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Walmart is the biggest company in the United States and the country’s largest food retailer.1 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 one player this large connecting food producers and food consumers, consumers are no longer the food industry’s customers — Walmart is. And the saying “the customer is always right” has never been more appropriate.

Walmart is such a large customer that even large food processors cannot refuse any demands that Walmart makes upon them. The company’s model is based on

practices that drive consolidation; take money away from farmers, workers and processors; and drive agriculture to get more industrialized.

Walmart’s business model is part of the problem, which means the company is not going to be a mean-ingful part of the solution to problems in the food supply. Instead of succumbing to Walmart’s public relations o!ensive and pressure to be allowed in new urban areas, all levels of government should look for other solutions to increase communities’ access to healthy food.

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What started as a single discount store in Rogers, Arkansas, in 19622 has over the last 50 years morphed into the largest retailer in the world.3 Walmart is the biggest company in the United States and the country’s largest food retailer.4 Walmart is the world’s largest private employer, with 2.1 million employees, 1.4 million of whom are in the United States.5 Walmart has almost 4,000 (3,804) U.S. stores and over 4,500 (4,557) stores internationally in 14 countries.6

Walmart’s 2010 sales were $419 billion,7 with the company making $1.87 million in pro"t every hour.8

Walmart opened its "rst “supercenter” in 1988 in the town of Washington, Missouri, selling food alongside other retail products, and within only 12 years became the largest food retailer in the United States.16 Now just over half of Walmart’s business comes from grocery sales.17 One out of every three dollars spent on groceries in this country goes to Walmart.18

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 one player this large connecting food producers and food consumers, consumers are no longer the food industry’s customers — Walmart is. And the saying “the customer is always right” has never been more appropriate.

The company continually puts downward pressure on its suppliers, forcing them to cut costs. With Walmart as their biggest customer, suppliers have no choice but to comply. When Walmart makes a decision to change the way it does business, an entire industry will shift to keep up. And despite what Walmart would have the public believe, this decision is made with pro"ts in mind. As consumers and policymakers continue to be bombarded with PR messages about Walmart’s e!orts to help people live better, it is time to look at the impact that Walmart’s rise has had on our food system — and to reconsider whether the Walmart model has any place in trying to "x it.

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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 speci"c factors about the way the company does business. In addition to being fervently anti-union,19 Walmart’s logistics and distribution model is much di!erent from other companies. The primary reason for Walmart’s incredible growth as a food retailer is because of its model for managing the supply chain.20 Essentially, Walmart’s model boils down to sucking money out of the supply chain.

Walmart bases its logistical operations on shifting costs and responsibilities to suppliers. Walmart requires suppliers to adopt supply chain manage-ment, logistics, and data-sharing programs and to manage their own inventory, even on store shelves.21 Walmart was the "rst to bring high-tech information management into the grocery industry and demanded that its suppliers comply with and use the company’s own information technology system, which includes automated, scheduled delivery of products and control of inventory, tracked electronically via universal bar code.22 Keeping track of this is the responsibility of the supplier, not Walmart. The company even exercises control over the design of products, forcing suppliers to meet Walmart speci"cations.23

!"##$%&'()'&**"'&(Contracts with Walmart are non-negotiable as a rule: if suppliers want to do business with the world’s largest retailer, they must accept Walmart’s terms without modi"cation.24 Walmart has set up its operations with

suppliers to allow the company to shift liability for setting prices, supply and distribution to the producer, with no risk to Walmart. If there are perceived discrep-ancies with an order, or even if not enough product is sold, Walmart can charge the supplier a "ne, known as a “chargeback.”25 These chargeback fees, which have since become more common in other retail indus-tries as well, can be signi"cant — sometimes in the hundreds of thousands of dollars.26

When Walmart "rst began to require some suppliers to use radio-frequency identi"cation tags, or RFID tags, to keep track of inventory, it required those suppliers to pay all of the costs of the technology.27 RFID tags send out a weak radio signal that allows the item to be scanned and tracked from a distance.28 The technology was originally used to track pallets in warehouses but has expanded to some clothing and food items as well, including use on farms.29

