Why half of Wal-Mart’s grocery stores are banned by Whole Foods

Ben Blatt from Slate magazine conducted an interesting and depth study recently to determine how many groceries on a Wal-Mart (NYSE: WMT) shelves are off-limits at the most upscale retailer Whole Foods Market (NASDAQ: WFM). The results might surprise you.

According to Blatt’s research, Whole Foods bans about 54% of Wal-Mart’s fare because of the presence, in its own words, of “unacceptable ingredients for foodThese 78 banned ingredients include everything from recognizable sweeteners like high fructose corn syrup to tongue-tie dimethylpolysiloxane.

In the process, Blatt left a few boxes unreturned, since Wal-Mart’s website only discloses ingredients for about 50% of its grocery inventory. Therefore, his investigation is neither scientific nor exhaustive. Nonetheless, the results are revealing for both clients and investors.

Whole Foods store in Oklahoma City. Source: Whole Foods Market.

For example, it’s no surprise that shoppers struggle to find a quart of Coke or a bag of Doritos at Whole Foods, but Blatt finds that even house brands ranging from Minute Maid Lemonade to Cracker Barrel Cheese are being tried. unworthy of Whole Foods. demanding customers. Whole Foods claims these foods do not meet “safety, necessity, manufacturing methods, and compatibility with our overall core values.”

While the art of stocking retail store shelves may seem fairly mundane, the contrast presents two radically different approaches to running a grocery store. Consider the following statistics:

  • 97% of soft drinks sold at Wal-Mart contain ingredients that Whole Foods considers “unacceptable”. If you’ve ever wondered why a Whole Foods beverage aisle makes you feel like you’re in a foreign land, well, here’s your explanation.
  • Wal-Mart’s “Great Value 100% Whole Wheat Bread” contains seven ingredients Whole Foods couldn’t care less about, including everything from high fructose corn syrup to calcium propionate. Not one or two “unacceptable” articles, but Seven. All in one staple product you have to imagine is flying off the shelves. We are not talking about an obscure frozen dinner here; we are talking about sandwich bread.
  • Over 80% of the candy sold at Wal-Mart would never be found at Whole Foods due to artificial flavors, while 31% of bacon and sausage products were blacklisted due to MSG, or MSG.

The list is lengthened increasingly. Beyond statistics, however, Blatt attempts to answer the intriguing question for customers and investors: Why is Whole Foods limiting consumer choice?

As he points out, the Food and Drug Administration has ruled that every food item sold in a Wal-Mart store is safe to eat. Whole Foods, however, holds itself to a higher standard. So is Whole Foods playing the role of Big Brother for health-conscious customers, or is it just responding to the whimsical demands of foodies?

Marion Nestlé, professor of nutrition, food studies and public health at NYU, was interviewed for Slatearticle by. She points to health-conscious customers: “Whole Foods gives its people what their people want. The “best comment” on Blatt’s article – which has so far garnered more than 580 comments in total – claims that Nestlé’s conclusion is “the only relevant statement in the whole article.” But is it really that easy?

Not according to Whole Foods founder John Mackey. When he started selling natural and organic foods at a small co-op in Austin, Texas, diehard foodies were echoed on the radar in a huge national grocery industry. Today, the organic food industry, for example, is a $ 28 billion market that’s more than doubled in size since 2004. This health-conscious trend didn’t come out of nowhere. For decades, grocers like Whole Foods, recognized as America’s first certified organic store, have ushered in a new wave of health-focused customers.

In the book he co-wrote with Raj Sisodia, Conscious capitalism: liberating the heroic spirit of business, Mackey says Whole Foods plays an important role in guiding consumers to better choices. Instead of responding to the needs of consumers, Whole Foods educates – without lecturing – their customers: “If the company is able to see unexpressed or latent needs that customers do not yet recognize, it has a responsibility to address them. educate about potential value that they don’t see yet. … We need to keep these customers happy in terms of what they want at the moment, while directing them to better choices over time. “

For Whole Foods, this is as much a push from the grocer as it is a consumer push to come up with healthier food options. Mackey thinks this makes sense because his grocers study everything from food to organisms to the environment, and therefore have a deep understanding of what customers may be missing.

Ultimately, it’s always a dialogue between the two, but Mackey says that a relationship built on trust has led customers to “increasingly look to Whole Foods Market to be their ‘publishers’, so that we carefully review and evaluate the products we sell. ”Or, to use another analogy, Whole Foods aims to maximize healthy outcomes for customers like a good mechanic would optimize an automobile’s performance.

While Whole Foods inspires consumers to make better food choices, this in turn increases this demographic. Their motto might as well be “Educate and they will come”.

Produce the aisle in Wal-Mart. Source: Wal-Mart.

But Wal-Mart is on a divergent path. From Blatt’s perspective, the Bentonville retail giant offers a “laissez-faire” approach to the preservation of the products it sells. Instead of banning ingredients, Wal-Mart has adopted a buying model that offers lower prices and more choice.

On the surface, this formula sounds like a win-win for the consumer, but comes with a small caveat: Buyers are increasingly concerned about the ingredients and origin of food and are seeking advice from from a source they can trust. While no one wants their parent – or their grocer, for that matter – to tell them to eat their vegetables, many customers want to know that their grocer supports transparent and sustainable eating practices. After all, their health and well-being depend, to a large extent, on the quality of the foods in their diet.

As a result, grocers who carefully watch everything from ingredients to sourcing are riding a wave of growth while others are lagging behind. The organic market, for example, only accounts for 3.5% of total food sales, but it grew at double the annual growth rate of all food sales in 2012.

Grocers Love Whole Foods and Its Natural Food Competitor Sprout farmers market see growing opportunity: Both stores recently increased their potential number of stores nationwide to 1,200 locations, which would triple the size of Whole Foods and increase Sprouts’ footprint 7.5 times. While Wal-Mart dominates them with around 3,000 grocery stores, its momentum is slowing. The world’s largest retailer has struggled to achieve 1.5% year-over-year global revenue growth in the last quarter.

To reach its full potential, Whole Foods will likely continue to educate customers and may even ban a few ingredients along the way. For its part, this appears to be a proven recipe for success, resulting in a stock of seven bags over the past five years.

Wal-Mart, on the other hand, must hope that a cornucopia of products offers more to consumers than a carefully curated experience. From my perspective, focusing on the lowest prices looks less and less like a viable long-term strategy for the retail juggernaut.

Product section in Whole Foods. Source: Whole Foods Market.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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