Organic Food Fans, Stop Dumping on Walmart!

NEW YORK (TheStreet) -- To say Walmart (WMT) has an image problem would be a gross understatement.

When the retail giant is not being scorned over low wages for its frontline workers, the company gets hammered for what many believe to be "unfair business practices." But is it Walmart's fault that mom-and-pop shops are unable to compete?

Where have been the protests over Amazon (AMZN) and the carnage it has left behind? Since Amazon's arrival, traditional bookstores have disappeared. Amazon's body count is too many to list. But why is Walmart evil and not Amazon?

The company has not taken these shots lightly, and continues to work to reshape how it is being perceived. So it wasn't a surprise to learn Thursday that Walmart plans to expand its organic food stock. The announcement says that Walmart will offer Wild Oats organic products at a 25% discount.

Walmart shares were trading at $77.98 as of 10:30 a.m. Thursday. The stock is down 0.8% year-to-date, and up 0.9% over the past 52 weeks, with a dividend yield of 2.46%.

Walmart aims to grab a foothold in a market now dominated by The Fresh Market (TFM) and Whole Foods (WFM). The recent consumer shift towards organic and natural foods has created a new growing industry among retailers. Walmart has been relatively shut out, up to this point.

Whole Foods has tried this very same move before: it bought out the Wild Oats chain of stores in 2007. The Federal Trade Commission protested the acquisition under antitrust law, and in 2009 Whole Foods sold Wild Oats under court order. Now Walmart is benefitting from the breakup and from the revived Wild Oats brands.

In the coming months, Walmart said it will introduce Wild Oats at roughly 2,000 stores -- half of its national footprint. If the brand gains enough traction, the company will then roll out the product to the rest of the country. Walmart wants to ensure that there are no hiccups with supply and distribution.

It's a sound strategy.

Given the recent earnings growth of smaller players like Natural Grocers (NGVC) and Sprout's Farmers Market (SFM), which have both grown in popularity in a short period of time, there is plenty of profit to made by Walmart.

But more important than profit, this move is also about altering Walmart's profile. The company wants to become more synonymous with health and wellness.

It's no secret that healthy foods cost more. Both Whole Foods and Fresh Market cater to the affluent shopper. Walmart is known for exactly the opposite. With recent reports suggesting that the organic and natural food market is expected to grow to $80 billion in the next two years, Walmart deserves credit for exposing its shoppers to healthy eating and for making it affordable.

But the company's critics won't ever see it that way. They will complain about how discounting Wild Oats by 25% will undercut Sprouts and possibly Natural Grocers. Some will bemoan this even though organic food retailers have leveraged the fact that their offerings are scarce, which lets them charge higher prices.

But again, how is this Walmart's fault?

Even though it is one of the largest employers in the country, it is considered by many to be "bad for American business." Amazon, which employs similar business tactics to Walmart, has fought for years to avoid paying taxes. By contrast, Walmart is one the largest taxpayers in the U.S.

It's disappointing that the company's critics can't make this correlation. For now, I continue to like the stock as an investment.

Yes, shares have been lackluster since the start of the year. But with the company's continued operational improvements and a recovering economy, patient investors should expect shares to approach the $85 range by the second half of the year.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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