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'Walmart effect' has global benefits (commentary)

'Walmart effect' has global benefits (commentary)

THE very mention of Walmart in some circles, whatever the context, can be a certain invitation to dishing out harsh criticism, especially when discussing the company's presence in the food world.

Walmart has single-handedly transformed the food retailing business.

The company has effectively established an innovative strategy for groceries within the framework of its broader business model.

Much of it is founded on a relentless commitment to tracking inventory turnover performance for individual items, including food products. That skill has enabled the company to achieve highly efficient inventory management (that subsequently also aids capital management efficiencies).

The result is that Walmart is able to cut costs and pass along savings to customers.

Most important here, lower grocery prices serve to attract customers, lead to enhanced loyalty and help drive store traffic. Ultimately, the company's food strategy to get customers in the door stimulates sales on higher-margin products in other departments, and in doing so, it increases overall store yield. As such, food is utilized as a means to an end.

The model is clearly successful. The food supercenter format has dominated new growth in the grocery retailing business during the past 10 years. Most telling is that a number of competitors are attempting to implement similar plans. Even traditional grocers are expanding product offerings within their respective stores in a way that somewhat resembles the supercenter model.

But, as alluded to above, the company has its share of critics. They don't like Walmart's competitiveness and often make accusations that it's all based on unfair labor and/or pricing tactics. Therein enters the emotional reacation often associated with Walmart's broader influence on society.

However, a recent commentary in Foreign Policy by Charles Kenny of the Center for Global Development puts a slightly different spin on some of that criticism. Kenny argues that Walmart actually has benefitted the poor more "than any other business in American history." That's especially pertinent given Walmart's presence in the food business.

Kenny explains: "There are two ways to help poor people buy more of what they need. One is to help them make more money. The other is to make the money they have go further. And Walmart has proved incredibly adept at that second approach. Take food, for instance. Walmart is the world's biggest food retailer, and it offers foods at prices considerably lower than those at traditional supermarkets — as much as 25% lower, according to economists Jerry Hausman and Ephraim Leibtag."

The Hausman and Leibtag reference stems from a 2005 National Bureau of Economic Research working paper titled "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart."

Their summation of the supercenter's role in food markets goes like this: "the benefits (are) substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low-income households benefit the most."

Kenny further explains that the benefit isn't limited just to the U.S. but also has an important global effect.

"More than 1 billion people still live in the borderlands of absolute deprivation, scraping by on less than $1.25 a day," he wrote. "Nevertheless, many have more access to goods and services than they did only a few years ago (even if they're not yet buying their cassava at the Ouagadougou Walmart). That's in part because companies around the world have figured out how to make and ship the stuff that poor people want at lower cost, which makes lives better. Call it the global Walmart effect."

So, whatever your view of Walmart, there's no denying how influential the company has become in these broader discussions. Sure, the company (and respective shareholders) has profited over time — largely by leveraging food to generate sales — but obviously, it's a mutually beneficial relationship, or else consumers wouldn't shop at Walmart.

Much of the vocal condemnation out there largely comes about because the model doesn't fit neatly into an ideological world view.

That criticism doesn't help feed a hungry world, though, and going forward, providing accessible and affordable nutrition for an ever-expanding population is the most important consideration of all.

*Dr. Nevil C. Speer is with Western Kentucky University and serves on the board of the National Institute for Animal Agriculture, a national organization devoted to engaging livestock producers and livestock health professionals in developing solutions for issues in the livestock industry.

Volume:85 Issue:22

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