Wal-Mart “competes” to eliminate Aldi

Wal-Mart Walton Store

Wal-Mart’s first five-and-dime in Bentonville, Arkansas

The great myth of big-box stores is that their prices are lower than local and small, efficiently run stores. Now, Wal-Mart wants to push Aldi out of business by actually lowering prices. Aldi is the only chain store in the nation that actually prices affordably. If Wal-Mart succeeds in crushing Aldi, it will only be followed by their inching prices up once again to profit shareholders. It’s a shell game that impacts neighborhoods for generations, directly and regressively impacting their bank accounts.

Wal-Mart can easily command higher prices by the same means that we say looks like healthy competitive activity: they will temporarily lower prices and create competitive promotions, something Aldi does not do. They can divert abundant reserves to invest in cannibalizing Aldi’s hard-won loyal customers and making them Wal-Mart customers. Then, with Aldi out of the way, customers will see prices rise again. We can imagine how our blithe, uninformed middle-class choice to shop at one store will force others to spend more money at that store when their preferred store closes. Supermarket business has the illusion of a truly competitive market, and the many hidden aspects of product branding and pricing make it look that way — until we start actully digging.
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Whether a conscious minority loves Aldi and resists Wal-Mart is not going to affect this in the long run. In fact, they are going to be affected by Wal-Mart’s stockholders more than much else, no matter where they shop. Markets are a little complicated, and market economists tend to allow only for what is convenient to them. We can’t talk much about simple price competition. Aldi has a single product of each species, as well as fewer varieties of each type. One thing Wal-Mart and almost all other supermarkets do is create a “shelf competition” among brands, which also vaguely looks like real competition but actually is more like a price cartel for each, because each brand has secured a local niche based on brand loyalty and quality/price preferences. This has aspects of firm-on-firm competition, but it distracts customers from the external firm-on-firm price competition. The effect is that the identical product at Wal-Mart, does not have to compete with its peer at Aldi, and so its price is completely free of it. And so Wal-Mart does not have to compete with a store across the street on price for the same food basket. (When I say “identical product,” I mean it: I have found that products at Aldi come from the same assembly lines, even the packaging from the same printing presses, as the items in the supermarkets priced twice as high. Essentially a single company handles both products.)
The other anticompetitive aspect I have seen is location-based, where a supermarket commands a much larger region of customers and sucks the life out of smaller, more locally powered stores that don’t have or can’t invest as much power to resist. I think these local stores (10,000-40,000 sq. ft.) are large enough to be called profit centers themselves, but they are smaller fish eaten by the bigger fish. The new stores in turn killed the even smaller stores; seniors will remember stores from around the 1930’s to the 1960’s that were spaced about a half-mile apart. These disappeared by 1970 due to these dynamics. In fact, there were even several smaller corner stores in between those two. Just a few hundred feet of added distance between stores is an opportunity cost. Limiting choice due to distance is a major incentive for large stores to push smaller stores out of business.
Aldi doesn’t count as a local store, but its format (footprint, product mix, market niche and marketing strategy, internal economies) feel closer to the small local stores than to the national chain supermarkets. If you were to study shoppers you might find the same perception. An important aspect of this mix is the real estate realities of the urban landscape, where only the larger stores can squeeze favorable ground leases and incentives out of landowners and cities. They use their external capital and colossal reputation to achieve this. And so again, not only can’t two stores with similar products compete, but two identical products also will not compete in such an environment. Another problem with product mix on the shelves is that it creates such confusion that two identical products on the shelves will often never be identified by consumers as competitors. The shelf confusion coupled with the loss of local media has helped make it almost impossible for consumers to do their own comparisons, or tâtonnement.
It is not big news (I’m the only one ever to complain about it), but it is interesting that in around 2007, then-fledgling Chicago supermarket researcher Mari Gallagher both coined the term “food desert” (wearing the mantle of a progressive localist planner), and soon after was paid handsomely as a consultant for Wal-Mart making arguments for their new smaller neighborhood stores that would crush the real locals, and even cause external capital flight. I criticized her loudly about the fact that even her first “food desert” research completely excluded small, locally owned stores. But she didn’t have to pay attention. Why? Because she had already carved out her own captive market, among city officials and big supermarket business, and heard the green piper calling. The problem is that she forgot the people. Mari was able to change the market just using paper and what I gather was a compromised ethical attitude. Even “science” is affected by the market. This can’t be called a mere piece of trivia because trivia is about things that don’t matter: Mari’s pseudo-science is going to impact all of us in big ways, for generations. If Aldi packs up and heads back to Europe, can we really blame them?

About Peter Zelchenko

Just read and enjoy. I cannot account for 50 years in this small space, nor the past 40 on technology's strange edge.
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