Article — From the July 2012 issue

Citizen Walmart

The retail giant’s unlikely romance with small farmers

( 6 of 7 )

I pulled into Bentonville on a Sunday. The town is, on its face, standard American sprawl: pleasant houses with lawns, strip malls along a main thoroughfare (Walton Boulevard), and chain hotels all down the way. On the street where the Home Office is located, I saw a large sign that said so far this year, we have saved families, and below it an LCD screen read $199,575,567,130. (This figure is from research, I was told by Walmart representatives, that found Walmart saves every U.S. family $3,100 a year, whether they shop there or not.)

The Home Office itself is an architectural achievement in nondescriptness: just a few stories high, and built so you can’t really tell how much ground it covers without an aerial view. It communicates no real trace of any kind of power or wealth, no imposing or impressive Late Triumphalist Facelessness or Postmodern Total Dominion. This is what I like about the behemoth and the auto-body shop, to return to the matter of Keith. His business doesn’t look like it got dropped on the wrong block by mistake.

Their proximity fits perfectly within the image the company wants to project, and within the model of what it actually does. The Walmart press-release writers would argue that the company has grown so large by staying in close touch with its own local roots, in touch with the needs and demands of the small communities it serves. What’s clear is that never before has a company grown so big by the manipulation of the small. It is the third-largest employer in the world, after the U.S. Department of Defense and the People’s Liberation Army of China, and it has grown to this position by relying on the poor and middle-class people who work and shop at Walmart stores.

Inside the Home Office is a labyrinthine set of hallways and cubicles, suitably shabby. I was led to a small cubicle where Ron McCormick, senior director of local and sustainable sourcing, was waiting. McCormick told me Walmart was going to make money on the deal with local farms. “For us, produce in particular is one of those items where freight is a disproportionate cost of the goods,” he said. “But if we can buy the product close to the distribution centers, this gives us a substantial freight savings, which gives us a strong competitive advantage that not everyone can duplicate. So there’s a strong business motivation just from the logistics.”

I asked whether losing out on economies of scale didn’t offset the shipping savings.

“If I’m buying a hard good that I can store forever, being able to buy a full truckload in California as opposed to a quarter of a truckload in Illinois, there’s nothing there,” McCormick conceded. “But if it’s a highly perishable item — in three days it’s going to be trash — the economy of scale is more than outweighed by the amount of product we throw away. We throw away a shocking amount of food.” And, he added, “If we can save three dollars a case in freight, we can do a lot with that three dollars. . . . We can pay to the cost of production. Because no matter how efficient we are, it will always cost more to grow that product in some parts of the country. . . . So we can take a portion of that saved freight and pay that farmer more.”

I asked about any reputation problems among small farmers.

“We used to have a lot of small regional local producers we did business with,” McCormick said. “What we found was that on those occasions that our local buyers would go visit those farmers, or just at a convention or some industry meeting, they’d hear these horror stories about how bad it was to do business with Walmart. . . . We’re going, ‘Okay, we think we’re pretty fine people, how did we manage to become the devil of the industry?’ What we found out was that if we allowed it to be an invisible process, our best suppliers did a great job — even the mediocre suppliers still did a decent job of it — but then there were still a lot of people who were literally telling the farmers, ‘Look, I can only pay you four dollars. You know how Walmart is, they pound us down, they beat us up, all we can pay is four.’ We may have been paying nine dollars to that supplier, but they were telling the farmer, ‘Hey, I have to make a little profit here, Walmart’s paying seven dollars, I know the market says eight fifty, but that’s it.’ ”

They were lying and gouging, I said.

“They were gouging. So we understood we need to make it a three-way conversation,” McCormick said. They needed more direct contact with the farmers themselves. But small farmers weren’t necessarily equipped for all the paperwork, the insurance, and so forth, without those middlemen. The best solution, McCormick thought, would probably include more farmer-run cooperatives, and Walmart wanted to encourage that. This was good news for the farmers, I thought: he was saying Walmart wanted the same thing as the growers had told me they did, a way for farmers to come together to share costs and achieve some negotiating power without losing out to more middlemen.

Are corporations changing? I asked. Was this part of an evolution of the idea of what a corporation should be?

McCormick wasn’t ready to confess to all that. “I think our senior executives, Mr. Scott, and now Mike Duke,” he said, “have been very vocal and up-front telling people that with all the sustainability work we do, there’s an element of self-interest there. Lee Scott used to call it ‘earning our license to grow.’ Because this is a growth company. So we have to be the kind of company that people would want to grow . . . We want to be the kind of company that provides transparency to the people about what we’re buying, how we’re buying — to have the sort of corporate citizenship that would make people say, ‘I want to shop at Walmart.’ And feel good about what they’re doing.”

McCormick’s words were echoed by Beth Keck, Walmart’s senior director for sustainability, when I asked her whether there were any political drawbacks to the sustainability initiatives — whether consumers might be turned off, seeing it as some liberal tree-hugging waste of time and effort.

“I see us as a very mainstream business, and we’re a very down-to-earth business as well,” Keck said. “Because, you know, our everyday consumer is just an average person, and many of them live paycheck to paycheck. And our promise to them is very simple: that they should never have to choose between a sustainable product and one they can afford. We’re very conscious of the mission to bring these two together. And I think that supersedes politics. It’s really all about bringing our consumer the best value.”

I was puzzled for a moment about the consistency of these lines of argument from McCormick and Keck — We’re not out to save the world; we’re doing this for our customers and for our bottom line — until what should have been obvious finally occurred to me: that in our conversations they were actually addressing their shareholders. Sustainability would improve efficiency, and thereby increase profit. Sustainability would improve Walmart’s image, and thereby increase profit. Sustainability would allow growth, and growth was profit.

Jim Prevor, who runs Perishable Pundit, a website dedicated to covering the produce industry, told me, “Things have not been good at Walmart. So there’s tremendous pressure to produce more sales and more profits.” But part of the problem is that food is rising as a percentage of the company’s sales, and food is still a low-margin item — big profits come on lawn mowers, not peaches. “One day, Walmart’s going to need earnings, and the word will come down to their buyers: Find money. And these people” — the growers — “will be very, very vulnerable.”

Whether that vulnerability should be Walmart’s responsibility — whether Citizen Walmart should be expected to do something more than simply make money any legal way it can — is an ethical question no one at the company wanted to address.

More from Dan Halpern:

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