One estimate of the cost of adopting RFID technology for a grocery manufacturer with $5 billion in sales was about $33 million per year.30 The cumulative savings for Walmart for putting this cost on its suppliers would amount to billions of dollars.31 While it has not required these tags on every product, Walmart has forced suppliers who did not adopt the technology to pay fees for untagged goods.32

+%,-./0$"1&(2&1345Walmart sells an incredible amount of each food product, much more so than a small or medium-sized producer could ever hope to supply on its own. For instance, Walmart buys 1 billion pounds of beef each year.33 For a company obsessed with increasing e!iciencies in its supply chain, it makes consider-

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ably more sense for Walmart to get meat from a few large meatpackers than from numerous small, local suppliers. In addition, these smaller producers are probably less likely to be able to meet and a!ord Walmart’s technological requirements for managing inventory, unlike the bigger players in the industry.

Organic Valley, a farmer-owned cooperative that supplied Walmart with organic milk for approximately four years, was selling 1.3 million gallons of #uid milk to Walmart each year.34 Yet this represented only 3.6 percent of Walmart’s total milk sales for that year.35 After an organic milk shortage left the company unable to supply all of its customers, Organic Valley decided it would no longer sell milk to Walmart.36 Organic Valley executives feared that Walmart would purchase so much of the cooperative’s milk that Organic Valley would become beholden to the retail giant and could be pressured to lower prices and thus pay its dairy farmers less, something it did not wish to do.37 Rather than become so dependent on Walmart that it would make the cooperative vulnerable, Organic Valley stopped supplying milk to Walmart.

6"7&'()08&'Walmart is the largest purchaser of American agri-cultural products,38 and as such it has considerable in#uence over which foods are available to the public,

the methods in which these foods are produced, and the prices paid to producers.

The incredibly uneven power dynamic between Walmart and its manufactured goods suppliers is well known.39 It puts Walmart into an excellent position to make demands on these suppliers, and Walmart regularly does. The pressure to cut costs that has pushed companies like Levi’s, Hu!y, Rubbermaid, Mr. Co!ee and RCA to close up manufacturing facilities in the United States and move them overseas40 has also hurt food producers like Vlasic, which was at one time making less than one cent per jar of pickles in order to meet Walmart’s price-point demands.41 This pressure travels all the way down the food chain and has led to increased consolidation in the food industry.

Walmart is now the biggest customer for many of the top food producers and processors in the country, including dairy giant Dean Foods, General Mills, Kraft Foods and Tyson Foods.42 Each of these suppliers represents only a very small portion of Walmart’s total business, but the relationship is a great deal more important to the supplier because food processors, meat packers and other suppliers cannot sacri"ce their sales to major retailers, but the retailers can easily switch to alternative suppliers.43 Walmart is such a large customer that even large food

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processors cannot refuse any demands that Walmart makes upon them.

In order to compete with Walmart, other grocery stores in the industry have tried to emulate the company’s practices, becoming bigger, consolidating operations and putting downward price pressure on their suppliers and workers. This industry-wide pressure means rising consolidation in the entire food chain, all to keep up with Walmart.

Since Walmart moved into grocery sales in the late 1990s, many other retailers have also consolidated their operations to try to compete. This consolidation across the grocery industry has given the largest retailers considerable power as buyers of groceries, and has also signi"cantly reduced the number of buyers of products from regional food producers.

Supermarket chains are now very concentrated, with half of all sales going to just four companies.47 At the local level, the top four chains can control more than 70 percent of the marketplace.48 Walmart alone controls more than 50 percent of the grocery market in 29 markets across the country.49

These retailers with high market share can exert this power over food manufacturers, meat processors, produce shippers and other suppliers to reduce their

prices. This buyer power favors the largest suppliers, who can best negotiate with the large retailers and who then pass on the cost-cutting pressure to the farms and ranches they buy from. Large retailers can represent between 10 and 30 percent of a supplier’s sales, which gives the retailer signi"cant bargaining power.50

