Tuesday, April 21, 2009

Grocery Shopping at Wal-Mart

 Should you shop at Wal-Mart?  Why Not?

During the recent financial downturn, many folks are looking to save money on purchases. For many, cutting monthly expenses, such as food bills, is a first place to start. Some are discovering that discount stores, such as Wal-Mart, can really provide significant savings in their monthly expenses. Others view Wal-Mart and other discount stores as either low-class or as unfair to workers or to competing businesses.

Taking EMOTION out of the equation, let's examine Wal-Mart shopping from a financial viewpoint and see if it really is a good deal.

1. I'm too good for Wal-Mart

One friend of mine refuses to shop there, even though he is on a strict budget and really needs to save money. His reason is purely emotional. To him, only "poor people" shop at Wal-Mart, and he doesn't want to be stigmatized as "poor". His preconceived notion is that there are no good products to be had there, other than off-brands of foods, food past its "sell-by" date, and dented cans of generic soup. Pride goeth before the fall.

The reality is, in many areas, the best produce and products can often be found at Wal-Mart supercenters. In New York State, we have a chain called Wegmans.  If you are lucky to be near a Wegmans, you understand what I am talking about. They have a great selection of food and the prices are, well, somewhat reasonable compared to the boutique stores such as Whole Foods (whole paycheck), Harris Teeter, and the like. But prices at even Wegmans can be fairly high compared to other chains, such as Publix, Safeway, IGA, and the like.

In rural Georgia, Wal-Mart is often the best bet for produce and baked goods. Why is this? Well in produce, volume is key. If you don't sell a lot of produce, it is hard to keep it fresh and to keep prices reasonable. If you have to throw out half your stock every day, prices are going to be high. On the other hand, if you have a large volume of customers, it is not hard to keep fresh produce or freshly made bread in stock. Our local Wal-Mart supercenter in Brunswick Georgia has the best selection of produce and the freshest produce of any of the markets around - even the "high end" stores like Harris Teeter. And ironically, it is one of the best places to get fresh-baked specialty breads. Who knew?

And selection of other foods is often surprising. The expectation from food snobs would be that all they would carry is bags of potatoes and chicken feet, or frozen entrees. The reality is, while they do sell a lot of prepared foods, many "gourmet" items are now found on the shelves at Wal-Mart, mostly because these items have entered the mainstream.

So the myth that Wal-Mart has crappy food aimed only at trailer trash is just that - a myth. Refusing to shop at Wal-Mart because "I'm too good for that" is purely an emotional argument, and an idiotic one at that.

2. They Treat the Workers Poorly at Wal-Mart

This is also an emotional argument, although on the surface, it may appear to be factual. Some folks view their responsibilities as shoppers as a political statement in addition to a financial transaction. As I have noted before in my blog, using non-business criteria to make business decisions is often fraught with peril. And often, the motivations to make such decisions based on non-transactional criteria are driven by special interest groups who are using you (See, "They're BAITING you!" and "Organizations") to promote their own agenda.

For example, during this recent downturn, the hoary old arguments about "buy American!" are being raised yet again, with some very unsmart people promoting the idea that we should (if we are true PATRIOTS) buy only "American" made products, particularly cars. The problem with this argument is twofold. First, these orchestrated "buy American!" programs are very obviously run by the United Auto Workers union, and thus, by participating, you are basically promoting their political agenda using your own personal finances. Second, if the cars made by American automakers (and UAW labor) were so great (as they claim) then why don't they sell more of them? Falling into someones political game means only that you end up squandering your own money advancing someone elses cause. And given the horrible depreciation and quality of American cars, you will spend quite a lot of your own money helping the UAW. If this is worthwhile to you, go for it.

Similarly, it should come as no surprise that Wal-Mart is engaged in a long-running battle with unions, and thus, the stories about workers being mistreated and abused are bandied about. Wal-Mart is the largest employer in the United States (perhaps the world) and a chance to organize the place would be a unionist's dream. Refusing to shop at Wal-Mart because of someones union agenda seems like an odd thing to do.

And are the worker's really being "abused?" The common complaint from the Unions is that someone working at Wal-Mart "can't support a family of four" on their income. For some reason, we are to be lead to believe that all jobs in the world should pay sufficiently to allow someone to get married, have children and be the single breadwinner for the family. The idea that some folks might want to work part-time to make some extra cash, or that young people (without children or even housing expenses) need that kind of income to survive.

