Wal-Mart Goes Organic

Updated from 6:17 p.m. EST

As Wal-Mart WMT goes green, it also breeds fear.

The retailing juggernaut tends to get knees quivering wherever it sets it sights. It already created havoc in the traditional grocery sector when it expanded its food offerings. Next, market watchers say the company's move into providing banking services could eventually be felt in the financial-services sector. The latest to fall prey to fears of Wal-Mart are Wall Street's favorite health-food market chains.

Whole Foods Market WFMI and Wild Oats Market OATS both traded lower Wednesday after Wal-Mart told analysts at the Bear Stearns Retail, Restaurants and Consumer Conference that it had plans to expand its organic foods offerings.

Wal-Mart's senior vice president of marketing, Stephen Quinn, said the retailer would have more than 400 stock-keeping units of organic foods in its stores this summer at the kind of low price points that have long been the company's bread and butter.

"I'm excited that Wal-Mart is really getting into the area of organics," Quinn said at the conference. "This is an area where our customers have clearly told us they want more. People feel better about organic foods, and the customer we're going after is the customer who is really interested in the intangible benefits that come from organics."

"Intangible" is a word that Wal-Mart is throwing around with increasing frequency these days. When it comes to consumer products, its stores have long held a monopoly on tangible benefits, like low prices. But it's been beaten on the intangibles by rivals like Target TGT, which has been able to attract market share by offering trendier merchandise in its stores and attracting higher-end customers.

Karen Burk, a Wal-Mart spokeswoman, said the company plans to double the organic offerings in its superstores over the next couple of weeks.

With Whole Foods and Wild Oats cashing in on the willingness of the so-called baby boomer generation to splurge on more healthful foods as they face retirement in large numbers, organic foods is a logical next step for Wal-Mart's grocery business.

"Wal-Mart isn't growing their store count as fast as they used to be," says Morgan Keegan analyst John Lawrence. "Most of their domestic growth has to come from constantly experimenting with their merchandise, and expanding their offerings into new areas. They had great success with traditional groceries, so with all the popularity of organic foods lately, that's their next move."

Shares of Whole Foods Market closed down 50 cents, or 0.8%, to $63.61 on Wednesday. Wild Oats ended down 32 cents, or 1.8%, to $17.68.