Once Again, Walmart Shows the Way

From June to October, the fruits and vegetables my family eats are supplied almost exclusively by a local organic farmer. His bounty is enormous; we enjoy everything from kale to blueberries, all picked the same day.

Given the climatic zone we live in, I’m under no illusions that local farming could sustain us all year round. For much of the year, our choices would be limited to stored cabbage, carrots, onions, turnips potatoes, and apples. If that sounds like the produce choices our ancestors faced a century ago, you’re right. I’m very grateful for our modern agricultural system that supplies reasonably high quality produce all year round.

At the same time, I occasionally worry about disruptions to the food supply chain as it has become far too centralized.  This centralization is due, in large part, to Federal government agricultural and water subsidies.

In recent years, consumers have become interested in locally grown food and most are not fortunate enough to live nearby an organic famer. Walmart is ready to help fill the void.

According to the Wall Street Journal, “the largest grocer in United States [Walmart] encourages its managers to buy produce grown within 450 miles of its distribution centers,” even if the locally grown produce costs more than California produce. True, Walmart is responding to shifting consumer preferences, but also, the big box giant has determined that locally grown produce reduces spoilage and saves on transportation costs.

Notice there was no government commission necessary to encourage Walmart to switch to locally grown produce. Congress is not subsidizing Walmart to switch to a locally grown produce. Walmart, motivated to serve the best interests of its consumers, has begun to switch quietly and efficiently.

Of course, in the eyes of many, Walmart can do nothing right; critics insist that Walmart is simply recognizing a marketing opportunity rather than doing anything different.  If you are a Walmart cynic or a Walmart basher, you might find Corby Kummer’s piece in The Atlantic to be an eye-opener: The Great Grocery Smackdown: Will Walmart, not Whole Foods, Save Small Farms and Make U.S. Healthy? Here is an excerpt:

Buy my food at Walmart? No thanks. Until recently, I had been to exactly one Walmart in my life, at the insistence of a friend I was visiting in Natchez, Mississippi, about 10 years ago. It was one of the sights, she said. Up and down the aisles we went, properly impressed by the endless rows and endless abundance. Not the produce section. I saw rows of prepackaged, plastic-trapped fruits and vegetables. I would never think of shopping there.

Not even if I could get environmentally correct food. Walmart’s move into organics was then getting under way, but it just seemed cynical — a way to grab market share while driving small stores and farmers out of business. Then, last year, the market for organic milk started to go down along with the economy, and dairy farmers in Vermont and other states, who had made big investments in organic certification, began losing contracts and selling their farms. A guaranteed large buyer of organic milk began to look more attractive. And friends started telling me I needed to look seriously at Walmart’s efforts to sell sustainably raised food.

Really? Wasn’t this greenwashing? I called Charles Fishman, the author of The Wal-Mart Effect, which entertainingly documents the market-changing (and company-destroying) effects of Walmart’s decisions. He reiterated that whatever Walmart decides to do has large repercussions — and told me that what it had decided to do since my Natchez foray was to compete with high-end supermarkets. “You won’t recognize the grocery section of a supercenter,” he said. He ordered me to get in my car and find one.

Indeed, if locally grown and organic food is to reach those struggling on a tight budget, it will be Walmart, not Whole Foods, that shows the way.

Consider, too, Walmart’s low prices on clothing. All over the country this fall, children of families who are financially strapped will go off to school with clean, new, inexpensive clothes purchased from Walmart. And if you think this is trivial, put yourself in the place of parents working hard to feed and clothe their children. The savings Walmart provides over department store clothes is enormous; and for some children, it’s the difference between being adequately clothed and being teased or bullied for being shabbily dressed. It is Walmart, not its critics, who is clothing these children at risk.

Next, consider Walmart’s employment practices. Contrary to popular belief, Walmart raises the wages of low skilled workers. Why?  When Walmart comes to town, it is an instant source of demand for workers who have minimal skills. Far more jobs are created then are lost for these workers; and since Walmart increases demand for these workers, wages go up too. Again, it is Walmart, not its critics, who employs those workers who have few other employment opportunities.