The phrase “get big or get out” has been used for decades to describe the pressure on farmers to grow larger in order to survive increasingly consolidated markets. And the phrase could be used to describe the pressure on food processors as well. Many food processing "rms justify their own mergers as an e!ort to create stronger bargaining power to use with large food retailers like Walmart.51 Even as large suppliers merge to increase their power with large retail buyers, smaller food processors and manufacturers may exit the industry after determining they cannot get fair prices from the major buyers.52

Walmart’s approximately 3,800 stores in the U.S. are located predominantly in rural and suburban areas, but the company is determined to move into urban markets.53 Walmart saw same-store sales (sales at stores that existed in the prior year) decline for nine straight quarters from 2009 to the second quarter of 2011.54 Customers were no longer spending as much

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money at Walmart as they used to.55 In order for the company to continue to increase its overall sales and satisfy shareholders, Walmart must instead open new stores. The company has estimated that there are billions of dollars in new sales waiting for it in urban areas. So why hasn’t the company already opened stores in cities?

Walmart has made numerous attempts to expand into cities but has been met with intense opposition, having its e!orts rebu!ed in New York, Los Angeles and, until 2006, Chicago.56 Walmart’s failure to break into urban markets is due to organized opposition on the part of citizen and community groups who have seen that allowing a Walmart into a community brings with it low-paying jobs with few bene"ts, and furthers a cycle of poverty. The company’s treat-ment of workers, suppliers and local communities is well known, and across the country, what were once vibrant downtowns made up of local businesses have become ghost towns after the opening of a Walmart.57 Many urban communities have organized to try to stop Walmart from entering their city to try to avoid this fate.58

Walmart’s impact on workers, rural towns, main streets and the environment has been documented in countless books, articles and campaigns by labor

unions and other advocates. The company knows it has an image problem, going so far as hiring consultants, doing studies and running ads to try to repair it.59 As part of its e!orts to overcome opposition to its attempts to enter new markets, the company has unleashed numerous announcements about new initiatives to improve its environmental performance, social respon-sibility or long-term sustainability. After years of trying to reinvent its image, the company has latched on to food as the issue that will cast Walmart as a solu-tion instead of a problem. And when it comes to food, the company is getting some very high-pro"le help.

6'%4,%4,(+&3$9-7(:005(90(:005(2&*&'9*Walmart has found a new public relations angle that it can use to wedge its way into cities. In early 2010, First Lady Michelle Obama announced her new campaign, Let’s Move! This campaign had the admi-rable goal of solving childhood obesity in the United States within a generation.60 However, it quickly became clear that this campaign would also be used to advance the urban-expansion agenda of Walmart.

In January 2011, First Lady Obama partnered with Walmart as part of the Let’s Move! campaign. This partnership included not only a commitment on Walmart’s part for minor reductions in sodium and sugar levels in some of its products by 2015, but also an announcement that it would open up new stores in so called “food deserts.”61 Walmart created its own nutritional de"nitions for what it considers “healthier” — de"nitions that are, according to nutri-tionist Marion Nestle, “not particularly challenging.”62

The U.S. Department of Agriculture de"nes “food desert” not simply as a lower-income area with no access to fresh food, but as an area without access to a supermarket or large grocery store.63 A supermarket is de"ned as a retailer with annual sales of $2 million, and it must contain all the traditional major food departments, including fresh meat and produce, dairy products, dry and packaged goods, and frozen foods.64

This requirement can generally be met only by large national grocery chains. A smaller local grocery co-op, corner store or bodega, which may in fact provide fresh fruits and vegetables as well as cycle more

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money back into the community, does not count under the USDA guideline, a fault that the department is well aware of.65 This corporate-friendly de"nition makes sure only the opening of a large national grocery chain can eliminate a food desert, a situation that Walmart is using to its advantage.

In July 2011, First Lady Obama made a second state-ment on behalf of Walmart and other large retailers when she announced that Walmart was making an o!icial commitment to open up or expand 275 to 300 stores in underserved urban and rural areas.66 To the general public, this sounds like a solution that helps everyone: low-income populations in urban and rural areas will be able to obtain lower-cost, healthy and fresh foods that they did not previously have access to. But this talk of supplying good food in “food deserts” is simply a public relations tactic that Walmart is using to try to expand into urban markets, an area it has unsuccessfully tried to break in to for years.

