A decade-long sea change in the world’s largest retailer has transformed Wal-Mart from solely a purveyor of cheap Chinese goods into a behemoth whose business model and profits now rely on groceries, much of it sourced within our own borders.
But while the shift towards what the company insists is “locally sourced” foods may sound like a boon for the nation’s besieged farmers, critics say that isn’t the case.
Wal-Mart’s muscle has generally hurt the small farming operations that are the backbone of the American Midwest while pursuing cut-throat deals that favor corporate agribusiness and puts the sustainability of the US food supply at risk.
Following more than 10 years of breathtaking expansion that included remodeling most of its stores and rethinking its traditional big-box store modes to create a new persona as a neighborhood grocery, Wal-Mart has come to dominate the retail food industry in the United States. Food sales now account for $244 billion of the company’s annual sales, 55 percent of its entire business.
A primary factor in Wal-Mart’s shift to groceries was 2008′s recession and several years of a less-than-stellar national economy. As consumers shied away from Chinese-made “wants,” basic necessities– “needs” items, as retail experts call them — like food became the company’s only growing sales sector.
“To more and more people, living better means the ability to walk into a Wal-Mart and find affordable foods,” said Steven Restivo, a Wal-Mart spokesman,
Experts say that this shift was no accident. The nation’s largest retailer adapted to fit the needs of its cash-strapped customers in the midst of a slow economic recovery. Shoppers today are more concerned with buying basics like milk and bread than electronics and apparel, many of which are foreign-made, and the retailer is shifting focus to keep up.
”Consumers have been shopping more for ‘needs’ than for ‘wants,’ and that’s why groceries are still the number one thing in their budgets,” said Craig Johnson, president of independent consulting firm Customer Growth Partners. “In return, Wal-Mart has become a needs-oriented store.”
The retail giant didn’t hesitate to place all its bets on groceries, and the payoff has been spectacular. With lower overhead and the ability to acquire and distribute most products from within American borders as opposed to Chinese factories, profits from Wal-Mart’s grocery business have been booming throughout an otherwise dour period of retail sales.
Americans are also making more trips to Wal-Mart as the store becomes a fixture in the weekly grocery routine followed by most families. More stops equal more profits.
“Our research has shown that over the last ten years, the average number of shopping trips a customer makes to Wal-Mart has gone from 12 per year to 52 or more,” he said. “Since customers spend on average between $50 and $60 in total per trip, that’s an extra $2,000 per customer each year that Wal-Mart is bringing in.”
The shift was easy — and profitable, according to Customer Growth Partners’ Johnson,
”Wal-Mart already had the infrastructure for both fresh and refrigerated foods, it had the trucks and the distribution centers,” he said. “So with little investment, they’re able to expand into something that has a high turnover rate that they can make money on.”
While millions of Americans enjoy the brand’s famously low prices on everything from apples to steaks to cans of soda, Wal-Mart’s transformation into easily the country’s largest grocery chain has created blowback for the nation’s collection of small and family-run farming operations. They have not reaped any of the huge profit margins the retailer has enjoyed from its booming food business, and in fact have taken on greater financial risk thanks to the company’s controversial purchasing tactics and embrace of deep-pocketed agribusiness operations.
Wal-Mart has touted statistics that claim $1 billion of its grocery sales are from products sourced through small and medium-sized American farms. But that is literally a fraction of its nearly $250 billion annual grocery business.
The sheer size of Wal-Mart’s grocery operation cannot be underestimated. 1 in 4 dollars spent by consumers on food is spent at Wal-Mart, and the chain accounts for 50 percent of grocery sales in most major markets. That kind of market dominance exerts incredible influence on how farmers and food suppliers operate.
Unfortunately for the financial health of small farmers, the nation’s economy and the literal health of Americans themselves, Wal-Mart has made decisions that have exacerbated the trend of homogenized sources of food and the consolidation of the nation’s farms and suppliers.
An infograph from the Insitute of Local Self-Reliance explains it well. One of the most visible consequences of the retailer’s policies is actually higher prices for consumers, while farmers and and workers connected to the food industry earn substantially less.
Wal-Mart is quick to champion its programs for buying things like fruits and vegetables locally, or from small farmers. But the farmers themselves are beginning to publicly complain about how they are treated by the company, and that their demand for high volume at rock-bottom prices is driving many smaller operations either out of business or away from obtaining any part of the chain’s skyrocketing grocery profits.
In 2010, Wal-Mart pledged to double its local produce sales from 4 to 9 percent by 2015, as part of a new sustainability program and a commitment to support small businesses. While the chain has exceeded that goal – it says 11 percent of its produce sold nationwide comes from local farms — there’s little evidence of small farmers benefiting, at least in the Midwest.
Organic vegetable grower Jim Thomas, who grows organic vegetables and sells them at the Columbia farmers market, doesn’t know anyone who has sold successfully to Wal-Mart.
“They tend to try to force people into lower prices than feasible,” he says. “My only concern is that they’re willing to pay the price to get the quality that they get from local produce.”
Wal-Mart officials contend that the size and nature of their business requires strict standards and an emphasis on low costs, and that farmers are given the opportunity to “modify their operations.” This charge is viewed with skepticism by actual growers and advocates for small farms, who say that the burgeoning grocery giant squeezes margins for farmers in order to boost supply, pockets the profits for themselves, and then moves on to find a cheaper source.
But LaDonna Redmond, a senior policy associate with the Institute of Agriculture and Trade Policy in Minneapolis, says it’s a slippery slope.
“That’s the question: Will it actually benefit [farmers], or will the situation turn out to be one where the benefit really is transferred to Wal-Mart?” Redmond says.
She adds that until Wal-Mart builds the cost of producing local food into its prices, few small farms will truly benefit from the retailer’s push to source more local food.
The rise of Wal-Mart’s grocery business has not been entirely detrimental — the company has used its leverage to get corporate growers like Monsanto to agree on a tentative blueprint for nationwide labeling of genetically modified food.