Boxed Out

Boxed Out
— by Lee Pitts

When a lawyer representing the cattlemen suing IBP for unlawful use of captive supplies explained to Don Tyson that, if successful, the lawsuit could cost Tyson more than what he paid for IBP, the chicken man is said to have responded: “You should be suing Wal-Mart [instead of IBP], they are the problem. They tell us what they will pay and we have no choice but to pay you less.”

As hard as this is to admit . . . the poultry plucker may have a good point.

An American Success Story

Recently Forbes Magazine´s annual profile of the 400 wealthiest people in this country arrived in my mailbox. I found it interesting that the four through eight spots on the list were all held by members of the Walton family. That´s right, five of the ten richest people in America are the widow and children of patriarch Sam Walton who died in 1992. When added together the wealth of the Walton heirs totals $94 billion, easily doubling the wealth of the richest man in this country, Bill Gates. Together the Walton heirs still own 38 percent of the world´s largest retailer.

Talk about an American success story! Sam Walton founded Wal-Mart with one general store in 1962 in Rodgers, Arkansas. Forty years later the chain owns 4,300 big box stores including 1,622 U.S. Wal-Mart´s and 1,156 Wal-Mart Supercenters that average 200,000 square feet. (This is the size of four football fields all under one roof.) The company also owns 512 Sam´s Club warehouse stores where consumers pay a membership fee to buy groceries. There are more than 1,200 foreign Wal-Marts. To fill in the spaces not serviced by a Wal-Mart the company is also building a string of Neighborhood Markets. Clearly Wal-Mart´s meteoric rise in retailing is unrivaled:

In 1970 Wal-Mart became a publicly traded company and in 1979 became the fastest company in history to reach a billion dollars in sales. Last year the firm had sales of $218 billion.

With more than a million employees the company is the largest private employer in the world.

The day after this past Thanksgiving the company posted the biggest retailing day ever . . . $1.25 billion in business in a single day.

100 million consumers shop in a Wal-Mart owned store each week.

While traditional retailers shutter and shut down stores, Wal-Mart is growing their square footage at a rate of 20 percent per year.

Wal-Mart is the world´s biggest corporation, taking in annual revenues larger than the the entire GDPs of Israel and Ireland combined. The company banks $7 billion a year in profits and this past quarter profits were up 16 percent over the previous year.

Prepackaged Profit

Why are we telling you about a retailer in a newspaper about cattle, you may wonder? Because with each passing day they are selling more of the meat we eat.

Wal-Mart didn´t always offer a full line of groceries but in the early 1980s they began using food as a way to protect themselves from the economic slowdowns that traditionally effect dry good sales. Consumers may not buy as many toys for the kids when times are tough but they always buy groceries. Now the firm is the 800-pound gorilla in the food business and chains like Kroger, Safeway and Albertsons are scared to death of “The Beast from Bentonville.”

Wal-Mart quickly realized that to dominate the meat business they had to offer a case-ready product already packaged and ready for customers. They also needed a product they could monitor and control with the same precision and inventory control that made their success possible.

Lucky for them prepackaged meats are perceived by the consumer as being cleaner and safer. And they are more efficient to produce and distribute. The problem with case-ready meat products was one of quality control. Packages leaked, the color was inconsistent and the meat didn´t have the shelf life of a box of corn flakes, nor the pretty packaging.

Wal-Mart seemed to have found the answer to these problems with IBP´s Thomas E. Wilson brand of case-ready beef and pork. In her article, “Discount Meat — Are Consumers Buying It?” Candace Krebs said, “IBP´s case ready brand, tagged Thomas E. Wilson, had been heralded repeatedly in industry publications as innovative, futuristic and consumer-approved.”

As with many consumer products, the hype was better than the actual product. According to Krebs, Wal-Mart is suspected of being forced to throw away large amounts of unsold prepackaged meat. “Only IBP and Wal-Mart, who are exclusive partners in the Thomas E. Wilson deal, know the actual sales numbers,” according to Krebs. But we do know that IBP recently permanently shelved the Thomas E. Wilson brand and henceforth all IBP case ready beef and pork will carry a Tyson label.

Krebs suggests that ranchers may suffer as the chains attempt to get it right. “After all,” says Krebs, “if overall meat quality suffers as a result of the adoption of case-ready packaging, consumer acceptance and long-term demand will plummet.”

Mike Callicrate, a former cattle feeder and one of the men suing IBP, says that the problem is that “IBP and the other big packers want to manufacture beef rather than produce it. Instead of buying better beef the use of chemicals and mechanical processes will increasingly be used by big packers to deal with the lack of consistency and meat toughness in their high volume, profit-maximizing operations.”

Working For The Man

You can count on Wal-Mart and Tyson to eventually get case-ready beef right. And you can also count on their not paying any premiums. If beef producers want a glimpse of what their future will look like when Wal-Mart takes over the beef business they need only look at the position of other Wal-Mart suppliers and employees.

In an article titled, “Remaking Our World,” Jim Hightower said that “getting costs down is Wal-Mart´s mantra and modus operandi, and that translates into a crusade to stamp down the folks who produce its goods and services, shamelessly building its low-price strategy and profits on their backs.” According to Hightower, “more than 65,000 companies supply the retailer with the stuff on its shelves, and it constantly hammers each supplier about cutting their production costs deeper and deeper in order to get cheaper wholesale prices. Some companies have to open their books so Bentonville executives can red-pencil what CEO Scott terms “unnecessary costs.”

