Wal-Mart's Whack-a-Mole Strategy to Confront Food Price Increases

Depending on who you talk to, Wal-Mart does not exactly have the best reputation for treating suppliers fairly when it comes to letting them pass along price increases (even in rising commodity markets). In fact, I'd describe their strategy as "whack-a-mole". If a supplier complains, threaten to move elsewhere. Consider this recent CNN story that suggests Wal-Mart is driving suppliers to reduce costs further even in the inflationary environment that many food producers are facing. Wal-Mart's GM for perishables is quoted in the story as saying, "When our grocery suppliers bring price increases, we don't just accept them."

But pushing back on suppliers by denying price increases and forcing them to reduce prices further is only one strategy the retailer is deploying. Wal-Mart is also encouraging suppliers to reduce packaging while promising them the same amount of shelf-space. The Bentonville giant is also attempting to go direct for private label items rather than working through middlemen. But perhaps most interesting, Wal-Mart is doing more local sourcing to saving on transportation costs. According to one potato supplier in the article providing spuds to Wal-Mart in the Northeastern United states, the cost of "shipping one truck of spuds from his farm in Maine to local Wal-Mart stores costs less than $1,000, compared with several thousand dollars for a big rig from Idaho. Last year his shipments to Wal-Mart grew 13%."

- Jason Busch

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