What repercussions does the arrival of retailer's Supercentres have for consumers, suppliers?

The mega-Wal-Marts are coming to town to compete with the likes of Loblaws Real Canadian Superstore and Costco, but critics suggest the Supercentre phenomena is the root cause of some serious problems gripping the marketplace.

Wal-Mart announced it will be opening three of its Supercentre format stores in the Ottawa area by early next year, along with 25 others throughout Canada. The stores will be located in Carleton Place, Rockland and at 3900 Innes Rd. in Orleans.

Ranging in size from 160,000 square feet to 200,000 square feet, Supercentres are typically 30 per cent bigger than traditional Wal-Marts. They offer a full line of groceries and up to 120,000 products, compared to 80,000 in a traditional store.

To put that in perspective, the largest grocery store in Ottawa is the 140,000-square-foot Real Canadian SuperStore in Barrhaven. The typical large grocery store, like the Loblaws on Rideau and Chapel streets, is only 45,000 square feet.

While the company began offering limited groceries in 1997, Wal-Mart Supercentre food sections are the size of a full grocery store and carry produce, meat, deli and baked items.

There is no doubt that customers love Supercentres. Wal-Mart is now the world's number one food seller in the U.S. and the biggest corporation in world. It racked up revenues of $351 billion US and profits of $11 billion for 2006.

But with that big market share comes big problems. Wal-Mart has been sued in several states by employees for unpaid overtime and breaks and has been panned in the media for the so-called "Wal-Mart effect," which has been well-documented throughout North America. Wal-Mart sets up shop just outside a city border so it doesn't have to pay high municipal taxes, floods the local retail market with cheap imports and hollows out Main Street. What Canada has yet to experience is what Wal-Mart can do to local food producers when they open up a grocery section with rock-bottom prices on produce.

"In terms of non-food products, it is not a new concept. They are made in China or Bangladesh in pretty horrible conditions. Sometimes when you see a 'made in the U.S.A.' tag, they will be from tiny holding companies. With non-food products we know what we are getting," explained Barry Nabatian, general manager of the Ottawa consultant company Market Research Corp.

"In terms of the food situation, they are using mostly fresh produce and meat, mostly from Canada. They can't import fresh food from China, it just doesn't pay," he said. "(In order to compete) other large grocery stores are going to find out that they have to more or less copy Wal-Mart and put the screws to farmers to reduce prices."

In a sense, that has already been happening in anticipation of the emergence of Superstores, as seen with new mammoth stores selling more non-food items like Loblaws. However, Mr. Nabatian does not see the end of the friendly, neighbourhood grocery store like Loeb and Your Independent Grocers. "These stores will be less impacted because there is a sense of community in those areas and the residents aren't going to switch to a larger store," he said.

But perhaps even more troubling than smaller grocery stores going out of business and even lower profit margins for Canadian farmers is the frequency of wide-spread food recalls that seem to have stemmed from Wal-Mart suppliers in recent months.

"With packaged groceries, Wal-Mart will continue to put pressure on Chinese and other suppliers. We already have a lot of those products, there will just be more of it," said Mr. Nabatian. He said that North America has just seen the "tip of the iceberg" when it comes to all the problems facing China with regards to production and quality control.

The massive Menu Foods pet food recall last winter was blamed on a Chinese supplier that Menu Foods claimed it was forced to switch to after being squeezed for cheaper products by stores like Loblaws and Wal-Mart. It is well known in the industry that Wal-Mart forces some suppliers to lower their prices on a few select items to the point of miniscule to no profit margins by threatening to cancel orders of all products with the supplier if it doesn't comply.

"The glib answer is, well, if it's worse to do business with (Wal-Mart), then don't do business with them. But the more serious point is Wal-Mart is a mixed blessing as a business partner," said Chris MacDonald, a philosophy professor at Saint Mary's University in Halifax and author of www.businessethics.ca, a business ethics blog that frequently brings up issues relating to Wal-Mart.

"I have read that businesses will say, 'Wal-Mart made us more efficient because we had to be to do business with them, so it improved our business practices.' On the other hand they want prices to go down, down, down, and although that is not different from many other retailers, they have more purchasing power. Low-priced goods are going to benefit somebody and hurt somebody."

Hopefully, that somebody isn't the consumer. In an online magazine for the food processing industry, FoodProcessing.com, Michael Doyle, director of the Center for Food Safety at the University of Georgia, said he was, "very concerned about Wal-Mart's own commitment to food safety and how they drive other companies to lower prices in order to improve Wal-Mart's bottom line. In the process, food safety is suffering across the industry."

The comments came even before a massive recall of botulism-tainted cans of Wal-Mart's Great Value brand chilli from Georgia-based Castleberry Foods. Although Mr. Doyle acknowledged that he did make those comments, he asked the OBJ not to print any further comments he had on the matter. "I could tell you a whole lot more, but I don't have time to deal with a lawsuit," he said.

The bottom line is that Wal-Mart's methods have been keeping prices down in many parts of the U.S. and increasing the standard of living in many of the poorer areas of the country.

"I don't want to push value judgements. In poorer areas, a lot of the people shop there to save a lot of money. There are benefits but there are also problems," said Mr. Nabatian. "People can speak negatively about Wal-Mart, but when it comes to do the actual shopping, they say one thing and they do something else. Ultimately, for the vast majority of people, it's the bottom line, it's the pocketbook that counts."

Mr. MacDonald agreed. "You have to remember that Wal-Mart got to where it is because it's fantastically good at what it does. It got where it was because it is better at what it did. It built a better mouse trap," he said.

Some Wal-Mart-related recalls in 2007

Menu Foods pet food recalls (food sold under 88 different labels at Wal-Mart)

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