If that was all Walmart did, well, we would have much for which to be grateful. But perhaps the most important thing that Walmart does well is to be one of the biggest instruments of peace in the world. While governments build armaments and start wars, Walmart trades and buys goods from all over the world. In the process of buying goods from all over the world, Walmart creates employment opportunities and helps grow wealth in previously impoverished countries. Nations with fast growing economies have little incentive to wage war, especially with their trading partners.

This blog piece may be ludicrous to many who claim to fight for the social good and whose heroes are in Congress and in academia. To them, Walmart is a terrible scourge. Reality points us in another direction—but the reality of the marketplace means little to those who think our salvation lies in centrally-planned solutions to our very real economic problems.

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4 Responses to Once Again, Walmart Shows the Way

  1. John Shepley says:

    Barry,

    I’d love to have a beer or some local cider together and talk about this. I have to take strong exception to one thing you assert – on the jobs part. You say: “Contrary to popular belief, Walmart raises the wages of low skilled workers. ” My understanding is that entry level jobs at W-M are typically at minimum wage, and also a large proportion of those jobs are part time, for less than 32 hours / week. Further, turnover at a Wal-Mart is typically greater than at the businesses it displaces, which means many of the employees are always at entry-level rates. Can you provide a reference source for your assertion?

    Then you go on: “Far more jobs are created then are lost for these workers; and since Walmart increases demand for these workers, wages go up too. ” I can cite numerous studies that demonstrate that within a couple of years the community around a new Wal-Mart loses a net of more than 200 jobs. Because Wal-Mart is centralized, it’s not just the direct retail employees of local pharmacies, clothing & food shops, and other retail stores that are displaced; it’s also the cleaning people, the advertising and web design people, accountants and bookkeepers, distributors, and so on, who are all affected by the local independent businesses displaced by Wal-Mart. And the wages paid by Wal-Mart are typically MUCH lower than the wages paid by many of those local ‘support’ businesses as the employee base at long standing local businesses is relatively mature and have progressed up the income spectrum. A good synopsis of many of these studies is here: http://pubadvocate.nyc.gov/files/Walmart.pdf

    Additionally, an annual report by the state of Massachusetts indicates that the state carries about $15 million dollars per year in public health care expense for the employees and families of employees of Wal-Mart that are un- or under-insured. This (and many other related public social safety nets) equate to a tax on all of the local economy at the hands of Wal-Mart. It must be considered when asserting that Wal-mart is a positive thing in a community. The Mass. report which aggregates the contributions of all the significant big-box employers to this problem is here: http://www.mass.gov/Eeohhs2/docs/dhcfp/r/pubs/10/50_plus_employers_final_06-28-10.pdf

    Finally, I can say that I have heard many first-hand accounts of Wal-Mart’s insidious contracting practices with local growers. They (W-M) offer significant deals at a reasonable price, but allow themselves many many contractual outs, and habitually take advantage of these to cancel large contracts after the grower as produced the items. I understand that the growers are highly culpable in accepting these contracts in the first place. So the result is: The experienced high quality producers would never take a Wal-Mart contract unless it represented a small portion of their business, and not many are that large. And the growers that do accept such a contract are either A) desperate, know what their getting into, and grow the material on the assumption that it is likely to be rejected by Wal-mart and therefore a loss. Or they are B) Ignorant. Either way, it doesn’t prescribe a rosy outlook for consumers that might actually be concerned about quality or value. I myself visited a poinsettia grower in Maryland and saw the tractor-trailers fully loaded with rejected Wal-Mart Poinsettias, and the phone bank of temp sales people trying to get them sold in the scant few weeks before the Christmas holiday. The reason they were rejected? On average they were about 1″ too high. The unreasonably tight spec allowed an inspector sufficient latitude to reject any material they wanted. The real reason? Sales of Poinsettias were off – Wal-Mart had successfully shifted the risk of a bad year to the local supplier. (and if you are saying – “The growers should have never accepted such a contract, I agree with you – they shouldn’t have. The grower now knows that too and would never sell to Wal-Mart again. Tell me how the “There’s a sucker born every minute” approach is good for our economy? What if the grower was a bit more marginal and even one bad rejection would put them out of business? Many businesses are marginalized now to the point where they might accept the ‘Pot of gold’ offered by Wal-Mart, bad contract and all, on the gamble that it will pay off. Do you think Wal-Mart would protect that company? The answer is a definite NO!)

