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Food Prices and the Walmart Love/Hate

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Consumers and the Divide Over Walmart’s Prices

Walmart’s Low Prices Compete Against Tried and True Supermarket Chains

Walmart. Photo Courtesy of Colorlines.comAt a time when food prices are soaring, Walmart has announced it will be slashing its already low grocery prices. Is this a good thing? The discussion about Walmart has come to stand for the larger debate about corporate food and what’s truly best for us as consumers and society, since the company has almost single-handedly transformed the nation’s grocery business, threatening what most people had considered large, stable, national chains.

To me, this reflects above all the enormity of the retail giant (and, incidentally, the largest grocery chain in the country). That it can use not just one or two items, but an entire category of items (food), as loss leaders, and still stay in the black is unprecedented in the business. That is, by seducing customers with low grocery prices, it increases sales volume overall on any of the hundreds of thousands of other items sold in its stores. And it builds customer loyalty. By selling almost everything there is to sell, it can absorb rising food inflation without passing it on to consumers.

When did food, the foundation of civilization, come to be this economically trivial and dispensable?

The strategy, sometimes known as “investing in price” is difficult for most food retailers to manage on the scale Walmart does, since the grocery and food industries in general already have extremely slim margins. (Farmers more than anyone – and they especially will feel Walmart’s newest squeeze.)

Kroger, Safeway, and Supervalu have also invested in price while consumers remain cash-conscious, but Walmart has the advantage of being able to make up its losses in the food and consumables area,” noted Convenience Store News. “Low prices will remain a cornerstone for Walmart as consumers struggle with unemployment, high fuel prices, and slow economic growth.”

With Walmart the only retailer that can use such tactics on this massive a scale, the market share of traditional grocers has declined. In region after region, Walmart becomes the grocery of choice. And not because consumers like it. They just can’t resist the price.

According to a recent Consumer Reports survey, Walmart falls near the end of the list of grocery stores that gain consumer esteem. But more and more consumers find themselves making the switch.

Despite the low rankings, it is the nation’s best-selling grocer. The average shopper may have a lofty philosophy about where their food should come from, but he or she does not seem to be expressing this through purchases. In the end, price and convenience matter most to recession-pinched families, and Walmart meets those needs by having all the goods in one place, at the right price, and locating stores where they will be handy to the consumer demographic most likely to benefit.

One consumer respondent to a survey by MSNBC said, “Love Trader Joe’s, Co-op, Whole Foods, etc., but low price comes first.”

Since Walmart’s main appeal is price, the company has put most of its energy into maintaining that draw, rather than focusing on other shortcomings, which were legion, according to Consumer Reports. Its survey revealed that Walmart tried consumer patience more than most other chains, with shortfalls that included lack of open checkouts, out-of-stock regular items, indifferent employees, spotty pricing, and a confusing store layout.

Grocery inflation was 4 percent in the fourth quarter, and Walmart is trying to position itself as the general solution for families. It continues to relentlessly drive down sourcing costs, using its size as leverage over suppliers, and pressuring wholesalers to absorb some of the increase in food prices.

All of Walmart’s trends show it embracing growth and size-related power. In the past few years, it started building more supercenters (mostly distinctive because they are larger and include a fully-stocked grocery section, averaging 185,000 square feet to a regular Walmart’s 108,000). Walmart’s CEO and President, Bill Simon, told Cleveland.com, “Supercenters remain the best vehicle for capturing market share, and we remain committed to growing through new supercenters.”

Whole Foods also reported increased sales over the past year, revealing perhaps deep-seated consumer ambivalence, or an equal number of consumers “switching up” as those grudgingly switching down to Walmart. Whatever the case, American food spending is clearly growing more conflicted and divided to the extremes, with the middle-of-the-road grocery chains losing. This could be interpreted as an uncanny parallel to American demographic trends more generally, in which the wealth divide grows, with wages at the bottom of the spectrum stagnating or losing value to inflation, and the upper tiers growing with interest and investment. It’s a bad sign, though, when increasing numbers of Americans feel their only option is the grocery chain they most loathe. It’s bad for them and for the growers, distributers, and wholesalers of food, not to mention the local economies where Walmart’s land, which often lose net jobs and suffer overall depressed area wages.

Genevieve Slocum is a Contributor to The Free George.

The Free George is the online magazine and visitors’ guide of Upstate NY, covering things from Albany to Lake Placid, including Saratoga, the Lake George region and the Adirondacks. Check out our City Blogs section for our extended coverage areas as well.

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