The world’s biggest retailer, arguably as famous for the controversy it generates as for its rock-bottom prices, became the owner of most of Costa Rica’s supermarkets Wednesday when Wal-Mart Stores, Inc., purchased controlling shares in Central America’s leading supermarket group.
Wal-Mart’s additional investment in the Central American Holding Company (CARHCO), bringing its total shares from the 33.33% it bought last year (TT, Sept. 30, 2005) to 51%, gives the company control over 375 supermarkets and other stores in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. CARHCO, now called Wal-Mart Centroamérica, is represented here by the Corporación de Supermercados Unidos (CSU), which owns fixtures in Costa Rica and Nicaragua such as Más x Menos, Hiper Más, Palí, La Unión and Maxibodega.
Wal-Mart will make no drastic changes now that it’s at the helm, according to representatives. The first steps will involve conducting a feasibility study to determine ways to strengthen and unify the three-part alliance – Wal-Mart, CSU and Guatemala-based La Fragua – as well as introducing an increasing number of Wal-Mart’s retail products into Central American stores, including Hiper Más in Costa Rica.
The company will also conduct market studies to determine whether new Wal-Mart stores would be successful in Costa Rica, according to Aquileo Sánchez, Corporate Affairs Director for CSU.
Though both Sánchez and Amy Wyatt, of Wal-Mart’s International Corporate Affairs division, characterized the purchase as an important opportunity for Central America that is expected to create thousands of jobs, the CSU official admitted the leadership of the alliance is concerned about the possibility of negative publicity. In the United States and other countries in which Wal-Mart operates, the cost-cutting giant has been criticized for putting small companies out of business; it has also been accused of violating the rights of its workers, called “associates.”
“We’re very worried that the entrance of Wal-Mart will be misinterpreted,” Sánchez told The Tico Times, adding that rumors about layoffs or other drastic changes for CSU employees are untrue.“No one will suffer.”
Wal-Mart Centroamérica’s competition might do just that. Though representatives from various sectors maintain they are optimistic, it seems likely that vendors of generic toys, clothes and plastic goods will be hardest hit by the company, which offers low prices by pressuring providers to cut costs and by buying products in huge quantities. (According to a recent study by the U.S. National Bureau of Economic Research as reported in The Atlantic magazine, Wal-Mart’s prices are so low, and its size so significant, that the company has single-handedly reduced the U.S. inflation rate by a substantial amount while providing consumers with the same quality food as in other stores.)
However, “there’s room for everybody in the market,” said Carlos Federico Monge, president of Grupo M, which operates Importadora Monge and El Gallo Más Gallo appliance stores in Costa Rica,Nicaragua and Honduras. He said his company’s observations of Wal-Mart’s operations in Mexico, Puerto Rico and Canada show Grupo M can compete.
Last year, Wal-Mart, founded in 1962 in the U.S. state of Arkansas by Sam Walton, netted $312.4 billion in sales (roughly eight times Costa Rica’s GDP in the same period).
According to Wal-Mart’s Web site, walmart.com, Wal-Mart employs 1.6 million workers at 6,200 retail units worldwide.
The company has expanded its international operations significantly in recent years. In fact, Wal-Mart International is growing much faster than its U.S. stores; according to its Feb. 17 sales report, the international division’s net sales for the year ending Jan. 31 were $62.72 billion, an increase of 11.4% over 2005, while its U.S. Wal-Mart and Sam’s Club stores increased only 9.4% (netting $209.91 billion) and 7.2% ($39.79 billion), respectively.
One reason for this shift may be Wal-Mart’s shrinking potential for growth in the United States. The Wall Street Journal reported yesterday that Wal-Mart is finding the U.S. market increasingly saturated, which is motivating its expansion to Central America and other regions.