    Finally: “since Walmart increases demand for these workers, wages go up too.” Simply not true based on all I’ve said here. Because they are a continuous drain on the local economy, other jobs gradually dry up.

    As I said at the onset, I think this is a conversation, rather than a position. In my service of the past several years as the Chairman of the Chesapeake Sustainable Business Alliance, I’ve spoken with many local independent business owners, I’ve advocated for some of the same farmers you support, I’ve studied and testified on behalf of raising the Minimum Wage in Maryland, and I’ve built a successful small business of my own that has been recognized for our social, environmental, and financial accomplishments, including becoming one of Maryland’s first Benefit Corporations. (http://images.businessweek.com/slideshows/20110621/america-s-most-promising-social-entrepreneurs-2011/slides/11).

    I would enjoy an honest, forthright conversation….

    Sincerely,

    John Shepley (George’s brother…)
    www – greenroofplants – com

  2. John Shepley says:

    And a response to your conclusion.

    “… our salvation lies in centrally-planned solutions to our very real economic problems.”

    The problem with this is when a single business entity becomes such an economic force that their business decisions begin to have effect on the economy as a whole. When the situation reaches that point the game changes, as it were. So, while it’s great that parents can purchase inexpensive clothing at back-to-school time; When a company like Wal-Mart controls such a significant proportion of the both the market and the supply chain, then the consumer no longer drives the market. Rather, Wal-Mart marketing drives it. I love that I can buy blue jeans at about the same price I bought them 30 years ago. But the fabric and the stitching is nowhere near the quality as it was 30 years ago. And because so much of that market is controlled by the big-box discount stores, the choices have been removed from me. I can buy their quality or nothing at all.

    I believe that these businesses are NOT necessarily making decisions to hurt the broader marketplace, but rather this an unintended consequence of what for any business would be sound decisions. The unintended consequences arise when the product specification (developed by the retailer) cause quality and features to be diminished, creating a gap between the consumer’s desires and the producer’s product. Because the manufacturer must get the ‘big-box’ business in order to maintain economies of scale, they cannot resist the diminishment of the product in terms of features & quality for the sake of cost & profit.

    The example I like to use is they way that Home Depot purchases and sells battery powered tools. Their purchasing process is optimized for low cost above all other factors. Their buying power is such that the manufacturers, in order to get the H-D business, must compromise to meet H-D’s specs rather than meet consumer desires. It might be argued that H-D represents the consumer’s desires, but there is a limit to it, and the cost factor begins to outweigh the other factors. As a result, quality is driven down. Brand name becomes less valuable over time. Feature sets change from ‘more useful’ to ‘more marketable’. And consumer, even if he chooses to purchase a higher quality product, is faced with diminishing choices. The expectation is that when the tool breaks, it will be returned and a replacement purchased. This is confirmed by my own experiences in buying tools. Unfortunately, this combination of buying power, coupled with incredible influence over the manufacturers and the marketing ability to create the market for whatever they want; is shared by ALL the big box stores, making the problem worse.

    I do not believe that the scale of these businesses is sustainable in the long term, and I pray for the day when consumers can drive the market for consumer goods once again.

    John Shepley

  3. Mike L. says:

    I do not shop at Wal-Mart for the same reasons John mentions (e.g. enormous purchasing power and the ability to drive local stores out of business). In addition, my big political/macro economic concern is our current account deficit which is another reason I refuse to shop there.

    That said, the company has many admirable qualities. Its executives do not make obscene amounts of money as compared to many Fortune 500 executives. People with limited financial means benefit the most from shopping there and sometimes, as Dr. Brownstein pointed out, it can use its purchasing power for noble purposes.

    • John Shepley says:

      Mike, Barry: I’ll go in such a store when I have a reason, but I hate it. Once, after running my wife out of home depot when she began looking at things that we could have bought locally, we had an interesting conversation that resulted in some other conclusions. My wife, who works for a large non-profit (that provided social services, and mental health) in Baltimore mentioned that the founders of Home Depot had founded and was funding a branch of the same organization in Atlanta, and wasn’t that good? And yes, it is a nobile and generous thing! But as we talked about it, we began to realize that they do real economic damage to EVERY community where they have a store, and concentrating their charity in Atlanta didn’t do much for any of the other 4,999 communities where their presence results in an increased drain on social safety nets.

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