While it is true that no one at Wal-Mart is being overpaid, neither are they being overworked. A friend of mine went to work there and quit after a day. He quit, not because he was overworked, but because the work was too boring and silly. He reported that the amount of goofing off and standing around, other than for the checkout clerks, was astounding. And from my experiences in the store, I can report this is true. Does it really take five clerks to re-stock one shopping cart of misplaced items? (with one clerk saying "I'm not re-stocking that, it ain't my department!"). If Wal-Mart does unionize, it probably won't change much other than the wages.

The truth of the matter is that the bag-boy at the "gourmet" store probably makes about the same as the greeter at Wal-Mart - about minimum wage. There are a few union grocery stores out there (Safeway, for example) where workers are paid a little more. But for the most part, no one gets rich, or even supports "a family of four" working as a checkout person in a grocery store. And the reasons for this are very simple: It takes little or no skill to work in a grocery store as a clerk. Most folks learn on the job. You don't need to go to college. As a result, the wages are correspondingly low.

If you believe that unskilled labor should be paid as much as skilled labor, perhaps boycotting Wal-Mart might have some effect. But as we shall see, you will end up paying almost twice as much for your groceries as a result. On the other hand, if you believe that people should have an incentive to get an education (better pay and better jobs) maybe it doesn't bother you as much that crappy jobs have crappy pay.

3. Wal-Mart Drives the Competition Out of Business

This argument has a kernel of truth to it. A friend of mine ran a small chain of grocery stores in Indiana. He was pretty successful and plowed all his money back into his business. Then Wal-Mart came to town. In retrospect, he says he should have cut back and closed down or sold out right away. As it unfolded, he ended up selling off one store (which later closed) and closed down his whole chain over time. He lost a significant amount of money.

It is true that Wal-Mart is aggressive in pricing and strategy, and the chain was founded on this principle. They carefully research their markets, they get the best prices they can for items, using their size as leverage, and they carefully study their competition to see how they can snag more business from them. Using computers and technology, they try to provide the products their customers want at prices lower than the competition. And it is a formula that works.

To a capitalist, this is how the system is supposed to work. The competitor who provides the best service at the lowest prices "wins" in the marketplace - and should be rewarded with winning. To others, this seems "unfair" as the small competitor cannot compete with the bulk pricing discounts that Wal-Mart can obtain.

However, smaller chains and stores still continue to flourish across the country. Why is this? Successful competitors survive by not trying to compete. If you want to go head to head with Wal-Mart in the general grocery business, you'll probably get creamed. But if you are running a specialty shop that sells things Wal-Mart doesn't (and can't afford to carry) chances are, you'll do well.

For example, a friend of mine ran a stereo store. Back in the day, every town had a stereo store (or two or three) where you went to buy "HiFi" equipment. But the design and manufacture of such equipment changed over the years. Solid state components (i.e., receiver-on-a-chip) and CD sound meant that once "high end" audio was within the reach of everyone. Moreover, since such equipment could be mass-produced very cheaply and was pretty generic, there was no longer any need to go to the "stereo store" and spend thousands of dollars on audio equipment. Big box stores such as Best Buy and Circuit City could offer such products for a fraction of the cost. Wal-Mart could offer them for even less (Goodbye, Circuit City!).

My friend quickly realized that "low end" audio was not going to be profitable for him, as he could not afford to buy in the bulk quantities that the "big box" stores did. However, the demand for ultimate high-end home theater and audio systems, as well as custom installation services and acoustical space tuning, were something that Wal-Mart could not, and could never provide. Moreover, the mark-up on such products meant that he could make a good living selling them in an area where a lot of well-paid Engineers lived.

Niche markets still exist, and entrepreneurs can still exploit them. But arguing that the little guy can't compete with the bulk seller is "unfair" strikes me as a loser's argument. And the solution so such "unfairness" - propping up small sellers by inflating prices, is not workable.

Japan tried such a technique for decades. If you wanted to buy a television in Japan, you went to the neighborhood television shop. He ordered the television from a local distributor, who in turn ordered it from a regional distributor, who in turn ordered it from a national distributor, who in turn ordered it from the factory. The idea was to provide "full employment" by creating make-work jobs. Japan's "elevator ladies" were a prime example of this. They would ride the elevators in hotels and press the buttons for you. No real work was done, but someone was kept off the unemployment line.