And about that that greeter who warmly welcomes you when you set foot inside a Wal-Mart — that person is probably smiling about something other than his paycheck. According to Hightower “the average Wal-Mart employee makes only $15,000 a year for full-time work. While the company brags that 70 percent of its workers are full-time, at Wal-Mart “full time” is 28 hours a week, meaning they gross less than $11,000 a year. Health-care benefits? Only if you´ve been there two years; then the plan hits you with such huge premiums that few can afford it — only 38 percent of Wal-Marters are covered.” Currently present and former Wal-Mart employees in 28 states are suing the company for failure to pay overtime. They say they were ordered to punch out after an eight-hour shift and then continue working for no pay.

“Apologists for these Big-Box mega-stores say at least they´re creating jobs. “Wrong,” says Hightower. “By crushing local businesses, this giant eliminates three decent jobs for every two Wal-Mart jobs it creates. This outfit operates with an avarice, arrogance, and ambition that would make Enron blush. It hits a town or city neighborhood like a retailing neutron bomb.” The company claims the consumer is saving 20 percent on her food bill because of Wal-Mart. One wonders if it´s really worth it?

On its web site the big retailer states “At Wal-Mart, we respect the individual rights of our associates and encourage them to express their ideas, comments and concerns. Because we believe in maintaining an environment of open communications, we do not believe there is a need for third-party representation.”

In other words . . . Wal-Mart hates unions. Which gets to the real reason Wal-Mart wants to sell prepackaged beef. It may not be so much about pleasing the customer as it is getting rid of union labor. First we had IBP breaking the New York meat cutter´s union with boxed beef and now Wal-Mart seeks to do the same with case-ready beef.

In Hightower´s article he followed one effort to unionize a Wal-Mart store. “We signed [union] cards, and all hell broke loose,” says Sidney Smith, one of the Jacksonville meat-cutters who established the first-ever Wal-Mart union in the U.S., voting in February 2000 to join the United Food and Commercial Workers. Eleven days later, Wal-Mart announced that it was closing the meat-cutting departments in all of its stores and would henceforth buy prepackaged meat elsewhere.”

Always Low Prices

Remember those old Wal-Mart ads where the company would proudly advertise their American made products with red, white and blue “We Buy American” banners? That philosophy and those ads seemed to have perished when Sam did.

Even back then Jim Hightower says “the vast majority of the products it sold were from cheap-labor hell-holes, especially China. In 1998, after several exposes of this sham, the company finally dropped its “patriotism” posture and by 2001 had even moved its worldwide purchasing headquarters to China. Today, it is the largest importer of Chinese-made products in the world, buying $10 billion worth of merchandise from several thousand Chinese factories.”

Hightower says that 71 percent of the toys sold in the U.S. come from China, and Wal-Mart now sells one out of five of the toys we buy. “Even the big boys like Toys R Us and Kroger are daunted by the company´s brutish power, saying they´re compelled to slash wages and search the globe for sweatshop suppliers in order to compete in the downward race to match Wal-Mart´s prices.”

“Even though China´s minimum wage is 31 cents an hour, which doesn´t begin to cover a person´s basic subsistence-level needs, these production workers are paid 13 cents an hour,” says Hightower. “They also must pay for their own medical treatment and are fired if they are too ill to work.”

Wal-Mart scours the globe in search of cheap labor and lowest-cost materials. Why do you think they´ll take a different posture when it comes to the meat they sell?

Wal-Mart Justice

Want to sign on the dotted line to become a contract producer for Tyson and a Wal-Mart supplier? Before you do please read an article by Martin Kuz called “The Wal-Mart Menace.” Martin says that “at any given moment, some 10,000 lawsuits are pending against Wal-Mart. Each year, it is sued roughly 4,700 times — an average of 13 cases a day — on matters ranging from injured customers to employee discrimination. The total makes Wal-Mart second only to the federal government as America´s most frequent litigation target.”

Martin Kuz writes that in court “the nation´s biggest company has scruples as low as its prices. In the last six years, judges have slapped the company with at least 75 sanctions for destroying, altering, and hiding evidence, according to documents filed in numerous suits against Wal-Mart across the country,” says Kuz. “At first blush, 75 violations amid thousands of cases seems an irrelevant percentage — except that the number appears to represent more sanctions than those of all other Fortune 500 companies combined. The penalties also expose the contradiction between Wal-Mart´s down-home image and its back-alley legal tactics.”

According to Jim Hightower, “The Equal Employment Opportunity Commission has had to file more suits against the Bentonville billionaires club for cases of disability discrimination than any other corporation. A top EEOC lawyer told Business Week, “I have never seen this kind of blatant disregard for the law.”

“The company´s approach has become so notorious,” says Kuz, “that an Alabama judge, irritated by Wal-Mart lawyers skirting questions about past violations, fumed, “Is there something in the drinking water in Arkansas that says that perjury is all right?

The Pusher

In a recent issue of Supermarket News industry observer Chuck Cerankosky says that we can expect to see increased consolidation in the grocery industry because of even more fierce price competition. Cerankosky says the consolidation will come about, not through acquisition, but merely by “pushing” some people out of business. Guess who is expected to be the biggest “pusher?”

Isn´t it ironic that Sam Walton, the personification of small town America and often pictured driving his beat-up old pickup, built an empire that now promises to suck the life out of small town America? First to succumb were the small business owners on Main Street. In Wal-Mart´s wake ghost towns were left behind where once proud communities used to thrive. Sadly, before the Arkansas kissing cousins of Tyson and Wal-Mart are finished with their business, tumble weeds may be blowing over deserted cow country as well.