You probably know that Wal-Mart is the largest corporation in the world. But did you know that almost 40 percent of Wal-Mart’s sales are in the grocery department? Or that they sell $5.3 billion in fresh meats annually? In 2006, Wal-Mart’s retail stores are projected to sell 878 million pounds of beef and grinds. That’s 3.5 percent of all
On one hand, it’s tough to criticize a company that is the biggest seller of your product. On the other hand, consider that Wal-Mart’s goal is to be the low-cost provider in everything it does. That means squeezing its suppliers — which means you — and that can be very uncomfortable. In the beef world, Wal-Mart’s huge domain is case-ready Select products. But the beef industry could never survive by selling all of its products as Select; to have that be the biggest seller of your product is a mixed blessing.
Part of Wal-Mart’s price advantage comes from selling beef that has been en-hanced — up to 12 percent of the weight of their beef products can be added moisture. Some people in the beef industry worry that their watery products will prove detrimental to beef’s flavor advantage — the main reason people buy beef — and will end up watering down demand.
In any case, Wal-Mart is driving change through its beef-selling practices, as with everything it does. Wal-Mart’s sheer size and efficiency has created enormous pressure on competing retailers, one effect of which has been retail consolidation. The top five retailers, of which Wal-Mart is one, had 38 percent market share in 2000; some predict that will be 75 percent by the end of this decade.
But another effect is retail diversification, as retailers scramble for ways to compete with Wal-Mart and survive. Some are also moving to case-ready products, but competing with Wal-Mart on price usually proves to be an impossible proposition. The most successful retailers are moving in the opposite direction, with new and different meat programs. The meat department is an ideal area of differentiation for retailers; every store has the same cans of soup, but not every store necessarily has the same quality of meat. Some stores are advertising that they still employ butchers, and that their custom cuts of beef are superior to case-ready products. They are competing with higher quality and better service, instead of trying to compete on price.
Consequently, those retailers who try to take the middle ground are finding that times are tough. Wal-Mart is serving the price-conscious segment; other retailers are taking the high end of the market and selling better-quality beef. And so, some industry watchers say, those middle-ground stores may be destined to vanish, furthering consolidation.
Of course it’s consumer demand that’s driving the retailers; they buy the beef that best fits their particular operation and their customer base. What might all this mean to cattle producers?