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Wal-Mart Grows Despite Damage to Workers & Smaller Businesses

From Agribusiness Examiner #293 10/10/03
By Al Krebs

UFCW'S EFFORTS TO UNIONIZE
WAL-MART'S ONE MILLION
EMPLOYEES UNSUCCESSFUL

HARRY KELBER, LABOR EDUCATOR: After years of trying, the one million-member United Food and Commercial Workers, an AFL-CIO affiliate, has been unable to unionize a single one of Wal-Mart's 4,750 supermarkets, despite a heavy investment of money and resources in its organizing campaign.

The best that the union's large staff of organizers has been able to achieve
is its only "historic" breakthrough back in February 17, 2000, when the meat
cutters in the delicatessen department of a Wal-Mart supermarket in
Jacksonville, Texas voted seven to three in favor of the UFCW in a National
Labor Relations Board election. The union was unable to capitalize on this
toehold victory to organize the entire store.

The UFCW can't blame its organizing failures on the grounds that the nearly
one million people who work for Wal-Mart (the world's largest employer) are
so happy with their pay, benefits and working conditions that they don't
need a union. The average pay for Wal-Mart employees (they're called
"associates") is $8.23 an hour or $13,861 a year. That's well below the
federal poverty line of $14,630 a year for a family of three.

Wal-Mart's health-insurance plan is considerably below par, compared with
those in the retail industry. It requires a six-month waiting period for new
hourly employees. Its deductibles are as high as $1,000, triple the norm. It
raised premiums 50% during the past two years. It does not cover retirees .
. . . .

Two years ago, the giant retailer had to shell out $50 million to 69,000
workers in its Colorado stores, whose class-action suit cited overwhelming
evidence of an enormous amount of off-the clockwork by employees. Wal-Mart
also paid $485,000 to ten former Hispanic employees in a discrimination
suit. Family members of deceased Wal-Mart employees are suing the company
because it took out about 350,000 insurance policies on the lives of its
workers, made payable to the company. . . . . .

The UFCW might have won the trust of Wal-Mart employees if it had led them
in their law suits, but apparently it didn't get directly involved. Even
though unionized store employees average about 30% or more in wages and
benefits than those at Wal-Mart, UFCW organizers haven't been able to
persuade a majority of workers at even one store to join the union.

The abysmal failure at Wal-Mart highlights the fact that AFL-CIO unions in
the private sector won't try to unionize scores of corporations with a work
force of 30,000 or more. . . If AFL-CIO unions can't organize the big
companies, how are they to grow?

DAVID VS. GOLIATH:
INDEPENDENT FOOD MARKETS
UNIQUELY CHALLENGE WAL-MART

ALICE Z. CUNEO, ADAGE: Bill Fichtler, manager of the independent Budget Food
Market in Oklahoma City, is surrounded by 10 Wal-Mart Super Centers, six
Wal-Mart
discount stores, seven Wal-Mart Neighborhood Markets and four Sam's Clubs.
Still, Mr. Fichtler believes he can be David in a retail battle with
Goliath.

"We're going to do our thing and Wal-Mart can do theirs," said Mr. Fichtler
of the market he has worked in for more than 20 years in a poor, primarily
Hispanic
neighborhood. Budget Food's clientele seems to prefer his market's fresh
cactus, daily baked tortilla and other Mexican specialties to Wal-Mart's
limited selection of lower-priced ethnic package and frozen products. The
store also ups the service ante, cashing checks and offering Western Union
money orders.

"That's what's going to keep us alive," he said. "You don't have that in
Wal-Mart."

The classic defense Mr. Fichtler's battle is a microcosm of the challenges
faced by retailers of all sizes as they square off against Wal-Mart, the
discount colossus that has become the national market leader for everything
from health supplies and beauty aids to women's clothing and groceries. Mr.
Fichtler's strategy --- differentiation --- is the classic defense retail
experts have suggested for the fray. As Ira Kalish, global director,
Deloitte Research, put it: "The best way to compete with Wal-Mart is not to
compete with Wal-Mart."