To some, this form of quasi-socialism is a good thing. And that's a fine political and emotional argument, but not a very sound financial one. If you are concerned about your own finances, you have to seek out the best deals at the best possible prices.

4. Are There Any Real Savings at Wal- Mart?

Yes, surprisingly, there are. If the savings were mere pennies or nickels, it probably would not make much of a difference. But in the six months we've tried Wal-Mart, our grocery bill has been cut nearly in HALF.

The secret to shopping at Wal-Mart, of course, is to carefully look at prices, particularly prices per pound (or other unit of measure) before buying. Sometimes you have to look closely, and sometimes this means experimenting with off-brands (house brands, Sams club, etc.). In most cases, we've found that the house or discount brands are as good as, if not better, than the "Brand name" product. In only a few instances, have we been burned.

For example, Triscuit crackers are over $3 a box at most stores. The basic cracker is hard to find, as new flavored versions (and triangular ones) populate the shelves. Wal-Mart brand "double cross" crackers are $1.50 for the same size and weight box. Not only are they half the price of the brand name, they have much less SALT than the Triscuit brand, and thus in my opinion, are superior. They taste more like the Triscuits of 1970 than the gussied-up "flavored" brands of today.

It helps to keep in your head the prices of items when shopping, so you can spot a good deal and understand whether it is a good deal or not. Like any good merchant, Wal-Mart often puts out "impulse buy" items, usually in the center of the aisles, to temp you to buy something that "seems like a good deal". However, in many instances, the heavily promoted items are not as good a deal as you'd think. And since it is something you didn't plan on buying anyway, definitely not a bargain. See my article "SHOP 'till you DROP!"

It is distressing, but not unexpected, to see many of the poor people shopping in Wal-Mart stocking up on prepared foods (By poor people, I mean folks paying with food stamps). Frozen entrees and the like are never a "bargain" in terms of cost per serving. Many "convenience" foods can cost 2-5 times as much as the basic foodstuff.

For example, sharp New York State cheese in a brick may run $4 a pound. Pre-sliced or shredded, it runs $8 a pound. Want "organic" pre-sliced? A staggering $18 a pound (at Wegmans). Checking the cost per pound can save you from costly mistakes. A few moments with a cheese grater or knife can save you hundreds of dollars a year.

One of the funniest items I saw sold at Wal-Mart was buttered potatoes. For nearly $4, a package of about eight small red potatoes was packaged with a dollop of butter, in the refrigerated section. The scheme was that the user was supposed to microwave this package, and then have a ready-to-eat meal of buttered potatoes. Of course, for $4, you can buy an entire sack of potatoes (one of the cheapest foodstuffs there is) and a pound of butter as well - enough to feed a family of four for a week, instead of one person for one meal.

But many folks fill their carts with frozen entrees (such folks are called "Eskimos" in grocery parlance), soda pop, potato chips, cookies, candy, and other junk food. Not only is this food very costly, it is also horribly bad for your health. You don't have to eat organic or "free range" or vegan to be healthier, you only need to eat real food, not prepared garbage.

Of course, Wal-Mart sells other things as well. Again, some can be bargains, and others not so much. Buying "stuff" and "shopping" is a sure way to waste money at Wal-Mart. And you should carefully investigate the quality of items before purchasing. I recently bought a roll of Wal-Mart duct tape, and kick myself for not getting the brand name. The store brand was thin and poorly made and did not serve my needs.

However, other things, such as Mercruiser brand oils, are offered for prices about 1/4 of the boating specialty stores. Basic consumer-grade electronics can be had for far less than specialty stores or even competing "big box" stores. Where else can you buy a laptop for $500? And not a "stripped" one, either.

Note that recently, Wal-Mart appears to be changing its strategy from "always the low price, always" with the smiley face, to a more TARGET type star logo, with the phrase "Live Better". Perhaps with unionization on the horizon, Wal-Mart is trying to reposition itself as less the "low price king" than the "better living" chain. As a result, low-end poorly made products seem to be disappearing from the shelves. Badly made junk from China is no bargain, no matter how low the price is.