Can Wal-Mart Do 'Local'?

The retail giant is using in-state farmers in an attempt to soften its image.

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Wal-Mart wants you to know that it's not just cheap but local, too. These two qualities have rarely converged in the aisles of the chain, the world's largest retailer and the nation's biggest importer of foreign-made goods. But as of July 1, Wal-Mart has taken a "local" approach that it says will bring you cheaper produce.

 

Exactly what "local" means and how prices might be affected aren't clear. But Wal-Mart's bargain-hunting customers, hit by rising inflation, are hoping to see some trickle-down.

For the company itself, the local approach is just one example of shedding old skins. Just last month, Wal-Mart changed its logo from the blue star it has used since 1992 to a sort of yellow digital daisy and a softer font. Last year, the company ditched its 19-year-old "Always low prices" motto for the more touchy-feely "Save Money. Live Better." And Wal-Mart has increased its emphasis on "green" goods and sustainability.

But the retail giant, which relies heavily on items made in China, may find it hard to manage two very different consumer bases: purely cost-driven shoppers and sustainability-minded consumers with more to spend. As Wal-Mart juggles new and old identities, can it rule both the dirt-cheap arena and the local niche market?

Always low prices?

Local foods are often more expensive than their mass-produced, imported competitors, but shoppers are hoping Wal-Mart's size and economies of scale can help it cut prices. If it succeeds, Wal-Mart's local initiative will both cut shipping costs and be a comfort to shoppers bombarded with food scares, such as salmonella-tainted jalapeño peppers.

The company has increased the number of local U.S. farmers that supply its stores by 50 percent in the past two years. In late June, for example, South Carolina's commissioner of agriculture, Hugh Weathers, announced a partnership with Wal-Mart. He said the plan would "keep a little of the grocery money close to where we live, supporting the family farm and the community's economy."

In Idaho, Wal-Mart has bought produce for its stores from local growers for the past five years. Wal-Mart's purchases are influencing what the state's farmers grow and how much. "Certainly, more acres are being dedicated to [Wal-Mart]," says Celia Gould, director of Idaho's Department of Agriculture. And Wal-Mart has sold everything that's been supplied by local farmers, she says. "There is always the need for more."

Yet suppliers should be careful about big deals, says Bobby Martens, assistant professor of logistics and supply chain management at Iowa State University's College of Business: "Wal-Mart is demanding, and producers should carefully evaluate any supply agreements." Martens, who has researched Wal-Mart's grocery division, says that as small farmers scramble to fill large orders, the question will be "whether the local food will actually be safer. My hypothesis is that it is not."

What's "local"?

Some of Wal-Mart's competitors—including the Whole Foods Market chain, the New Seasons Market stores around Portland, Ore., and Hen House Market in Kansas City, Mo.—sell locally grown food. Most "local" markets are defined by geographical boundaries such as a region or a radius in miles, not by the confines of political borders. Whole Foods, for instance, calls a product local if it has traveled less than a day (seven or fewer hours by car or truck) from farm to store.

Wal-Mart's take on "local" is different. It defines a local product as one made and sold in the same state. (Fruits and veggies in South Carolina Wal-Mart stores, for example, will be labeled "Certified SC Grown.") Wal-Mart says its in-state plan will save the chain 100,000 gallons of diesel fuel a year nationwide and save about $1.4 million a year.

Marketing and distribution experts say Wal-Mart's rule doesn't make much sense. "It has to change over time because at state border locations, produce grown in the adjoining state is more 'local' than that grown hundreds of miles away in the same state," says Eugene Fram, a professor of marketing at the Rochester Institute of Technology in New York.


Corrected on : Corrected on 7/28/08: An earlier version of this article misspelled the name of Brian Girouard, a Capgemini vice president.

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