Apr 23, 2012

Wal-Mart accused of predatory business practices, imposing low prices on suppliers

La Jornada: (Original Translation by the Americas Program)

By Susana Gonzalez G.

Last year, Wal-Mart opened a store on average once a day in Mexico, mostly in the form of bodegas, and offered lower prices than the competition. Trade organizations accuse the transnational corporation of unfair competitive practices as well as causing the bankruptcy of small businesses like newsstands, grocery stores, tortillerías, vegetable markets, bakeries, hardware stores, butcher shops, and even clothing and shoe stores.

“In 2011, we opened 365 fully-operational stores: 42 Bodegas Aurrerá, 60 Mi Bodega Aurrerá, 208 Bodegas Aurrerá Express, 21 Wal-Marts, 16 Sams Clubs, 13 Superamas, four Suburbias and a restaurant called Vips,” said Scot Rank, chief executive and commercial director of the chain in financial reports sent to the Mexican Stock Exchange (BMV).

Wal-Mart opened four times as many branches in Mexico than in Central America last year, where it has joint operations in five countries.

With this increase in branches, the chain has already reached 2,087 various kinds of stores throughout the country, of which 57 percent were bodegas and only 17 were traditional Wal-Mart supermarkets.

Thus, for virtually every supermarket the company opened in the country, it opened five bodegas. It managed to increase sales by 13% in 2011, reaching 379 billion pesos, while its net income was 22 billion 258 million pesos, according to its financial reporting.

Wal-Mart boasts being one of the companies that generates the most jobs in Mexico (it has 238,000 “associates,” as it calls its employees), and buying 300 billion pesos a year worth of products from 28,000 suppliers, of which half are small and medium-sized enterprises. Despite this, accusations of predatory trade practices have increased in recent years.

Since 2005, for example, the National Confederation of Dealers of Supply Centers (Conacca) tried to push Congress to pass an initiative to regulate the penetration of Wal-Mart in the country, similar to those that exist in European countries to protect small businesses. It said that for every job the chain created, it destroyed several others in different economic sectors, from the primary sector to industry, commerce, and services, by imposing low prices on its suppliers.

A few months ago, the same organization reported that sales in traditional commerce in Mexico, consisting of the small business market, fell six percent compared to their competition from supermarkets like Wal-Mart which together increased sales by 10% last year.

Criticism and protests against the chain have also come from regional chambers of commerce in different states and cities across the country, particularly those that are composed of small business owners, which have multiplied at the same rate as the Bodegas Aurrerá. They allege that Wal-Mart has caused a collapse of up to 40% of their sales.

On several occasions, Wal-Mart has denied the accusations made by its competitors of market-distorting practices like imposing lower prices on suppliers. In late March, Luis Gómez, vice-president of corporate affairs for the retail chain in Mexico and Central America, justified his company’s business model as getting the best price for consumers and does so by purchasing a large volume of items.

“We would be wrong if we thought that we should buy products and resell them at the highest possible price. On the contrary, we try to give the greatest benefit to the consumer, and that has distinguished us,” said Gómez.

In spite of repeated requests from small businesses for municipal, state, and federal governments to act, on March 29, Wal-Mart became the only retail chain to be supported by the Ministry of Economy, through 5.5 million pesos in aid, to train 115 small and medium enterprises that will become new suppliers for the chain, announced Undersecretary of Finance, Miguel Marón.

The corporation will not contribute any money, but Luis Gómez argued that small businesses that become their suppliers will have developed so much that they will be able to sell to other supermarkets and even export their goods. See Spanish original

Translation by Michael Kane, Americas Program

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