Other retail executives and experts think the chink in Wal-Mart's armor is
service. "They can buy ketchup and distribute it better than anybody," said
one senior industry executive who competes with Wal-Mart. "The 'people'
element is their Achilles' heel." In addition to a pending class-action
lawsuit by female former employees, Wal-Mart, with its low-wage work force
of one million, will need to add,
and keep motivated, the employee equivalent of a new J.C. Penney's every
year, the executive said.

The way to go up against Wal-Mart is to "provide unique consumer value that
fights their [minimal] service model," the executive added. For example, in
the food arena, offerings might include prepared meals and specialty
counters such as delicatessens, pre-cooked meals and fresh fish.

Mini-lifestyle malls Canadian grocery chain Loblaws is differentiating by
turning
some stores into mini-lifestyle malls catering to mothers with young
children. Offerings include prepared foods, a select line of children's
clothing, dry-cleaning services, a cafe, on-site babysitting and a health
club.

While many supermarkets and grocery stores are trying to fight Wal-Mart on
price, some, such as Trader Joe's, have held their own by differentiating
their offerings with private-label products. "We are who we are, whether
Wal-Mart is in our territory
or not," said Pat St. John, vice president of marketing for Trader Joe's.
"We're not knocking heads with them." She added that many of Trader Joe's
customers pick up
diapers and Tide at Wal-Mart, Costco or Ralphs.

Differentiation in and of itself may not be retail's silver bullet, however.
Target Corp.'s Target's cheap-chic positioning, long held up as the paradigm
of how to compete successfully against Wal-Mart, is starting to show signs
of wear. Paula Ausick, senior vice president and director of brand equities
at Interpublic Group of Cos.' Foote, Cone & Belding Worldwide, Chicago,
conducted a major study on how Wal-Mart is changing business, collecting
data in Mr. Fichtler's Oklahoma City market, where Wal-Mart has been testing
its retail concepts for almost four years.

"Target pales against Wal-Mart in Oklahoma City," Ms. Ausick said. "People
are not seeing the brands they usually buy and the stores looked empty."

Can't beat 'em, join 'em Some specialty retailers have adopted an "if you
can't beat
'em, join 'em" tack and seek locations near Wal-Marts in the hope that
consumers unsatisfied with the depth and breath of specialized merchandise
at Wal-Mart will come across the street to make their purchases.

Another angle worked by some of Wal-Mart's rivals is convenience. As it
becomes a super center with vast numbers of product categories under one
roof, "the question is, will Wal-Mart get so big that it's inconvenient?"
said the marketing executive. Kohl's, for one, believes it has a solid
customer fan base because its strip-mall locations make it easy to get in,
shop and get out.

Beating perceptions Some experts even believe Wal-Mart can be challenged on
what's thought to be its most impregnable marketing fortress: everyday low
prices. A number of chains, and even some small shopkeepers such as Mr.
Fichtler, found some of their prices beat Wal-Mart's. "The strength of
Wal-Mart is the perception of low price," said one ad executive working for
a Wal-Mart competitor. He believes retailers should be attacking the chain
on the claim. "Perceptions," he said, "can be dealt with."

Battling perceptions may not be enough, however, given that even Wal-Mart's
critics shop there. Former longtime Wal-Mart Executive Vice President of
Marketing Paul Higham remembers driving in Bentonville, Arkansas, and seeing
a car in front of him with a cartoon of little boy urinating on a Wal-Mart
logo. The car turned into a Wal-Mart lot and its driver went in to shop.

The FCB study underscores the point. It divided Wal-Mart customers into four
segments: champions, 29%, conflicted, 27%, enthusiasts, 15%, and rejecters,
29%. The "conflicted" group, those with political and social concerns about
Wal-Mart, turned out to be the second-most regular visitors to Wal-Mart of
the four groups.

Generational shift The study also found a generation of shoppers, many with
young families, that grew up shopping at super centers for household package
goods. Those sticking with traditional shopping venues such as grocery
stores and supermarkets tend to be aging baby boomers, the study found.

Retail mavens know there are a number of strategies out there that sound
good in theory, but many also feel the hour is late and their effective
options too few. Christopher Hoyt, president of Scottsdale, Arizona-based
Hoyt & Co., said, "The only thing that could stop Wal-Mart is if the
government gets involved, just as it did with Microsoft."

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