Dive Brief:

• Wal-Mart Stores is dropping its Wild Oats organic food line, sources have told the Wall Street Journal.

• The move ends a complex two-year-old agreement with private equity firm Yucaipa Cos. to offer Wild Oats pasta sauces, cereals and other packaged foods on Wal-Mart shelves. Yucaipa acquired the Wild Oats brand in 2012.

• Wal-Mart may work with individual suppliers to add organic foods to its own Great Value grocery store brand, sources told the Journal. Wal-Mart and Yucaipa declined to comment, according to the report.

Dive Insight:

Wal-Mart, the country’s (and world's) largest retailer, is looking to appeal to wealthier and more urban customers in an effort to find the path to growth that its investors are clamoring for, according to CEO Doug McMillon.

“The final growth area I want to highlight is appealing to a blend of income levels,” McMillon told analysts in October of last year. “Globally we know growth will disproportionately come from middle- and upper-income households in the years ahead. In markets where we have a presence, middle-income households are projected to drive 50% of total retail growth. Today we appeal to value-oriented customers in all brackets.” 

Many onlookers have wondered how Wal-Mart can accomplish such a pivot without also making moves that might alienate its core customers, who tend to be lower- and middle-income consumers that respond to—and depend on—Wal-Mart's longstanding “always low prices” foundation. The average Wal-Mart customer, according to a 2015 survey of more than 4,000 consumers conducted by consulting firm Kantar Retail, is a white, 50-year-old woman with an annual household income of $53,125.

Among the retailers studied by Kantar, including dollar stores Family Dollar and Dollar General as well as Wal-Mart and Target, millennials most often choose to shop at Target. The average Target customer is five years younger and earns an additional $12,000 annually; Target has also made natural products and healthier food a focus, bolstering its reputation for offering chic apparel and better-quality beauty and baby products at a good value, if not at the lowest prices.

While grocery has infamously thin margins, organic food sales increased 16.7% to $13.4 billion for the year ended April 2, according to Nielsen data cited by the Wall Street Journal. Overall food sales increased just 1.6% to $468 billion during the same period.

All of this makes Wal-Mart’s decision to pivot away from Wild Oats items more surprising. But the bottom line may be winning out, according to Kantar Retail principal analyst Laura Kennedy.

The move to dump Wild Oats is “an odd step to take when we know they are trying to increase private-label penetration and trying to target the higher-income consumer,” Kennedy suggested to the Wall Street Journal. If Wal-Mart was indeed “losing money to a middleman, well, this is not a time Wal-Mart wants to be losing anything,” she said.

While the Wall Street Journal notes that Wild Oats products performed well in Wal-Mart stores, with some organic products costing the same as well-known non-organic brands, sales didn’t grow as quickly as Wal-Mart expected.

Steve Bratspies, Wal-Mart's U.S. chief merchandiser, noted in November that the retailer had added purple signs to more clearly indicate which foods were organic. But overall, letting customers know about those options “is one thing I would say we haven’t done a good enough job on,” he said at the time, according to the Journal.

Wal-Mart has often given up on changes if they don’t show results quickly enough, experts have told Retail Dive.

“And by the way, something always goes wrong, especially in the context of making changes,” Columbia University retail studies professor Mark Cohen told Retail Dive earlier this year. “As soon as their efforts wouldn’t show fruit, they’ve abandoned it. It takes two to five years to change the composition of a large store and a large number of stores without losing your core customers and your underlying business. I’ve seen these kinds of initiatives come and go at Wal-Mart, and I have never seen them stick. I think there are too many people there who are of the view ‘This too will pass.’”