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Pretending To Buy Local: Why Is Wal-Mart Ashamed Of Its Important Role In Bringing The Produce Of The Country And The World To Its Customers At A Reasonable Cost?

Jim Prevor’s Perishable Pundit, August 3, 2011

The Wall Street Journal ran a piece titled, ‘Local’ Grows on Wal-Mart, which tells precious little about what Wal-Mart is doing and an awful lot about how easily reporters get snowed when they don’t know much about the subject at hand:

Wal-Mart Stores Inc., which scours the globe seeking the lowest-cost suppliers, is finding it can save money by buying more fruits and vegetables grown closer to its stores.

Other food retailers, including Supervalu Inc. and Safeway Inc., also are racing to expand the amount of locally grown food they offer, as more Americans flock to farmers markets and gourmet grocers such as Whole Foods Market Inc. in search of fresher produce.

While some retailers, such as Wal-Mart and Kroger Co., say that buying locally yields savings, most of the chains say their main objective is to satisfy changing consumer preferences.

The lack of a federal standard or any consensus on what qualifies as "local" food leaves grocers a lot of leeway in their marketing. At most large retailers, fruits and vegetables harvested hundreds of miles away can be touted as locally grown.

Such loose definitions have sparked criticism from small farmers and organic-food advocates that the chains are merely adjusting their marketing to capitalize on the latest food trend, rather than making real changes in their procurement practices.

Wal-Mart, the largest grocer in the U.S., with more than $120 billion a year in food sales, encourages its managers to buy produce grown within 450 miles of its distribution centers, even if local peaches, for example, cost more than those produced across the country in California.

That's because the Bentonville, Ark., giant has determined that, in an era of high diesel prices, trimming the number of "food miles" produce travels cuts fuel costs. Buying locally also reduces produce spoilage, Wal-Mart says, though it won't quantify the savings.

This summer, Wal-Mart has lined up farmers to grow jalapeño peppers in 30 states, twice as many as last summer. A decade ago, almost all of the chain's hot peppers came from Florida, California and Mexico.

"We can get chili peppers from Florida all day long, but at the end of the day that is not necessarily the best model for us," says Darrin Robbins, Wal-Mart's senior manager for produce. "I'm going to pay a higher price in Ohio for peppers, but if I don't have to ship them halfway across the country to a store, it's a better deal."

The shift – and a related pledge Wal-Mart made last fall to double purchases of locally grown fruits and vegetables to 9% of its U.S. total for produce by 2015 — promises to create winners and losers in American farming, with growers in some regions gaining new business and others seeing reduced orders….

Where does one begin?

First, this is not the way produce pricing works. We used to export lots of apples, for example, and had the flexibility of buying in lots of growing areas. Many of these apples went to northern Europe. If one simply looked at the map, one might think it would work out a lot cheaper to ship New York State apples rather than Washington State apples. We did ship lots of New York State apples but mostly Macintosh or Empire varieties that they wanted in the UK and were not available in Washington State.

When it came to Red Delicious apples, it turned out that both apple shippers and buyers on the east coast knew what the freight rate was from Washington State. Prices for apples of comparable quality grown in New York rose — above Washington State prices — as buyers in New York City looked to pick up bargains. This is what markets do. So the notion that there are these massive disparities in prices between different growing regions and that people can pick off massive savings is mostly not the way it works.

Second, shorter transportation is not necessarily cheaper. The cheapest way to supply an east coast customer from the Midwest is often to ship a full trailer to California where there are lots of mixed loads loading. Then when shipping back to the East Coast load up a full trailer with multiple items, and send another full trailer back east. This is why Fedex was ingenious when it recognized at its start that the cheapest way to overnight a package from Boston to New York was to fly it through Memphis. The key is filling up the trucks which is hard to do when buying from small farms. If one is concerned with emissions, it is also worth noting that deliveries made in half empty trucks, double the emission per pound.

Third, vendors we speak to know nothing of instructions being given to Wal-Mart buyers to buy local even if it costs more. There certainly are some products that can be seen as categories of their own — say Vidalia onions or Southern peaches — that retailers, including Wal-Mart, may pay more for. It is also obviously true that Wal-Mart, as with all retailers, is mostly concerned with delivered costs, not FOB costs, but, Wal-Mart has a massive initiative to reduce procurement costs. The notion that it is running around the country looking to overpay to be “local” is so counter to what is actually happening at the company that it is mind-boggling such a thing gets written.

Fourth, the whole discussion is bizarre because what advocates care about when they talk about local – small scale, bio-diverse farms, family farms, within a few miles of a store, not a distribution center that is going to ship things long distances – has virtually nothing to do with any local buying Wal-Mart may actually do.

Fifth, undefined claims that local will grow to 9% of sales of US produce sales by 2015 have more to do with store distribution than produce procurement. Wal-Mart has been under-indexed in California, and every time it opens a store there, it improves its “local” numbers. It is completely meaningless and unverifiable.

Sixth, although it has efforts such as its Heritage Agriculture program, such programs account for significantly less than 1% of Wal-Mart’s produce procurement. It is more PR than procurement. It is the way a giant geo-political entity tries to appease regulators and advocacy groups.

Seventh, it will always be easy to find growers appreciative of business. But we caution those growers to not invest substantial money to service Wal-Mart without a Plan B. One option for a grower is to maintain a diverse business portfolio so that they can walk away from the Wal-Mart business the day Wal-Mart executives decide they need margin and want to get it from their friendly local grower. Alternatively, a grower can insist on a long term contract or agreement in writing with Wal-Mart that assures the local grower of sufficient time to amortize any investments being made. This year, Wal-Mart may want more Jalapeño suppliers, but it is highly likely that ultimately Wal-Mart will buy most of their jalapenos from those who will sell them cheapest. Growers need to be prepared.

Eighth, the idea that local means less spoilage depends on an awful lot of things... such as the local grower having the same advanced precooling and packing facilities that national shippers do. Some do have such facilities, but if they do, then they are not small-scale operations.

Proving that not only Wal-Mart wants good publicity, the article goes on to quote other retailers, including an unidentified spokesperson for Supervalu who makes a claim that can’t have anything to do with the subject at hand:

“Supervalu, which owns the Jewel-Osco, Albertsons and Lucky supermarket chains, estimates it now buys between 25% and 40% of its produce locally for its more than 1,100 stores across the country.”

Presumably that refers to where Supervalu’s procurement agent is or, perhaps, where the company they buy from is such as a terminal market wholesaler, but it can’t possibly refer to where the produce is grown. Bananas, tropical fruits, counter-seasonal imports from Chile, South Africa, the Caribbean, plus Mexican produce and California produce — how could it be possible for 40% of produce to be “locally grown”? Remember during large parts of the year, there is very little grown locally for chains such as Acme in Philadelphia — it is, in fact, impossible.

There is no reason not to celebrate good locally grown produce, but there is also no reason to be ashamed of a worldwide distribution network that brings peak-of-the-season produce from growers all over the country and around the world to the smallest towns in the US at a highly reasonable price.

In the end Wal-Mart, and any large retailer, can’t gain from pretending to be something it is not. That lack of sincerity and authenticity will leave a far worse taste in the mouths of consumers than will some produce shipped from the west coast.

Someone at Wal-Mart should reign in the PR team that is pushing for this kind of coverage and teach them about the virtues of what Wal-Mart actually does for the American consumer.

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