Why is Walmart So Darn Cheap?
“Friends don’t let friends shop at Walmart”. The saying was written on a pin and caught my eye. I was in a store in my neighbourhood one afternoon shopping for Christmas presents for the very first time. I was in grade 7, I had $40 in my pocket, and I was going to find great gifts for everyone I knew… I had a very limited budget but when I saw the pin I knew I needed to get it for my friend, who often talked a lot about shopping at Walmart.
For most of my life, Walmart was presented to me as the epitome of big box store American capitalism taking over the world. As a budding socialist, I accepted that and took Walmart to essentially be the root of all evil. I know now, of course, that Walmart is not the cause of the problem even if it is a symptom, and it has its place in society just like everything else. And you know what, as a student with very little money, Walmart can be pretty appealing.
That’s what I really want to discuss: why is Walmart so much cheaper? How do they do it? Is it employees who work minimum wage? Is everything sourced from slave labour and unethical practices? Much as I like to hate on Walmart, I doubt this is the case. I mean, often I see food in Walmart sourced locally but offered at a better price than other grocery chains. How do they do it?
The “Wal-Mart Effect” is a term coined by Charles Fishman in his 2006 book by the same name. I didn’t manage to read it before writing this article, but luckily Investopedia did. So, trust this synopsis or not, here’s what Fishman has to say about Walmart’s competitive pricing. As a company with massive buying power, Walmart owns between 15-20% of the worldwide sales for many companies it sources from. This gives them a lot of leverage negotiating prices; essentially they are able to set the price they choose for products, and manufacturers are forced to make their products for less money to keep up. This can result in reduced quality, decreased wages, or moving production to “less expensive countries” for goods manufacturing. The Wal-Mart Effect also has the result of shutting down smaller stores nearby, but that isn’t the focus here today.
So Walmart is able to sell toys and clothes and shoes and whatever else for cheap because they’re pushing the cost back onto the manufacturers (and usually then onto the planet, which is also not the topic of this article). I know I said I would not be biased with this article, but try to find legitimate reasons for lower prices, but all my research seems to lead me to buying power. So, let’s look at food then.
Walmart is not only the world’s largest retailer, but it’s also the world’s largest grocer. Maybe in Canada President’s Choice stores dominate, but if you go to almost any medium-sized town in the States, there is always a Walmart. To boot, Walmart has locations in 27 countries. Compare that to only eleven countries with Costco locations. How can they sell food cheaper? You can’t manufacture food more cheaply the way you can manufacture a shirt more cheaply.
Honestly, Walmart has a pretty substantial sustainability platform. According to their website, they are funding research for fertilizer optimization. Their goal for the end of 2015 was to sell goods from 1 million small and medium-sized farmers in emerging markets – they already source some produce locally like Leamington tomatoes and Ontario peaches – and they are committed to sustainably sourcing key food commodities like palm oil, beef, cage-free eggs, and seafood. And all this not to mention other sustainability initiatives for zero waste, renewable energy sources, and more.
Historically, half the problem with making more “sustainable” products was a larger price tag. According to David Graham Hyatt & Andrew Spicer, in an article for Quartz.com, Walmart had to ask itself what a sustainable product is, how it could be measured effectively and efficiently, and what value did it create for the company and customers. It did not want to raise prices for consumers, even if those consumers might desire more sustainable products, so it did its best to go back to suppliers and ask them to be more sustainable. So, they created a “sustainability scorecard” for suppliers which by all accounts has been influential. It looks like they can sell food cheaper for the same reason it can sell clothes cheaper: market share = negotiating power, I guess. And is the food really that sustainable? Well, it’s a balance trying to find, as Graham and Spicer say, “what counts as ‘sustainable enough’ for price-conscious consumers?”
Did I answer your questions or just confirm your biases? Or do you have more questions now? I hope to look into this more, because like most people these days, I’m concerned about where my food is coming from, what the supply chain looks like, and what the impact of buying something is. Even though I’m just one broke student, I still have power in how I spend money. In the end, we all have to make decisions about the things that we buy, and as university students, we’re on the right path to being able to make decisions one day, rather than resorting to Walmart out of desperation for more affordable food.
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