Last modified: Tuesday, August 21, 2007
Wal-Mart in Mexico
Globalization of food retailing prompts many changes
FOR IMMEDIATE RELEASE
Aug. 21, 2007
BLOOMINGTON, Ind. -- Wal-Mart's first international venture was in Mexico in 1991, and in economic terms it has been an outstanding success. The company is now Mexico's most important retailer and largest private employer, with almost 150,000 workers. However, Wal-Mart's success has transformed Mexican business practices, consumption patterns and supply chains, according to Indiana University Professor James Biles, a specialist in economic geography.
Biles is a guest editor and contributor for a special issue of the Journal of Latin American Geography (vol. 6, no. 2) subtitled "Globalization, Linking Scales of Analysis." The articles demonstrate the varied nature of globalization and its political, economic and cultural consequences. The issue's contents can be seen at http://muse.jhu.edu/journals/journal_of_latin_american_geography/toc/lag6.2.html.
The "Walmartization" of Mexico has had a significant effect on the country's small-scale agricultural producers. Fifty percent of Wal-Mart's Mexican sales are food, and the company accounts for 30 percent of all food sales in Mexican supermarkets, Biles said. Many local farmers can't meet the standards demanded by Wal-Mart for its food suppliers and have therefore been excluded from the new system of food retailing. He is studying the resulting transformation of supply networks in Mexico and the consequences of these changes for small-scale farmers.
"Wal-Mart has used the same retail strategy in Mexico as it has in the United States," he said, referring to the company's "everyday low price" strategy. "Wal-Mart is not the cheapest place in Mexico to shop -- it's actually one of the most expensive -- and it doesn't have the most variety. It uses 'loss leaders' to attract people to its stores and then makes its money when shoppers buy other goods there as well."
In Mexico, Wal-Mart has a reputation for quality and consistency, he said. "That's why Wal-Mart has been so successful there. Efficiency, consumer-oriented practices and customer service didn't exist in Mexican supermarkets before Wal-Mart."
However, Wal-Mart has been unable to transfer its success in Mexico to other countries where it does not have those advantages over its competitors.
"They failed in Germany and South Korea, for example, and they're having difficulty in Japan and the United Kingdom," Biles said. "They've also had difficulty competing with China's state-owned supermarkets, and they have yet to gain entry to India. The Wal-Mart model is not universally appreciated. Mexico is still their only international success."
One reason for the difference in results is that in Mexico, Wal-Mart began by targeting middle and upper-middle income customers, he said. Its emphasis on consistent quality and customer service set it apart from other retailers in Mexico. But as the company began expanding its marketing efforts to the majority of the Mexican population -- the working class and the poor -- it encountered a different set of problems.
Local and regional food retailers in Mexico have better prices and more variety than Wal-Mart, Biles said. Street vendors provide fresh fruit and vegetables to thousands of people each day, and municipal markets continue to be the primary source of food for many poor and working-class shoppers. Local grocery store chains are especially important in inner-city neighborhoods, he said.
Wal-Mart's initial success in the 1990s forced Mexico's national supermarket chains to expand throughout the country, he noted, often in the form of anchor stores in upscale shopping malls. To compete more successfully with Wal-Mart, these national chains had to transform their operations.
For example, taxis line up outside Wal-Mart stores waiting to transport hundreds of shoppers, just as taxis queue up outside American airports to transport arriving travelers, he said.
The sheer volume of Mexican trade involving Wal-Mart speaks for itself -- more than $15 billion in sales and 600 million consumer transactions in 2005, equivalent to about 2 percent of Mexico's gross domestic product. The effects of this transformation have been widespread, Biles said, but its benefits have not been shared equally.
For example, linkages between supermarkets and domestic food producers have been weakened, reducing market opportunities for small-scale farmers. In addition, two-thirds of Mexico's population has less than 20 percent of the country's income, and large retailers often don't provide many of the goods that this large share of the population wants, he said. The result has been an explosion of activity in the informal economy, contrary to what might have been expected.
In response, Wal-Mart has promoted its no-frills Aurrera supermarkets and established a new bank, Banco Adelante, to target consumers in low-income and working class neighborhoods throughout Mexico.