One of the most enduring posts here on the Procurement Insights blog in terms of overall reads is a piece I wrote on July 9th, 2007 titled “Public Sector Procurement and the Walmart Effect“.
One would think that after 7 years the insights it offered might no longer apply because after all, things change. However when it comes to Walmart like The Beatles, good table manners and the breathtaking beauty of the California coast, that original take on the Bentonville retailer never seems to get old.
Take for example when the news broke yesterday that Walmart was suing Visa for $5bn (£3bn), alleging that “Visa worked with large banks to fix the price of transaction fees it charged to Wal-Mart.”
Walmart suing someone for price fixing! Hmmm. Kind of reminds me of the Vlasic pickles story about which I wrote in the 2007 post, only now the proverbial shoe is on the other foot.
For those who may not be familiar with the Walmart – Vlasic saga here it is;
The Vlasic Pickles Story
An article from Fast Company recounted what they referred to as the “sad story of Vlasic Pickles.” Here are excerpts from that article.
“Young remembers begging Walmart for relief. “They said, ‘No way,’ ” says Young. “We said we’ll increase the price”–even $3.49 would have helped tremendously–“and they said, ‘If you do that, all the other products of yours we buy, we’ll stop buying.’ It was a clear threat.” Hunn recalls things a little differently, if just as ominously: “They said, ‘We want the $2.97 gallon of pickles. If you don’t do it, we’ll see if someone else might.’ I knew our competitors were saying to Walmart, ‘We’ll do the $2.97 gallons if you give us your other business.’ ” Walmart’s business was so indispensable to Vlasic, and the gallon so central to the Walmart relationship, that decisions about the future of the gallon were made at the CEO level.”
“The story is that Vlasic, a premium pickle brand, agreed to sell a gallon jar of pickles in Walmart for an absurdly cheap price. What happened is fairly predictable. Why would consumers buy a small jar for $3.00 when they could get a gallon for the same price? Yet the margin on the gallon jar was incredibly thin, so despite the increased volumes, the pickle maker took in less and less, especially when you factor in Walmart’s insistence (stated up front) that suppliers lower their prices each year.”
“Finally, Walmart let Vlasic up for air. “The Walmart guy’s response was classic,” Young recalls. “He said, ‘Well, we’ve done to pickles what we did to orange juice. We’ve killed it. We can back off.’ “Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy.”
Of course what happened to Vlasic is not the exception to the rule or an isolated incident. As demonstrated by the additional data I had provided in the original post, the more business a supplier does with the retailer the poorer their financial position becomes in comparison to the rest of their industry sector.
For Walmart to now claim that Visa’s actions has caused “enormous damage” reflects a double standard that is tantamount to their indirect admission that their predatory – price fixing practices are heavy handed and unfair. Karma is indeed a cruel mistress.
Needless to say I will be following this story with great interest over the coming weeks and months, and will be certain to provide you with news on the outcome.