Editorial Editorial (January 02, 2004)

Should Pleasanton block Wal-Mart's growth? Should Pleasanton block Wal-Mart's growth? (January 02, 2004)

A recent cover story in Business Week magazine asked the question: "Is Wal-Mart too powerful?" City Councilwoman Jennifer Hosterman thinks so and she has joined with the boards of supervisors of Alameda and Contra Costa counties in proposing legislative action that would stop Wal-Mart from expanding its stores into supercenters with full-sized grocery stores in Pleasanton and the unincorporated areas of the two counties. Their concerns may be justified. According to Business Week, Wal-Mart Stores Inc., with $245 billion in revenue in 2002, is the world's largest company, with 138 million shoppers visiting Wal-Mart's 4,750 stores each week. Most of its recent growth has come from these new Wal-Mart Supercenters, which the company has been building at the rate of 200 new units a year. Analysts project that Wal-Mart's planned growth will allow it to capture a third of the expected gains in U.S. spending on grocery and drug products through 2007, giving it control of 35 percent of food store industry sales and 25 percent of the drug store industry, and placing many entrenched competitors in jeopardy.

Hosterman, who has been meeting with representatives of Pleasanton-based Safeway Corp. and grocery workers' unions, cites reports that show that Wal-Mart's efficiency of scale and the cheapness of its non-unionized labor force ($8-$10 an hour compared with $17-$18 at supermarkets owned by Safeway, Albertsons and Kroger) give Wal-Mart a massive advantage, which could force at least one of these mid-sized firms to disappear. Wal-Mart's "everyday low prices" is more than a slogan. In its "Survey of Food" report last month, the UK's Economist magazine found Colgate toothpaste selling at Wal-Mart Supercenters for an average of 63 percent of its competitors' price, Tropicana orange juice for 58 percent, and Kellogg's Corn Flakes for 56 percent.

The Business Week report praises the company for a simple, virtuous and successful business model that has enabled the company over the years to relentlessly wring tens of billions of dollars in cost efficiencies out of the retail supply chain, passing the larger part of the savings along to shoppers as bargain prices. While Hosterman agrees that the company's business plan has been "right on," its perverse consequences are leaving "an absolutely horrible footprint across America" that she wants to stop before it reaches Pleasanton and the East Bay. She is especially concerned with Wal-Mart's anti-union stance which, as the country's largest private employer, is widely blamed for the sorry state of wages in retailing. According to Business Week, Wal-Mart sales clerks pulled in an average of $8.23 an hour, or $13,861 a year, in 2001, nearly $1,000 under the federal poverty line for a family of three that was then $14,630. Coupled with healthcare benefits that Hosterman says many employees can't afford, the reduced buying power of its low-paid workforce and sizeable percentage of its 1.16 million U.S. employees who opt out of the company's health insurance plan pose long-term social, economic and healthcare difficulties that government and taxpayers may have to cover.

Up to now, Hosterman has been unable to generate any interest from others on the City Council to hold public hearings on her concerns. But when the Pleasanton Wal-Mart recently asked for a permit to add new refrigerators for milk and other perishables it already sells, Hosterman exercised her right as a councilwoman to appeal what would have been a routine approval. Now Wal-Mart, if it still wants to add the refrigerators, will have to go through a structured public hearing process before the Planning Commission and then likely again before the City Council where Hosterman and her fellow Supercenter opponents will be waiting. These could be classic, business school-type debates pitting those arguing for unregulated free enterprise against those favoring government controls on a retailer they believe has become too powerful. We'll be listening.

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