mart stores this month, will initially include only pantry items such as pasta sauce and chicken broth. It will add about 100 items to the retailer's 1,600-item organic food offering, and will expand into the other 2,000 Wal-Mart stores that sell groceries in the coming year. It will also be offered on this summer.

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The retailer will also explore possibilities to include the brand into its produce and dairy sections, Sinclair said.

The expansion comes as Wal-Mart's grocery business has been under pressure, posting a comparable-store sales decline in the low single-digits for the fourth quarter. The company attributed part of this slide to the reduction in food stamp benefits.

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Despite these struggles, Sinclair said that an internal survey conducted among Wal-Mart shoppers found that 91 percent said they would consider buying affordable organic brands from its stores.

Although he did not offer specific sales figures, Sinclair added that sales of its organic items are growing faster than its non-organic products in almost every category.

"If we can make that price premium disappear, we think we can make it grow much, much faster," Sinclair said.

Whole Foods co-CEO Walter Robb told CNBC that although its customer base doesn't overlap much with Wal-Mart's, the news is affirmation that the shift toward organic is here to stay.

"There's going to be more players in the space," he said.

Earlier this week, Target announced that it would ramp up its organic offerings, with its "Made to Matter" initiative.

—By CNBC's Krystina Gustafson. With contributions from Courtney Reagan.