business news in context, analysis with attitude

Several days ago, we posted a brief story noting that Wal-Mart’s proposed acquisition of Amigo was running into competition questions raised by the US Federal Trade Commission (FTC). MNB user César Cienfuegos, who runs an advertising firm handling the Amigo account, wrote to offer a defense of the deal:

“Amigo was founded 35 years ago and became the top- selling supermarket chain in Puerto Rico based on a business model that offered the best at the lowest prices. Its owners, many of whom are elderly, decided to sell the fruit of their labor (English is not my vernacular, so please excuse me if I indulge in corny expressions. It's hard to think in one language and write in the other). After several years and several offers, the Wal-Mart offer was the one that not only offered an attractive return on their investment and effort, but also the company with the business model that most closely resembled Amigo's winning formula. See, for this paternalistic company, the continuity of the brand they created was also an important criteria in choosing a buyer.

“So far so good. The problem is that local competing supermarket chains (all of whom sell at higher prices than Amigo most items, most of the time) do not welcome the entrance of Wal-Mart's EDLP strategy, since it would force them to increase their efficiencies or somehow evolve their business models in order to compete.

“Therefore, they have resorted to a disinformation campaign aimed at putting pressure on the local authorities so that they come out and stop the sale. They have been quick to label the resulting entity as a monopoly, without waiting for the FTC and the local Department of Justice to make their pronouncement (the transaction has been under their review for 8 months now).

“The important facts in all this are:

• In the past 18 years Puerto Rico's inflation rate has grown at an average of 9.2% per year
• The cost of food has been a primary driver of this inflation, being second only to the cost of housing
• The rate of growth of food inflation is superior to that of the personal income of Puerto Ricans.

“Consumers and our country would certainly benefit from the lower food prices which would result from the entrance of Wal-Mart to compete in this category. Competing supermarket chains certainly wouldn't.

“So lower prices for the consumer. And the monopoly? One has to trust that the FTC will approve a transaction that does not constitute a monopoly, as it has been doing successfully for many years.

“Puerto Rico is in sore need of foreign investment to crank up a stalling economy. If a few competitors can manipulate the government to stop a lawful and legitimate process, what kind of message will we be sending out? What kind of precedent will we set?

“And let's not get into the implications of trampling the right of an entrepreneur to sell his assets lawfully as he sees fit in what is supposed to be a free market economy.”

Responding to several stories yesterday about Wal-Mart, one of which pointed out how a Wisconsin community’s small business actually have thrived since the retailer built a supercenter there, MNB user Ken Robb wrote:

“In the euphoric rush to embrace all things that are Wal-Mart...their strategies (Wal-Mart is a brand and Wal-Mart thinks of itself that way), their consumer insight (customers want the products they want, where they want...), their economic impact on communities and competitors (...and it won't be Wal-Mart's fault)...I think we are ignoring or understating the effect of the killer instinct that characterizes Wal-Mart management in its relentless march toward market dominance.

“We're not alone on this. Sam Walton, wrote in his autobiography “Sam Walton Made in America My Story,” "What I haven't been able to figure at all is these people who have decided we're somehow responsible for the decline of the small town." Well...golly b'gosh, Sam! Do you think that over-saturation of a market in building 200,000 sq. ft. Wal-Mart Supercenters in towns of less than 10,000 population, and then building Neighborhood Markets in the even smaller towns nearby have something to do with it? What about demanding unprecedented financial incentives and tax abatements from local governments in communities where Wal-Mart wants to build new stores? Have you been back to any of these small towns to see the boarded-up store fronts and talk to the many workers that now barely survive on part-time, minimum wage jobs without benefits or group health insurance?

“Actually, I think Sam Walton said it best..."If American business is going to prevail, and be competitive, we're going to have to get accustomed to the idea that business conditions change, and that survivors have to adapt to those changing conditions...Quite a few smaller stores have gone out of business during the time of Wal-Mart's growth. Some people have tried to turn it into this big controversy, sort of a 'Save the Small-Town Merchants' deal, like they were whales or whooping cranes or something that has the right to be protected...Nobody owes anybody else a living."

“Yes, things have changed. It's been said that the only thing worse than having Wal-Mart build a supercenter in your not having Wal-Mart build a supercenter in your town. So, this is what it has come to. Are we better off now than we were before? As The Fox News Channel decide.”

Another perspective on Wal-Mart came from MNB user Richard Lowe, responding to our story about how Wal-Mart’s VP of international marketing, Julie Lyle, said that customers throughout the globe expect that its stores will “have everything I want, when I want it, at a reasonable value, easy to find, and treat me in a way that is reasonably friendly.” That, she said, is the central message of the Wal-Mart brand.

“This is where I disagree. There is no end to how low customers want to go. In fact, they would love it for free. The free enterprise system was built on how much one could make when selling something. Most of what Wal-Mart is selling was built on that principal and they have destroyed the market and commoditized these products. It is no longer how good a product is, only how cheap it is. Exploiting those that will do it for less!

“Many of the items they are selling cheap can only be sold once, so they have fulfilled the need and lost the profit.

“Look how successful Microsoft and Intel have been, with money to reinvest and reinvent. What is Wal-Mart reinventing for the marketplace other than low wages and benefits?”

Responding to our story yesterday about Jack In The Box opening c-stores with its fast food restaurants, MNB user Earl W. Engleman wrote:

“Just imagine a Convenience complex with the following: Convenience store, Gas station, Fast Food Court, Dry cleaners, ATM, Car wash, Ten minute oil change…Every thing you hate to do in one spot. Just call it ‘Minutes,’ when you only have a minute to spare!”

Works for us…

And finally, we’ve made the point in recent days that now that baseball is over and both the Jets and the Giants have collapsed, New York-area fans must be feeling rather desperate ad alone. We’ve gotten numerous emails reminding us of the existence of the Knicks, Nets, Devils, and Islanders. We supposes our biases have been revealed – we don’t follow hockey and pro basketball, and think of their seasons as stuff that keeps the sportswriters busy until spring training. It’s a character flaw, but hey, what can you do…
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