The World According to Sam [Archive] - The Diamond David Lee Roth Army

BigBadBrian

01-20-2006, 03:36 PM

The World According to Sam

Gourmet has an interesting article by Nina Teicholz in the June 2005 edition about how Wal-Mart changed the grocery world 17 years ago when it decided to add grocery offerings. (And as an aside, I remember reading somewhere that Sam Walton got the idea while serving on the board of Winn-Dixie or some grocery chain and seeing how ineptly most grocery stores were run.)

In the article, Nina interviews Tim Ramey, a food-industry analyst with D.A. Davidson & Co. He delves into one of the secrets of the industry - the supermarket shakedown. Nina says:

It seems hard to imagine that anything so benign, so common, and so seemingly straightforward as a supermarket could be vulnerable to such byzantine schemes [preferred product placement for Superbowl tickets is what she's referring to here], and yet it is. If I'm selling chocolate to a chain, for instance, I'm charged all sorts of fees - for promotions, advertising and "slotting" (to put my chocolate on the shelf), as well as a fee if my product doesn't sell and has to be removed. A distributor for the New York market says that the slotting fee in many of the city's supermarket chains is about $150,000 per item.

According to John Stanton, a professor of food marketing at St. Joseph's University in Philadelphia, "traditionally, supermarkets really made their money when they bought food from suppliers, not when they sold it to consumers."

There is one supermarket, however, that shuns all the extra fees, pays only for the actual goods themselves and rotates its buyers so that relationships with suppliers don't get too cozy. Who is it? Wal-Mart.

Wal-Mart is now the number one seller of food in the country, accounting for an estimated 15 percent of all sales - owed in part for its emphasis on transparency.

Since Wal-Mart began selling food, some 10,000 supermarkets have closed their doors. America's largest grocers have all seen sales slow over the past decade. Analysts predict that in the next five years we will see the elimination of one or two of the major supermarket chains.

Food manufacturers have become alarmingly dependent on Wal-Mart. It is the number one customer of Kraft, Campbell Soup, General Mills and other large corporations. And food sales to Wal-Mart are growing by 20 percent annually, while sales to traditional supermarkets are dropping by 2.5 percent. Wal-Mart's growth in 2004 alone was equivalent to folding in the sales of a Microsoft or PepsiCo.

Adding food to Wal-Marts in 1988 almost doubled each store's footprint, expanding it to the equivalent of three football fields. And since then, food sales have led its growth and food now accounts for roughly one-third of sales at all Supercenters.

Wal-Mart's buying decisions are also affecting the supply chain. (If Wal-Mart doesn't want the product you make, why make it?) And Wal-Mart stocks about one-third fewer food items than the average 30,000 to 40,000 of most supermarkets - so the squeeze is on to grab those spots. And the decision is made purely on price points (which is how Wal-Mart sells groceries at 15 to 30 percent less than their competitors).

It was an interesting article that showed you how "we will increasingly be eating according to mass-market tastes, shopping in massive Supercenters and living in the world that Wal-Mart built" - even if we don't shop there.

Link (http://everythingandnothing.typepad.com/mississippi/shopping/)

BigBadBrian

01-20-2006, 03:39 PM

This blog has some excerpts from the hard-copy article:

Wal-Mart: Politics of the Plate
by kensa
Fri Jun 03, 2005 at 07:47:28 AM PDT
This Wal-Mart diary features that well-known bastion of political discourse: Gourmet Magazine.

Huh?

The June 2005 issue of Gourmet includes an article titled The World According to Sam, subtitled Politics of the Plate, by Nina Teicholz. No link provided here, as the magazine's website appears to include recipes from the issue but not editorial content. To get the full article, you'll have to buy the hard-copy (sorry).

Let's have a taste:

There is one supermarket, however, that does not capitulate to this seamy practice. It shuns all extra fees. It pays only for the actual goods themselves, and rotates its buyers so that relationships with suppliers can't get too cozy. It is, in fact, the paragon of corporate honesty. And that store? Wal-Mart.
I can almost hear jaws dropping. How can this be? Wal-Mart the paragon of corporate honesty? Surely there must be more to this story.

Grab your shopping cart and browse the aisles below the fold. We have a lot of floor space to cover, but when we get to the checkout you'll have a better understanding of what you're eating and why.

kensa's diary :: ::
To recap and put the above-the-fold quote in context:

If I'm selling chocolate to a chain, for instance, I'm charged all sorts of fees--for promotions, advertising, and "slotting" (to put my chocolate on the shelf), as well as a fee if my product doesn't sell and has to be removed. A distributor for the New York market says that the slotting fee in many of the city's supermarket chains is about $150,000 per item.
"One of the things people don't realize,", explains John Stanton, a professor of food marketing at St. Joseph's University, in Philadelphia, "is that, traditionally, supermarkets really made their money when they bought food from suppliers, not when they sold it to consumers."

