Organic Valley’s decision to supply Wal-Mart was traumatic for the co-op, and it evolved during the course of a few heated meetings in 2001, involving some 100 farmer members. The first objection was obvious: If Organic Valley was committed to building rural communities of the kind in which all its members lived, how could it do business with a company that sucked the life out of small-town Main Streets? For every opening of a Wal-Mart Supercenter (the 180,000-square-foot stores that sell everything, including food), two supermarkets close, estimates a report by Retail Forward. Siemon argued that Wal-Mart was no more predatory than other supermarkets; for example, he said, the natural foods giant Whole Foods had also proved itself capable of setting itself down next door to the only little organic foods shop in town. Siemon also argued that Wal-Mart benefited the hinterlands by serving remote towns where Organic Valley’s products would otherwise be unavailable.
The other objection amounted to a fear—that Organic Valley might become too dependent upon Wal-Mart and be cornered into dropping its prices. Because wildly vacillating prices have long plagued the dairy industry, one of Organic Valley’s bedrock principles is to pay farmers a fixed amount for their milk. “They were worried that Wal-Mart’s buying power would get us on our knees,” says Siemon. He vowed never to offer discounts or to let the Wal-Mart account grow disproportionately large.
Similar hand-wringing is taking place in boardrooms across the country. Food manufacturers have become alarmingly dependent on Wal-Mart: It is the number one customer for such leviathans as Kraft, Campbell Soup, and General Mills—and food sales to Wal-Mart are growing by 20 percent annually, according to a report by Morgan Stanley. That increase is astounding given that, according to the report, sales to traditional supermarkets like Safeway are dropping by 2.5 percent a year. “I know lots of companies that have over thirty percent of their sales to Wal-Mart,” says St. Joseph’s Stanton. Wal-Mart therefore has enormous leverage over manufacturers—particularly small ones. The company may have learned that putting modest suppliers out of business is bad press, or just bad business, but mom-and-pop outfits nevertheless struggle with the slow squeeze of Wal-Mart’s constant pressure to lower prices. “They don’t want you to make a ten-percent profit,” says one supplier. “They want you to make one to two percent.” And that slim margin can slide a company—especially a small one—right off the edge.
Like off-season athletes who wince with appreciation while being whipped into shape, however, suppliers do praise Wal-Mart for professionalizing their business. “Wal-Mart’s been givin’ us a real education,” says Siemon. “We’ve had to become a better operator.” He recalls the time Organic Valley got marked down on its “vendor scorecard” for imperfect “on-time” delivery. “It’s so funny,” he grins, “because I thought we were doing great with Wal-Mart! But they call arriving early ‘not on time,’ because they have all the trucks scheduled. They don’t want them clogging up their parking lot. When they say 10:15, they mean 10:15, not 10 a.m.”
More important, though, is the fact that most food companies would stagnate without selling to Wal-Mart. While growth in the supermarket industry has virtually flatlined, Wal-Mart is expanding at a furious clip. Its growth in 2004 alone, for example, was equivalent to folding in the sales of a Microsoft or PepsiCo.
For organic companies, there is also a more profound reason to sell to Wal-Mart. “We’re in business to change the world,” says Gary Hirshberg, “CE-Yo” of Stonyfield Farm, which sells its organic yogurt to Wal-Mart. “And they’re helping us to get to folks we never would otherwise. I know that Wal-Mart is having a crushing effect on local economies and local entrepreneurs. But the people who shop there are hastening the transition to an organic economy.... Wal-Mart can do more to change the world in one purchase order than I can do in my whole life.”
When I visited Wal-Mart in Bentonville, Arkansas, I turned off Sam Walton Boulevard and drove up and down a narrow street six times before realizing that the squat brick building with no windows was, in fact, the international headquarters of the world’s largest company.
The lobby is a low-slung, boxy affair. Fox News is on the TV and a coffee urn sits in one corner, with a little tin box where you’re on your honor to drop in a dime. The place is swarming with supplier representatives, each awaiting his turn with a Wal-Mart buyer. And because everyone is always on time at Wal-Mart, soon the reps are ushered back into a hallway lined with tiny, airless rooms. This hardly looks like the apex of the business universe, but the modesty does send the unmistakable message that Wal-Mart’s economies begin at home.
Bruce Peterson, the senior vice president in charge of all perishable food at Wal-Mart, has his own small, windowless office amid a warren of others. He is an affable man in his fifties, with a cherubic face and a smile more steely than sweet. Peterson, who has been in the grocery business for more than three decades, interviewed with Sam Walton in 1991: “Sam said to me, ‘In ten years, we’re going to be the biggest supermarket in the country.’ And I thought, ‘Wow, I may be getting into something big!’”
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