Friday, November 07, 2003

Converging with Wal-Mart Here's a story that illustrates two major factors in the new oligopoly-based economy. One factor is the power of oligopolies on the cost side. The cost- or supply-side issue takes into account the ability of companies to cut labor costs and squeeze unions. The other principle is the way in which oligopolies tend to converge. Once one member of the oligopoly has success with a new policy or product, the other members are sure to follow suit, to be even more like their rivals. In Southern California, presently, there is a strike by the unionized workers at the major supermarket chains, a total of 70,000 employees at 859 supermarkets. These workers are also being locked out by management. The supermarkets targeted are Ralph's (part of Kroger), Vons (part of Safeway) and Albertsons, parts of the three largest supermarket chains in the US. The strike is over several issues: a proposed wage freeze, lower wages for new employees, plus greater employee health insurance contributions. The employees are understandably aggrieved. But the supermarkets have their own problem - Wal-Mart is breathing down their necks. The chain has started flooding Southern California with its supercenters with full grocery departments. Wal-Mart is a scary competitor due to low prices (fueled by rock-bottom labor costs and minimal health benefits, along with ruthless dealing with suppliers). To survive, the other supermarkets feel they need at least to hold the line on costs, partly by getting give-backs from their employee. The fear is real enough, according to an article in the New York Times ("Wal-Mart, Driving Workers and Supermarkets Crazy", 10/19/2003). It points out that Wal-Mart has "already helped push more than two dozen national supermarket chains into bankruptcy over the past decade. That list includes names like Grand Union, Bruno's, once Alabama's largest supermarket chain; and Homeland Stores, formerly Oklahoma's largest. And unionized super-market workers fear that Wal-Mart will oust them from the middle class by pulling down their wages and benefits, which are more than 50 percent higher than those of Wal-Mart workers." Already, according to the article, Wal-Mart stores account for 19% of the US's grocery sales. And Wal-Mart is planning to double the number of its supercenters in the next five years. According, to one estimate cited, that might add up to 35% of the US grocery market and 35% of the pharmacy business as well. "When Wal-Mart goes like gangbusters into an area, as it plans to do in California, competitors often feel panic" And amazingly enough, 82% of all Americans bought at least one item at Wal-Mart last year. The supermarket chains argue they have no choice but to start cutting wages and benefits. They have to be like their enemy to fight effectively. The unions see it as an attempt to "roll back" (to use Wal-Mart's tag line) their wages, and claim that the supermarket chains are over-exaggerating the danger from Wal-Mart. The logic of oligopolies may be working against them. 7:59:00 PM

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