There is one supermarket, however, that does not capitulate to this seamy practice. It shuns all extra fees. It pays only for the actual goods themselves, and rotates its buyers so that relationships with suppliers can't get too cozy. It is, in fact, the paragon of corporate honesty. And that store? Wal-Mart.

Well surely that's a good thing. All sorts of over and under the table payments going on between retailers and suppliers, and Wal-Mart simply refuses to play that game. Hmmm, but it's the retailer on the receiving end of those payments, so Wal-Mart must be missing out on some big revenues. So how do they manage to keep those prices so low?
Wal-Mart is now the number one seller of food in the country, accounting for an estimated 15 percent of all sales.
...

There was the obvious concern that Wal-Mart would do to its grocery competitors what it had already done to hardware stores, clothing shops, and toy sellers--namely, drum them out of business. In addition, Wal-Mart had made its reputation by selling goods of low-ish quality at very low prices, a formula that didn't bode well for the perishable and health-related commodity that is food.

Well alright, they sell big volumes at low prices, and their competitors can't keep up. Teicholz explains that some 10,000 supermarkets have closed their doors since Wal-Mart got into the food business, and the major chains continue to see declines in sales. Food-marketing consultant Gary G. Kyle is quoted as predicting that one or two of the majors will be eliminated in the next five years.
But I'm starting to get a little uneasy about that last mention of food quality.

Of greater concern, perhaps, to people who care about the food they eat, is that Wal-Mart's policies have diminished food diversity and quality in ways that ripple far beyond its own stores
Uh-oh.
The story continues with a discussion about the Organic Valley Family of Farms cooperative, "the largest organic dairy cooperative in the country." They decided to become a Wal-Mart supplier; the decision was said to be traumatic, and not an easy one. But Wal-Mart is the trend, and like many food suppliers, they do what they have to do to make sales.

More important, though, is the fact that most food companies would stagnate without selling to Wal-Mart. While growth in the supermarket industry has virtually flatlined, Wal-Mart is expanding at a furious clip. Its growth in 2004 alone, for example, was equivalent to folding in the sales of a Microsoft or PepsiCo.
Now we start to narrow in on exactly what are the implications of what Wal-Mart puts on its shelves:
In some cases, if Wal-Mart doesn't want the product you make, then, well, you might as well not make it.
Because each Wal-Mart stocks about one-third fewer food items than the average 30,000 to 40,000 of most supermarkets, the squeeze is on suppliers to grab some of those spots.

...

The result is that food manufacturers are shrinking their lines: Heinz eliminated 40 percent of its items globally over the past two years.
...

Still, it's unnerving to think that Wal-Mart shoppers are, even to some small extent, determining what the rest of us can buy.

So much for diversity and choice. Back to the quality aspect:
Even more alarming is the issue of quality. Wal-Mart meat contains up to 12 percent water, salt, and preservatives (by weight), a formula that renders lean cuts juicier, while unfortunately diluting their original taste and driving up the salt content. This trend, too, has been followed by other supermarkets, since they can no longer afford to carry meat that is not enhanced if Wal-Mart's watered-down version is selling for less.
Perhaps you've been wondering how Organic Valley fits into this story, having been seemingly stuffed into the middle of the article.
Organic Valley's chief competitor, Horizon Organic--which had recently been bought by the $10 billion food conglomerate Dean Foods--had allegedly cut its prices considerably, and Siemon says he refused to "play that game." (Horizon denies that it reduced its prices.) The news that Wal-Mart was dropping a third of its business with Siemon arrived in an e-mail.
...

Unlike Organic Valley's farms, which average 65 cows each, Horizon sources a good part of its milk from highly efficient factory barns, including the roughly 5,000-cow Aurora Organic Dairy, in Colorado. Critics say that Aurora slips through a loophole in the federal organic law, and a complaint has been filed with the USDA ... alleging that the dairy rarely--if ever--lets its cows out to pasture ... The problem with cows that don't eat grass, experts say, is that their milk contains 80 percent less of a powerful cancer-fighting agent--conjugated linoleic acid--than does milk from grass-fed cows. In addition, cows that forage have been shown to have significantly more vitamin E and other essential antioxidants in their milk.

...

Horizon's milk meets the USDA standards for "organic," but Wal-Mart appears to have opted for a milk that, like so many of its products, makes some definite compromises in order to meet the bottom line. Maybe that doesn't matter so much for plastic mugs and dish mats, but with food, the implications for people's health are worrisome.

So there we have it. At Wal-Mart, price wins every battle. They will sell less expensive products to meet the price targets, and often those products are of lesser quality. You might buy a t-shirt that doesn't last as long, and be back later to buy another one. But you might be buying supposedly organic milk and meat that doesn't contain all the nutrients you might expect, or has been watered down and/or heavily salted.
And because of Wal-Mart's domination of the food retail business, other supermarkets are forced to do the same, or risk going out of business altogether. You get fewer choices, and lesser quality, even if you never set foot inside a Wal-Mart.

Thanks, Sam.