WALMARTING THE FOOD CHAIN - Foodopoly: The Battle Over the Future of Food and Farming in America - page 41

Walmart is so big that it has an unprecedented amount of power in all sectors of the economy. Food is
no exception. When there is a single player as large as Walmart connecting food producers and food con-
sumers, individual consumers are no longer the food manufacturing industry's most important customer.
The company continually puts pressure on its suppliers to cut costs. And with Walmart as their biggest
customer, food companies have no choice but to comply. When Walmart makes a decision to change the
way it does business, the entire industry shifts to keep up. And despite what Walmart would have the pub-
lic believe, this decision is made with profits in mind. As consumers and policy makers continue to be
bombarded with PR messages about Walmart's efforts to help people live better, it is time to look at the
actual impact that its rise has had on our food system—and to reconsider whether this model has any place
in trying to fix it.
More than just size and market share have enabled Walmart to exercise such considerable control over
suppliers. Walmart's success is the result of several very specific ways in which it does business. Walmart's
logistics and distribution model is much different from other companies. The primary reason for its incred-
ible growth as a food retailer is because of the way it manages its supply chain. 17 Walmart's model, essen-
tially, is all about sucking money out of the supply chain. Its logistical operations are run primarily through
shifting costs and responsibilities to its suppliers. Walmart requires suppliers to adopt supply-chain man-
agement, logistics, and data-sharing programs and to manage their own inventory, even on store shelves. 18
It was the first company to bring high-tech information management, and it demanded that its suppliers
keep up. They must comply with and use the company's own IT system, which includes automated, sched-
uled deliveries of products and controls of inventories, which are tracked electronically via a universal bar
code. 19 Monitoring this is the responsibility of the supplier, not of Walmart. The company even exercises
control over the design of their products by forcing suppliers to meet Walmart specifications in a range of
categories, from their ingredients to their packaging. 20
Contracts with Walmart are nonnegotiable: if a supplier wants to do business with the world's largest
retailer, it must accept Walmart's terms without modification. 21 It has shifted the liability for supply dis-
ruptions to suppliers. If there are perceived discrepancies with an order, or even if not enough product is
sold, Walmart can charge the supplier a fine, known as a “chargeback.” 22 These fees, which have become
more common in other retail industries as well, can be significant—sometimes in the hundreds of thou-
sands of dollars. 23
When Walmart began requiring some suppliers to use radiofrequency identification (RFID) tags to keep
track of inventory, it made those suppliers pay all of the costs of the technology. RFID tags send out a weak
radio signal that allows the item to be scanned and tracked from a distance. 24 The technology to track pal-
lets has been expanded to some clothing and food items as well, including by growers. 25 The estimated
cost of adopting it for a grocery manufacturer with $5 billion in sales is about $33 million each year, which
saves Walmart billions of dollars. 26 Although it doesn't require the tags on every product, Walmart has
forced suppliers who didn't adopt the technology when required to pay fees for untagged goods. 27
Walmart demands volume. It sells an incredible amount of each food product, much more demand than
a small or medium-size producer could ever hope to meet on its own. For instance, Walmart buys one bil-
lion pounds of beef each year. For a company obsessed with increasing efficiencies in its supply chain it
makes considerably more sense for it to get this meat from a few large meatpackers rather than from nu-
merous small, local suppliers. In addition, these smaller producers are probably less likely to be able to
meet and afford Walmart's technological requirements, unlike the bigger players in the industry.
Walmart is the largest purchaser of American agricultural products, and as such has considerable influ-
ence over which foods are available to the public, the methods in which they are produced, and the prices
paid to food producers. Walmart is now the biggest customer for many of the top food producers and pro-
cessors in the country, including dairy giant Dean Foods, General Mills, Kraft, and Tyson Foods. 28 Each