01.20.11
Wal-Mart sets sights on destroying US grocery business
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From AP, today:
Wal-Mart, the nation’s largest grocer, says it will reformulate thousands of products to make them healthier and push its suppliers to do the same, joining first lady Michelle Obama’s effort to combat childhood obesity.
The first lady accompanied Wal-Mart executives Thursday as they announced the effort in Washington. The company plans to reduce sodium and added sugars in some items, build stores in poor areas that don’t already have grocery stores, reduce prices on produce and develop a logo for healthier items.
“No family should have to choose between food that is healthier for them and food they can afford,” said Bill Simon, president and CEO of Wal-Mart’s U.S. division.
At a time of hardship, with use of food stamps at an all-time high, this is a laudable goal.
However, when one is dealing with Wal-Mart, everyone knows the company stands for merciless price-cutting by shoving everything it can into production in China.
Which has a disastrous contribution to the American business of making things.
A PBS Frontline special explained it in this manner:
Even as Wal-Mart was pushing its U.S. suppliers to be more efficient and promoting its “Buy American” program through the ’80s, the company bought more and more from Asia, according to Jay Moates, a former accountant with Wal-Mart’s overseas buying operation.
But to please American consumers concerned about the Asian threat, the retailer played down its buying operations in Hong Kong, Taiwan, Korea, and the rest of Asia. Following the brutal suppression of Chinese students in Tiananmen Square in 1989 by the Chinese Communist leadership, Walton feared a consumer backlash if Wal-Mart were seen as operating in China. He was also disturbed by charges of human rights abuses in his Asian suppliers’ factories.
To continue growing in Asia, Wal-Mart needed a buffer — a middleman or a buying agency that would purchase Asian products without showing Wal-Mart’s hand. According to the retired Hong Kong senior executive, Walton told Bill Fields, Wal-Mart’s head buyer, that he wanted to “get out” of direct involvement in Asia. “The decision was to go to an exclusive buying agency,” the buyer said. “The main reason for going into [the deal] was not to be exposed as going into Communist China.”
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By lining its shelves with its own in-house brands, Wal-Mart began competing directly, on its own shelves, with its national, household brand-name suppliers. “It makes them more efficient,” argues Ray Bracy, Wal-Mart’s vice president of international corporate affairs. “I suppose you could suggest that they would like to not have that competition. But it makes them better.”
The development of Wal-Mart’s house brands proved to be a watershed. Consumer surveys had established that Americans cared less and less about buying national brands: Low price trumped brand loyalty. In the period following Sam Walton’s death, when Wal-Mart’s sales slowed and its stock price began to stagnate, this consumer trend freed the company to ramp up the production of its house brands through unbranded suppliers in China, who now had privileged access to Wal-Mart’s 3,500 stores across America. The result was that Wal-Mart became its own de facto manufacturer, developing and designing products according to the taste of its customers, as analyzed by Wal-Mart’s supercomputer. Profits soared.
Privately, long-time U.S. suppliers expressed dismay. “They invaded our core business model,” said one apparel maker, requesting that his name be withheld. “Wal-Mart seems intent on managing the total product life cycle.” If the competitive pressures of Wal-Mart’s store brands continue, he said he would close his American factories, abandon his own brand, and try to solicit Wal-Mart’s private label business in China. “We call it ‘the race to the bottom,'” he asserted. “It’s sad because I see that productivity increases [in America] are still possible through automation. There’s room for improved efficiency. But it’s impossible [to stay here] with retailers going for cheap Chinese labor.”
And that’s exactly what happened. Every other US business in competition with Wal-Mart was forced to go to China, making themselves over as front brand names for goods made there.
For example, DD’s Hanes socks, those which develop holes after a couple washes, bought at Ralphs/Krogers in Pasadena. Made in China.
And although Pasadena does not have a Wal-Mart, it has a Target. Which one might think of as a poor man’s Wal-Mart, virtually indistinguishable. Everything in it made in China.
Which bleeds into this year’s developments.
Faced with a middle class of diminished buying power, even for Chinese made goods, Target diversified into grocery. The obvious logic is that people still absolutely must buy food.
And the problem which follows on from that is the same Wal-Mart-style application of price cutting.
With food stuffs, there is probably a great deal of room for having lots of it made in China.
Or to preferentially select for American businesses that cut costs by ignoring regulations (on the idea that no one will ever catch them or if they do, that the consequences can be dealt with as overhead) or which turn into fronts for pushing Chinese ingredients into the food chain, cheaper to get there than to make or harvest here.
In this way Wal-Mart became a conduit for melamine in pet food in 2007.
It is a short term shake-the-trees for whatever fruit can be persuaded to fall out strategy.
A longer term strategy would be a national leadership look at what has so diminished the buying power of the middle class that one must either lobby for more cheaply made food or increase allotments of food stamps. In terms of a national short term strategy, increasing food stamp allowances and budgets would even be a better solution than a corporate feel-good alliance with Wal-Mart.
It’s a vulture business model — loot what’s left and look to potentially greener pastures.
“Wal-Mart said it would reduce prices on fruits and vegetables by $1 billion a year by attempting to cut unnecessary costs from the supply chain,” reported AP.
This is toxic news dressed up in fancy packaging — a healthy and cheaper foods initiative associated with the First Lady.
The recent history of consumables in the US is that big American agribusiness often can’t be trusted with keeping health in mind when the press is on to reduce the price and raise the bottom line. And that the populace only finds this out well after the damage is done by the Dickensian characters who, inevitably, all attest to the great jobs they have created.
If readers get cable TV they’ll have doubtless noticed the current blitz of feel-good Wal-Mart advertising attempting to cast the impression the place is a great place to work. Even though it’s the swirling toilet vortex that sucked all American dry goods into the sewer and spat back made-in-China.
This also raised the question: “How do you make presumably healthy foods like heads of lettuce, carrots, sunflower seeds, various greens — for example, everything on the left side of Ralphs on Lake that’s not in frou-frou plastic bags — cheaper? Force illegals to work for even less? Totally eliminate the minimum wage?
Nicht verstehen.
Maybe I do. Walmart would like to be able to say that they’re offering a ‘healthier’ version of Hormel canned chili, or spam, or slightly less salty Lay’s Potato Chips — perhaps put some different minerals in them, less salt in store brand Worcestershire sauce, and so on.
Anonymous said,
October 19, 2012 at 6:02 pm
ABC:-)