U.S. consumers’ increasing concern about corporate practices may be another factor, according to Nu Wexler, spokesman for Wal-Mart Watch (walmartwatch.com) –a nonprofit group whose campaign against the retailer is supported by the American Independent Business Association, the Teamsters truckers’ union and United Food and Commercial Workers, among other national and local groups.
“Wal-Mart’s own consultants tell them that consumers are becoming more socially conscious, and that’s certainly limiting their ability to expand into urban areas (in the United States),”Wexler told The Tico Times yesterday.
What to Expect
CSU official Sánchez said that though the name Wal-Mart Centroamérica has replaced CARHCO, the names of the company’s chains will not change, at least in the near future.
“The store-name brands… are recognized and preferred by consumers,” he said. “They (Wal-Mart) are interested in strengthening these names… for example, Palí, recognized for low prices – we’ll be able to make it more competitive. Or in Hiper Más, there’ll be a greater variety of products.”
Part of that greater variety will include Wal-Mart products; home appliances from Wal-Mart’s in-store brand, Dura, have been on sale at Hiper Más since December. The selection of Wal-Mart products, mostly appliances and other products that aren’t usually manufactured here, will increase in the next months, Sánchez said, though he added it’s unlikely the total percentage of Wal-Mart products on sale in Costa Rican stores will exceed 10%.
Wyatt confirmed this, saying 90-95% of products in Wal-Mart’s stores outside the United States – besides Central America, the company now operates stores in Argentina, Brazil, Canada, China, Germany, Japan, South Korea, Mexico, Puerto Rico and the United Kingdom – are generally produced in the region.
“In the United States, our local sourcing is not as high as 90%,” she explained. “The manufacturing just doesn’t exist (there).” For example, apparel sold in U.S. Wal-Mart stores is often manufactured in Central America, she said.
The focus on Wal-Mart appliances would appear to create a threat for local appliances stores. However, Monge said certain features of the Central American market will allow local providers to keep succeeding.
“Companies like Wal-Mart and PriceSmart… specialize in generic brands, made in China,” he said, adding that the brand-name products available in such stores tend to be discontinued or lesserquality lines. “We attend to that market too, with China-made products, but they (Wal-Mart) don’t have products with the latest technology.”
Because companies like Importadora Monge do have high-end products and greater overall variety, customers will keep coming, he said. According to Monge, another draw for local stores will be the availability of consumer credit, which Wal-Mart does not offer in its existing operations.
“The Central American market is composed of people with limited resources,” he said. “They need credit to buy… We don’t know what Wal-Mart’s position will be here, but I doubt they’ll change their policies.”
However, Monge reiterated businesses that offer clothes, textiles, plastic goods and toys, such as department stores, will likely be hit hard by Wal-Mart’s presence.
“In Mexico and especially in the United States, when Wal-Mart arrives in a community, it does a great deal of harm to small, local stores,” he said.
In the past months, CSU and Wal-Mart officials have said Wal-Mart stores won’t open here anytime soon. Though no definitive change was explained this week, Sánchez said stores with a “Wal-Mart format” might open ifWal-Mart Centroamérica determines Costa Ricans want them.
“The important thing here is not what we want to do, but what the consumer wants us to give them,” he said.When market studies show “the consumer is ready… we will incorporate a new type of store.”
Wyatt confirmed there is no established time frame for the opening of Wal-Mart stores here. She said what’s now under way is a feasibility study to determine the existing strengths and weaknesses of the alliance and determine how Wal-Mart can improve and unify the companies.
When Wal-Mart purchased stock in Mexico’s Cifra retail chain in the 1990s, it opened its own stores almost immediately, but Wyatt said that was “a unique situation… we started with a percentage of the company, but at the same time, we were also building our own brand of stores.”That’s not the plan here, according to Wyatt.
However, new stores, if not Wal-Mart stores, are certainly on the horizon.Wyatt said Wal-Mart’s investment in Central America –the amount of which has not been disclosed –will allow the former CARHCO to open new stores, remodel existing stores and provide 6,000 new jobs throughout Central America.
