Food stores losing out, says Wal-Mart study

By Anthony Fletcher

- Last updated on GMT

Related tags: Wal-mart

Global Insight's analysis of Wal-Mart paints an overall positive
picture of the retail giant's impact on industry and the economy,
though it does suggest that food stores are losing out.

The study, entitled The Economic Impact of Wal-Mart,​ was presented at a Wal-Mart sponsored conference in Washington, D.C. earlier this month, along with papers written on this same topic from other sources.

Global Insight claims that the expansion of Wal-Mart over the 1985 to 2004 period can be associated with a cumulative decline of 9.1 percent in food-at-home prices, a 4.2 percent decline in commodities prices, and a 3.1 percent decline in overall consumer prices as measured by the Consumer Price Index-All Items, which includes both goods and services.

The main driver of this impact was a 0.75 percent improvement in the overall efficiency of the economy. Increased capital intensity and lower import prices were secondary drivers. The 3.1 percent decline in the price level was partially offset by a 2.2 percent decline in nominal wages, so that the net effect was to increase real disposable income by 0.9 percent by 2004.

But those up the supply chain are concerned that such power is distorting the food industry. According to the McKinsey Global Institute, Wal-Mart company was so efficient that four per cent of the growth in the US economy's productivity from 1995 to 1999 was due to Wal-Mart alone.

And in order to achieve all this, suppliers and manufacturers have been squeezed relentlessly to cut wholesale costs. Food industry forums have been set up in order to highlight the difficulty of raising prices on food products when discounters like Wal-Mart Stores wield such power over the grocery market.

Indeed, the Global Insight study suggests that Wal-Mart's growth has led to net job losses in food stores. According to the study, Wal-Mart does appear to be displacing other retail establishments in the country.

However, the study also suggests that Wal-Mart has had a positive impact on employment nationwide, generating 210,000 jobs by 2004, a 0.15 percent increase relative to the number of jobs that would have existed without Wal-Mart.

The study also includes an in-depth examination of the Dallas-Ft. Worth area where Wal-Mart has a significant presence. Consumer cost savings in the area are estimated at 4.0 percent by 2004.

"The impact of the cost savings in conjunction with other direct, indirect and induced impacts has led to 6,300 more jobs and a 2.6 percent increase in real disposable income in the area,"​ the study said.

The Global Insight study also included an analysis of the effects on the structure of county-level retail employment when Wal-Mart enters or expands in a market. The study shows that with the opening of a typical 150 to 350 person Wal-Mart, retail employment increases by an average of 137 jobs over the near-term and levels off to a 97-job increase over the long-term.

Wal-Mart both sponsored the study and provided access to detailed data on sales, employment, and wages at Wal-Mart stores and Wal-Mart Supercenters, going back to the mid-1980s. Detailed data on its purchases from its suppliers in 2004 and a sampling of employee wage data by store and job category for October 2004 was also made available.

In addition to conducting its own study, Global Insight issued a call for research papers from the academic and business community. An independent Global Insight Review Committee selected studies from these submissions to be presented at the conference.

The organisation said that selection of studies was not dependent upon either positive or negative findings but on academic rigor, methodology, and overall quality of analysis.

A copy of the Global Insight study and selected papers may be obtained by going to this site.

Related topics: Suppliers

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