January 20, 2011 / 2:00 PM / 8 years ago

UPDATE 5-Wal-Mart, Michelle Obama team up on healthy food

* Wal-Mart announces food initiatives with Michelle Obama

* To cut sodium, sugar, some fats in packaged food by 2015

* Aims to lower costs of fresh fruits, vegetables

* To trim or eliminate price premium on some healthy foods

* Moves should not cut profit forecast, may boost it (Adds food maker and analyst reactions; updates stock activity)

By Jessica Wohl

CHICAGO, Jan 20 (Reuters) - Wal-Mart Stores Inc (WMT.N) will promote and cut prices on healthier food at its stores, a move that was eagerly endorsed by the U.S. first lady and one that could push food companies to overhaul more products.

The initiative comes as the world’s largest retailer tries to overcome political and union opposition to its expansion in urban areas like New York City, Chicago and Washington, D.C., by touting its ability to bring lower-priced fruits, vegetables and other healthy foods to “food deserts” in both cities and rural areas that lack traditional grocery chains.

Michelle Obama, who leads an administration initiative to combat child obesity, joined Wal-Mart executives as they announced the plan in Washington on Thursday.

“To say I’m excited is probably an understatement because we’re really gaining some momentum on this issue,” Michelle Obama said, speaking in front of crates packed with fruits and vegetables. “We are seeing a fundamental shift in our national conversation about how we make and sell food. That’s something that wasn’t happening just a year ago.”

Some may have been surprised to see the Obama administration publicly endorsing the work of a company that has come under fire from labor unions and others for its business practices. The Center for Science in the Public Interest, a consumer group often at odds with the food industry, applauded Wal-Mart and urged the government to do more.

“I hope this move emboldens the Food and Drug Administration and U.S. Department of Agriculture, which should immediately pull the plug on partially hydrogenated oil and set reasonable limits on sodium levels in different categories of packaged foods,” CSPI Executive Director Michael Jacobson said in a statement.

IMPACT BEYOND WAL-MART’S OWN STORES

Wal-Mart’s efforts have the potential to affect everyone from farmers to grocery stores, drugstores and even dollar stores, which have been beefing up their food offerings.

Still, this is not the first change the industry has seen.

“In this area, they’re at least three to five years behind,” said Jefferies & Co analyst Scott Mushkin, who follows grocers and food makers.

Many of Wal-Mart’s vendors, such as Campbell Soup (CPB.N) and Hormel Foods (HRL.N), have reduced sodium in their foods and made other changes to make their products healthier.

Even grocer Supervalu Inc SVU.N, which is struggling to compete with larger rivals, highlights healthy fare with shelf labels, cut produce prices and gets more food from local farms.

But Wal-Mart’s move is likely to have the biggest impact since it can try to influence the 140 million weekly visitors to its stores and the food producers that count Wal-Mart as their biggest customer.

“Wal-Mart is such a big buyer of foods, period, and if they’re going to insist on healthier food, this could change the food chain,” said Gene Grabowski, senior vice president of Levick Strategic Communications, who handles issues such as food recalls and previously worked for the Grocery Manufacturers of America trade association.

The U.S. Centers for Disease Control and Prevention has found that 68 percent of U.S. adults are overweight and half of these are obese, with a body mass index of 30 or higher. A third of U.S. children are obese.

PROFIT PROJECTIONS

Wal-Mart can afford to take a hit on food margins more than smaller grocers, due to its size and the breadth of its business. It is already the nation’s largest seller of food.

By 2015, Wal-Mart plans to cut the amount of sodium and added sugars in packaged foods. [ID:nN20126283] It will also remove any industrially produced trans fats from its goods.

The company said it would work with suppliers to improve the nutritional quality of its own Great Value brand and national food brands. It also said it could save shoppers about $1 billion per year on fresh produce by cutting costs, through changes such as buying more produce from local farms.

The retailer will put a new seal on its own healthier foods, such as whole grain cereals and unsweetened canned fruit, later this year and offer use of the seal to suppliers for products that meet its criteria.

Thursday’s announcement comes three months after Wal-Mart announced plans to double the sales of fresh produce from local farms in its U.S. stores by the end of 2015. That move was part of a broader strategy to revamp its global produce supply chain. [ID:nN14115162]

Food is big business for Wal-Mart, accounting for 51 percent of sales at its U.S. discount stores in its latest fiscal year. The new efforts should not eat into its profits.

“The initiative that we’re launching today will hopefully be additive but most definitely won’t be dilutive to any of the earnings projections that we’ve talked about earlier,” said Bill Simon, president and chief executive officer of Wal-Mart’s U.S. business.

Brad Bartlett, president of Dole Food’s DOLE.N Dole Packaged Foods North America which recently launched fruit bowls with no added sugar, said, “If the Wal-Marts and the other major retailers are getting into doing this, it’s better for Dole’s business. We’ll sell more, we’ll get more shelf space.”

Wal-Mart shares were up $1.10, or 2 percent, at $56.13 in New York Stock Exchange trading amid a rally in retail stocks. (Reporting by Jessica Wohl, additional reporting by Jasmin Melvin in Washington, Lisa Baertlein in Los Angeles, Ben Klayman in Detroit, Martinne Geller in New York and Brad Dorfman in Chicago; editing by Dave Zimmerman and Gerald E. McCormick)

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