Wal-Mart’s presence here will also increase the number of Costa Rican products on the shelves of North American stores, Wyatt said. The company bought $350 million worth of textiles from Central America last year, and recently signed an agreement to sell Costa Rican pineapple in Wal-Mart stores in the United States and Canada. The eventual goal is that 10% of all pineapple sold at North American Wal-Mart stores will come from Costa Rica, according to Sánchez.
Overall, Wal-Mart’s relationship with its Central American affiliates will be one of give-and-take,Wyatt said.
“It’s a matter of taking the best parts of both businesses and putting that together; there’s a lot that we can take from CARHCO,” she said. The company’s observations of small neighborhood stores in England and Mexico, for example, inspired its new Neighborhood Markets chain of smaller supermarkets in the United States, she added.
Low Prices, Fierce Enemies
In the United States and other countries, Wal-Mart has provoked protests, lawsuits, opposition Web sites and national campaigns such as Wal-Mart Watch – though in many communities around the world, the convenience, affordable goods and employment opportunities Wal-Mart offers have trumped objections to the company’s labor practices, health-care and hiring of undocumented labor.
For example, Wal-Mart de México, known as Walmex, caused bitter disputes over its choice of store location in 2004 with a Walmex-owned Bodega Aurora store at the famed Moon Pyramid archaeological site in Teotihuacan, according to wire service Reuters.
Writers, artists and activists opposed the store, but other area residents praised the low prices and jobs it would bring to the community. The Teotihuacan store opened in late 2004 with great success.
Walmex announced earlier this month that it will invest $1.14 billion this year to open 120 new stores and modernize others, Reuters reported. Its rapid growth caused a group of Mexican retailers to ask the country’s Congress to strengthen antitrust laws to prevent Wal-Mart from elbowing them aside.
Since Wal-Mart opened its first store in 1991, Walmex has become the country’s leading retailer with 790 stores and restaurants nationwide.
Among the accusations against Wal-Mart in the United States: lower-than-average pay and tactics designed to prevent workers from unionizing.
According to a Pulitzer Prize-winning 2003 series by The Los Angeles Times, Wal-Mart employees are advised to avoid unions and report union activities to supervisors. In 2002,Wal-Mart’s request for a court order to keep union organizers out of stores in Arkansas was granted, though the state Supreme Court later nullified the order.
Wal-Mart managers are told to call a hotline if they notice any union activity, the Times reported.
Critics also claim that because Wal-Mart’s salaries are lower than those in unionized supermarkets, making it difficult for workers to afford the company’s health-care packages, “associates” become a burden on state hospitals and U.S. taxpayers.
Asked whether the new Wal-Mart Centroamérica would oppose unionizing, CSU’s Sánchez claimed it won’t be an issue.
“It’s not that Wal-Mart doesn’t permit unions,” he said. “If a business is responsible and strictly adheres to the pertinent legislation… that need for employee defense doesn’t exist… There’s no order as such, just a willingness by both parts.”
When asked to clarify whether Wal-Mart’s arrival here would affect employees’ right to organize, he said, “There’s legislation that supports (the formation of unions). I’d tell you that really, we act within the labor laws… No one will suffer any deterioration in his or her labor conditions – actually the reverse. In the future, we could move to models that stimulate and reward good performance.”
In response to the accusations it faces, Wal-Mart has launched a Web site entitled “Wal-Mart Facts” (walmartfacts. com), which describes the company’s employment practices, support for sustainable fisheries, community outreach programs and other efforts.
Sánchez said Wal-Mart Centroamérica is not planning such publicity campaigns here.
“We feel that the most important publicity is acting in a responsible manner,” he said, adding that Wal-Mart will comply with Costa Rica’s legislation – from labor laws to environmental permits for potential Wal-Mart providers. “Publicity can never overcome reality… In many cases (of attacks on Wal-Mart), there are interests behind them.”