Living in a consumer society, as we do, it’s generally assumed that the customer always comes first. You would think, for instance, that the soup cans and Cool Whip containers in neatly aligned rows on supermarket shelves would be selected according to a scrupulous analysis of consumer preferences and purchasing power. You might assume this is why there are five brands of mint-chip ice cream, six styles of bacon, and seven kinds of mustard on the shelf.
It turns out, however, that consumer tastes figure only marginally in these decisions. The seventh jar of mustard is probably there, for example, because the buyer got Super Bowl tickets from the seller and so put it on the shelf, says Tim Ramey, a food-industry analyst with D. A. Davidson & Co. “Lots of food companies agree that retailers are just a bunch of thieves,” he continues. “They want the Super Bowl tickets before they’re going to sign the order.”
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, 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.
“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.
Wal-Mart is now the number one seller of food in the country, accounting for an estimated 15 percent of all sales. Supermarket experts say that the company owes its astonishing position, at least in part, to its reputation for transparency. “When some suppliers do business with many of the big supermarket chains, they feel like they’re being mugged in an alley,” says Stanton. “Whereas when they do business with Wal-Mart, it’s like a championship fight—big and bloody, but they respect each other in the end.”
Seventeen years ago, when Wal-Mart decided to expand its offerings from “everything” to “everything plus food,” a shopper might have been forgiven for viewing the move through a cheesecloth of suspicion. 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.
To a large extent, the doubts were merited. Since Wal-Mart began selling food, some 10,000 supermarkets have shuttered their doors. Wal-Mart’s entry into the food business has been an earthquake of such magnitude, in fact, that the entire industry has been left scrambling. America’s largest grocers—Kroger, Albertsons, Ahold, and Safeway (chains that together had more than two centuries of experience before Wal-Mart arrived)—have all seen their sales slow over the past decade. “I think that in the next five years you’re going to see the elimination of one or two of the major supermarket chains,” predicts food-marketing consultant Gary G. Kyle. “They’re just going to bow out.”
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.
George Siemon, CEO of the Organic Valley Family of Farms cooperative, has his stocking feet up on an unadorned desk, and through the window beyond I can see Wisconsin’s softly undulating hills. “Doing business with Wal-Mart was one of the hardest decisions we’ve ever made,” he says. Which is not surprising—the reason I’m here, actually, is that Organic Valley, the largest organic dairy cooperative in the country, is a most improbable candidate for working with Wal-Mart, and it seemed fair to ask: Why? Is Wal-Mart’s sweep now really so broad as to include even an organic-milk producer in the pristine Kickapoo Valley?
Actually, the post-hippie idealism running through the company belies a certain rigor. Organic Valley had more than $200 million in revenues last year and is the industry’s gold standard for environmental stewardship. A stickler for quality, the company is also an outspoken defender of family farms. “We see this as a movement; we don’t see this as a trade,” says the regal, square-jawed Siemon. And yet: Organic Valley chose to sell to Wal-Mart.
The 52-year-old has been farming since college, and he still owns a spread a few dozen miles from here. He grew up in South Florida, he says, the son of a businessman who ran a successful chain of office-supply stores until Office Depot came to town. “My family was devoted to downtown business, and the trend was toward mall shopping,” he says. “So for me, my lesson from that is: If you’re going to have a mission, that’s great. But in order to keep that mission, you have to run a professional business and stay up on what goes on. Nowadays, what’s the trend? Wal-Mart.”
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