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. . . Chapter 10 Page 12 of25 Wal-Mart and Other Mega-Retail Discount Chains Enter the Food Industry in a Most Powerful Way As we discussed earlier in this report, recently a number of mega-retail discount chains (Wal-Mart, Kmart and Target) have decided to enter the food business. However, financial analyst opinions conclude that Wal-Mart will become the largest player. According to industry estimates, Wal-Mart's 239 Supercenters (combination food/retail stores) account for sales of about $13.5 billion or about 14.5 % ofthe company's fiscal 1996 sales of$93.6 billion. Supercenters are spread over 23 states with approximately 110 new stores planned for 1996. Most stock analysts believe Wal-Mart will become the largest food company in America with sales exceeding $30 billion dollars a year. Wal- Mart has been evaluating the potential of Super centers at both ends of the spectrum from a 109,000 square foot center in Arkansas to a 220,000 square foot center in Tennessee. A 136,000 square foot model has all the same departments as a larger Supercenter, but it is laid out in a smaller box and has a more compressed variety. Wal-Mart officials told Supermarket News, "the decision to grow with a smaller size prototype is a clear indication that Wal-Mart plans to expand Supercenters into smaller towns of 10,000 to 12,000 people where there is less population density and less competition."2.l In the near future Wal-Mart will probably enter the food business in California and several other states and what may be at stake will be the additional loss of many quality high paying jobs now found in supermarkets. Wal-Mart's increasing assimilation into the food industry is apparently motivated by the drive to increase total retail sales. According to company statements, total retail sales should increase some 30% due to the synergies established at combination stores. Furthermore, it has been suggested that Wal-Mart might use food as a loss leader in order to increase store traffic. There will be a positive transfer effect in the sale of general merchandise by having more visitors to the store, particularly if the sales of food are in the "loss leader" category. The impact that this will have on the food industry will parallel the effect it has had on the traditional retail industry. The problems created for employees within the traditional food industry could be nothing short of catastrophic. Supermarkets work on very thin margins, and their shrinking market share resulting from the combination of cheap labor and low prices will have murderous impact on the traditional food stores, large or small. The fallout could be compared to that of GM, Chrysler and Ford; not in overall job loss, but in weekly earnings, while company paid health benefits and retirement plans now prevalent in supermarkets might disappear. The shift in health benefits costs will go directly to the taxpayer while desperate worker who can't get jobs and retirees without pension funds may be adversely impacted and may have to be taken care of by federal, local and state governments. With a Social Security system already in jeopardy, increased drains will only shorten its lifespan. The elderly will certainly become more dependent on government subsidies as the shrinking "middle". will be further demonstrated. The Supercenter's impact on the food industry will not be transparent to the causal observer. The entry of mega-retail discount chains like Wal-Mart, Kmart and Target into the food business is to increase their retail sales possibly by as much as an estimated 30% - in the case ofWal-Mart. However, there will be a further negative impact upon the local, state and federal economies as jobs go from full time to part-time and as wages drop and fringe benefits disappear. Effects on the Community The Midwest Center for Labor Research(MCLR) studied the tax revenues now generated at existing supermarkets in San Jose, California which might well be lost if three super stores (combination http://www.shilsreport.org/chap 1 O.html 10/6/99