Wasn’t he, though. Adding food to Wal-Marts in 1988 almost doubled each store’s footprint, expanding it to the equivalent of three football fields. Since then, food sales have led Wal-Mart’s growth (the chain offers groceries at prices 15 to 30 percent below its rivals), and food now accounts for roughly one third of sales at all Supercenters.
The result is a supermarket landscape that looks more and more like a tale of two cities. Wal-Mart has the discount end cornered. Other supermarkets can’t compete—in part because they pay union wages, whereas Wal-Mart has long had a vigorous anti-union policy. “You cannot go to a meeting in the food industry where someone isn’t saying ‘The battle for the lowest price is over,’” asserts Stanton. “You have to do something else.”
That “something else” might mean adding a pharmacy, 16 varieties of turkey, or better service; it might mean buying up competitors to gain Wal-Mart-like efficiencies (and, in fact, the large chains have all but devoured smaller operators); quite often it means going upscale. Safeway, for instance, has spruced up some of its stores with hardwood floors and introduced a panini program.
“If you’re not carving out a special niche, you’re going to get creamed by the likes of Wal-Mart,” says Bill Andronico, who runs his family’s eponymous gourmet supermarket chain in California.
Andronico’s represents the other end of the supermarket spectrum, as does Whole Foods, a company with exploding growth. These are the places with olive bars and organic everything. One would think they’d be shielded from the tsunami of Wal-Mart, but even Bill Andronico feels gusts—because if contenders in the “middle,” like Safeway, are dressing themselves up, they’re moving upwind into his territory. And the fancy foods arena simply can’t accommodate everyone. “There’s just no room,” says Kathleen Seiders, a marketing professor at Boston College. The high-end niche is less than 5 percent of total food sales, according to the industry’s main trade publication, Supermarket News.
But even people who shop at stores within that niche might be surprised to learn that they, too, will feel some of Wal-Mart’s seismic impact. As with the giant bookseller Barnes & Noble, whose choices now affect which books are published, Wal-Mart’s buying decisions are beginning to creep back up the supply chain to influence what’s actually produced. In some cases, if Wal-Mart doesn’t want the product you make, then, well, you might as well not make it.
Because each Wal-Mart stocks about one-third fewer food items than the average 30,000 to 40,000 of most supermarkets, the squeeze is on suppliers to grab some of those spots. “Wal-Mart carries only the number one and number two national brands,” notes Richard Kochersperger, a food-marketing expert at St. Joseph’s. “They don’t want the flavor that’s unique—they don’t need that.” Or, in the words of one Wal-Mart store manager in Bentonville, “If it’s not turnin’, it’s gotta be goin’.”
The result is that food manufacturers are shrinking their lines: Heinz eliminated 40 percent of its items globally over the past two years; Kraft got rid of about 11 percent of its items in 2004; for General Mills, the number was 20 percent; and the food giant Unilever eliminated some 735 items. Some of what’s vanishing is merely different sizes and flavors, and Wal-Mart is of course not the only reason companies are slimming down—manufacturers say they would be doing this anyway, to gain efficiencies. But, says David Merrefield, editorial director of Supermarket News, there’s no doubt that the apple picking is due to “the competitive nature of food retailing now, and certainly a large portion of this could be put at the feet of Wal-Mart.”
Will we miss all our choices? It depends, really, on whether you’re hooked on that seventh brand of mustard when now there are only six. Still, it’s unnerving to think that Wal-Mart shoppers are, even to some small extent, determining what the rest of us can buy. Wal-Mart, for instance, has led the charge to “case-ready” meats, which are prepackaged at the slaughterhouse (allowing Wal-Mart to dispense with well-paid in-house meat cutters). Other supermarkets are following this lead, meaning that a finer mince, or a cut that is anything but the supermarket-designated standard, is becoming an endangered species in the average store.
Even more alarming is the issue of quality. Wal-Mart meat contains up to 12 percent water, salt, and preservatives (by weight), a formula that renders lean cuts juicier, while unfortunately diluting their original taste and driving up the salt content. This trend, too, has been followed by other supermarkets, since they can no longer afford to carry meat that is not enhanced if Wal-Mart’s watered-down version is selling for less.
“Wal-Mart is an agent of the consumer. Nothing more and nothing less.” This is Bruce Peterson again, in his Wal-Mart office, responding to questions about the quality of the food he offers. “We don’t discriminate against customers, deciding for them what we should carry. They decide for us.”
About a year ago, Peterson—or his customers—apparently made the decision to opt for cheaper organic milk. Organic Valley’s chief competitor, Horizon Organic—which had recently been bought by the $10 billion food conglomerate Dean Foods—had allegedly cut its prices considerably, and Siemon says he refused to “play that game.” (Horizon denies that it reduced its prices.) The news that Wal-Mart was dropping a third of its business with Siemon arrived in an e-mail. “It was all numbers,” he says. Realizing that the writing was on the wall—that the pressure to push down prices while maintaining a steady supply might just overwhelm his company, especially since it could barely keep up with demand as it was—Siemon decided to pull out of Wal-Mart altogether. “The Wal-Mart buyer was absolutely stunned,” says Organic Valley’s chief marketing executive, Theresa Marquez. “No one had ever called him up to say that.”
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