The lack of access to healthy food in many communi-ties is too complex to solve simply with the siting of a big-box store. Providing a place to buy fruits and vegetables is one step, but we must also consider the long-term reforms needed to ensure that the system providing those fruits and vegetables is sustainable for everyone at every stage of production.

Walmart’s model for supplying the fruits and vegetables it will sell in food deserts is part of the problem. By driving down costs at every step in

the chain, the Walmart model makes farmers and workers poorer, and it increases the odds that fruits and vegetables will be produced in environmentally irresponsible ways or be imported from countries with lax standards. This comes on top of the burden borne by Walmart’s employees who are paid poorly with few bene"ts. Cheap fruits and vegetables might look good on paper, but it is not so simple when costs to employees, workers throughout the food supply chain, and the environment are left out of the equation.

Walmart announced in October 2010 that it would be buying more “locally grown” produce. When most consumers think of buying local, they imagine smaller-scale, diverse farms operated by families.

But Walmart is not increasing its purchasing of local produce in order to help farmers. Instead, this is a business decision designed to help its image while increasing e!iciencies and cost savings.67 One way the company bene"ts is by spending less money on fuel by acquiring produce from the same state and cutting down on food that is spoiled or damaged in transit across the country.68

But because Walmart deals in volume — not by buying small lots from numerous farms — buying local doesn’t necessarily translate to supporting the types of agriculture consumers might imagine. Walmart’s

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distribution and logistics model favors the use of very few suppliers, and fresh produce is no exception.

Walmart’s actual goal for local food is minimal: while Walmart wants to double the amount of locally grown produce it sells by 2015, this would only increase what Walmart de"nes as locally grown to 9 percent of its produce sales, a goal it estimates will take four years to achieve.69

Walmart’s de"nition of “local” is broad: obtained within the same state as the store.70 And the goal is not 9 percent of products sold in each store, but a combined 9 percent of the produce of all stores.71 This means that stores already located in major agricultural states like California, Texas or Florida can easily make up for the lack of same-state produce in other states. In larger states like California and Texas, so-called “local” food could be traveling hundreds of miles, greater than the distance between Richmond, Virginia, and Portland, Maine.

Walmart has also made a move into organic food, announcing in 2006 that it would double the number of organic products on its shelves.72 Walmart made this decision in an attempt to attract wealthier consumers and to help its image.73 However, the Walmart way of doing business is having negative repercussions in the organic industry, as it has in the rest of the food industry.

When Walmart talks about organic, it is di!erent from what many consumers expect. It includes big food companies making organic versions of the processed foods that are already on Walmart’s shelves — like Rice Krispies and Kraft macaroni and cheese, which these companies can make organic by replacing high-fructose corn syrup with cane sugar and removing or substituting preservatives or other ingredients.74 There is little evidence that Walmart is concerned about the principles behind organic agri-culture, and it will likely accept the bare-minimum requirements for ensuring that a product "ts USDA’s organic labeling requirements. An executive in charge of perishable food at Walmart admitted that the move into organics is simply a merchandising scheme, and that “organic agriculture is just another method of agriculture — not better, not worse.”75

When Organic Valley was considering ending its supplier agreement with Walmart, dairy giant Dean Foods was waiting to get in line. Dean’s Horizon Organic milk brand was willing to o!er lowball prices to Walmart, prices so low that Organic Valley could not begin to compete. The company knew that Walmart was only interested in price, not whether the dairy farmers could make a living.76 Dean Foods is now a supplier of organic milk to Walmart.77

Walmart’s own private-label organic milk brand has been harshly criticized. The dairy cows are raised in factory-farm conditions, with thousands of cows housed in a single facility.78 The cows eat predomi-nately grain and are grass fed only while they are not being milked — about two to three months out of the year.79 Whole Foods Market executives toured one of the facilities in 2006 and found it “unacceptable.”80

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Walmart’s priority when it comes to organic products is "nding the cheaper product, rather than meeting any principles of organic agriculture.81 Walmart’s continued expansion into organics will favor those large suppliers that use factory-farm methods to produce their products as cheaply as possible, poten-tially pushing out of business smaller-scale, organic producers who could not otherwise compete on price or volume.

