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."
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.
To Kelly O'Keefe, professor and executive education director at Virginia Commonwealth University's advertising program, Wal-Mart's same-state rule is saying, " 'Keep it home, keep it in our state'—which is a slightly different note to play and may be mixing signals." In distribution, "states are arbitrary dividing lines," O'Keefe says. He wouldn't be surprised "to see that change as it turns out to be, logistically, a nightmare."
Deisha Galberth, a Wal-Mart spokesperson, says that the company has agreements with each state's agriculture department and that using the state boundaries makes store signage easier. That way, customers in Idaho can easily recognize a local product as one bearing an "Idaho Preferred" sticker. But, she says, "we consider miles in proximity to farms and stores," which is why you may still see produce from neighboring states in stores—all labeled by their state of origin.
The 'Wal-Mart effect'
Remember that threatening phrase "the Wal-Mart effect"—reflecting a theory that when Wal-Mart descends upon a town, it demolishes competition, bringing a slew of social maladies? With Wal-Mart's new look, some say the company may be able to turn around the phrase's meaning.
"There's an opportunity for Wal-Mart to delight their consumers," says Brian Girouard, global consumer products and retail leader for Capgemini, a New York business consultancy. Only 9 percent of shoppers buying perishable foods are satisfied with the stores at which they bought them, according to a recent Capgemini study.
But some say the move to go local will only add to the list of Wal-Mart's negative effects.
Maryanne Hedrick, owner of My Personal Farmers Market, a produce service in New York's Hudson Valley, says, "If farmers sell their harvest at a Wal-Mart price, which I assume is rock-bottom, they are doing themselves a disservice in the long term." That's because "farmers make the best money when they sell direct via markets," not to the merchandiser. But, she says, consumers of local food want diversity and freshness. And she believes that "there's no way that Wal-Mart can pull it off." The idea of "Wal-Marting local food is ridiculous—Wal-Mart is the personification of bigness, and local is small."
Wal-Mart's Galberth says, "It might not seem natural for Wal-Mart to go to locally grown food." But, she adds, it's just another way to keep costs down and give customers what they want.
Idaho's Gould says having Wal-Mart as a customer "has encouraged farmers to plant more of what's in demand." One farmer in the state saw a doubling of his asparagus sales and a 30 percent increase in organic grape sales over the past two years. Gould says the revitalization in farming is great for the region's economy. "We haven't had that kind of demand until recently," she says.
But Doug Hart, a pricing expert at the consulting firm BDO Seidman, questions how the giant retailer's growing presence will affect local markets. "Wal-Mart has already changed the marketing landscape [by buying so much from China]. Now they could change the landscape of farms," he says. With Wal-Mart as a megacustomer, Hart adds, the pressure will be on farmers to grow a smaller variety of crops and more of the one thing that the giant retailer wants. This, Hart says, could "absolutely" be another unfortunate symptom of the "Wal-Mart effect."
Corrected on 7/28/08: An earlier version of this article misspelled the name of Brian Girouard, a Capgemini vice president.