THE WAL-MART EFFECT NOW AWAITING SOUTHERN CALIFORNIA

David Merrefield

Quite a brouhaha is bubbling in California concerning Wal-Mart Stores' plans to plant 40 supercenters in the state in upcoming years. Among them is the effort emanating from several governmental jurisdictions to ban the big stores and, of course, the entire weeks-long labor fracas.

As was reported in last week's SN, the Los Angeles County Economic Development Corp. was commissioned by Wal-Mart to prepare a study of what might happen to wages, employment rates, food prices and other economic factors should supercenters appear in Southern California. The 42-page report appears to have been developed largely, but not entirely, with reference to publically available materials, including some from SN. The EDC was paid $65,000 to prepare the study, and has acknowledged that it permitted Wal-Mart to select what findings were emphasized in the executive summary. EDC asserts it retained control over general conclusions. Los Angeles is among jurisdictions contemplating a supercenter ban.

So it's clear the report represents a manifesto of Wal-Mart's intentions in California. It also provides a rare glimpse into how Wal-Mart views itself, together with its own view of its effects on areas where it operates.

Let's take a closer look at the study's major points.

Prices: It's Wal-Mart's ability to drive down price points that strikes fear into the hearts of its competitors. Indeed, it's supermarkets' goal of lowering operating costs by reducing labor costs that's at the root of the labor strife in California. (An update is on Page 1.) The report stipulates that when Wal-Mart achieves a 20% market share in Los Angeles, Wal-Mart customers would save 15% of their current food dollar. That would force incumbent supermarkets, left with a 65% market share, to lower their prices by 10%. Niche players, at a 15% market share, wouldn't react. The net savings to consumers, then, would be $537 million annually. Current food spending in Los Angeles is $5.65 billion, the report says.

Wages: The report allows that "Wal-Mart compensation, while lower than for the best-paid unionized grocery employees, is better than most people realize, particularly in the food business." What most people fail to realize is left to the imagination, although the report says that organized supermarket workers in the region average $2.50 to $3.50 per hour more than supercenter workers could expect. It also says supermarket workers, on average, make $14, but that some meat cutters get more than $20. The report projects no actual wage rates for Los Angeles. Using Wal-Mart's own data, though, it shows that supercenter wages in Las Vegas range from $7.40 to $15.30, depending on job function.

The report makes the global assertion that while lower wages and prices would hammer supermarkets, overall benefit would redound to the economy owing to increased real household income.

Intent: The report makes no effort to mask Wal-Mart's intentions: "Southern California is a wealthy market that is simply too large and too important for Wal-Mart to ignore." That leaves Los Angeles with stark choices, the report says. It can ban supercenters, prompting Wal-Mart to ring the city, draining sales-tax revenue. Or it can permit supercenters, "guiding Wal-Mart to [city] sites where its presence would be welcomed."