!"*93%43;%$%97In 2005, during a low point in the company’s public image,82 Walmart announced it was going “green,”83

and in 2006 the company listed three goals it would try to achieve over the coming years: creating zero waste, using 100-percent renewable energy and selling more “ecofriendly” products.84 Since that time, Walmart has announced numerous initiatives in an e!ort to cut energy costs and waste, all to make the company run more e!iciently. The company also obtained the positive image bene"ts of these decisions and won over many of its critics.85

By di!using criticism, the company is able to expand unopposed into more markets. Walmart executives do not see the sustainability goals as a form of philanthropy, but as a growth strategy.86 Walmart has clearly stated that “going green” is simply about cutting costs and saving money.87 Former CEO Lee Scott noted that the rationale for these initiatives was purely economic, stating, “what Wal-Mart has done is approach this from a business stand point and not from a point of altruism.”88

Walmart is the largest private consumer of elec-tricity in the United States,89 so any reductions in electricity usage mean big savings for the company. While Walmart claims it wants to be more reliant on renewable energy, it has also stated it will not use renewable energy if it is more costly than traditional sources.90 This is Walmart’s line in the sand: once “sustainability” becomes unpro"table for the company, it will stop using it as a criteria in its decisions.

In the meantime, the company has not made much progress in meeting its sustainability goals.91 As part of the waste-reduction goal, Walmart has demanded

that suppliers reduce the amount of packaging they use in their products.92 What on the surface seems like a decent step is really one more change Walmart pushes on its suppliers that has little positive bene"t for the environment and a big bene"t for Walmart’s bottom line. The ultimate goal for cutting packaging is a meager 5 percent reduction across the supply chain by 2013.93 But even this minor reduction allows the company to "t more products into a container, boat or truck, which means less money Walmart spends on shipping.94 As a Walmart executive pointed out, “a 2% reduction in a package’s size is worth millions and millions of dollars.”95

In 2010, Walmart made yet another demand of its suppliers in the name of “sustainability,” asking them to analyze the carbon lifecycles of their products and then try to reduce their energy use.96 Suppliers must pay all the costs associated with meeting this goal, while Walmart gets to claim credit for the results.97 And while this program is not mandatory, Walmart has made it clear that it only wants to do business with companies that share its goals.98 The message to suppliers is clear: either get with the program or lose your biggest customer.

As Walmart looks for new markets, especially urban ones, the company has embarked on an ambitious public relations campaign to convince skeptical local governments and communities that Walmart makes

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peoples’ lives better. Food has become a cornerstone of the company’s public relations o!ensive. However, the reality of what Walmart has done to change peoples’ access to food, improve nutrition or expand organics does not live up to the company’s hype.

Walmart’s model is based on practices that drive consolidation; take money away from farmers, workers, and processors; and drive agriculture to get more industrialized. Walmart’s model is part of the problem, which means the company is not going to be a meaningful part of the solution to shortcomings in the modern-day food supply. Instead of succumbing to Walmart’s public relations campaign and pressure to be allowed in new urban areas, local governments should look for other solutions to increase communi-ties’ access to healthy food.

The federal government can make that easier for communities by:

Investigating the impact of Walmart’s monopoly power in the food chain and in local retail markets,

including anticompetitive practices that result from Walmart’s disproportionate market share. Any investigation should look at possible anticom-petitive practices in Walmart’s relationships with suppliers and impacts on local markets.

Creating food and farm policy that re-establishes regional food systems that will provide healthy, a!ordable food to all communities. Federal farm policy should strengthen food assistance programs that "ght hunger and improve nutrition such as the Supplemental Nutrition Assistance Program (SNAP) and the Women, Infants, and Children Supplemental Nutrition Program to ensure that low-income Americans have the resources neces-sary to a!ord healthy, nutritious foods and prevent hunger. Additional policy solutions can also include SNAP incentives to promote purchasing of healthy foods such as fruits and vegetables and whole grains, and expanding Electronic Bene"t Transfer (EBT) availability at farmers markets and other community venues.

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