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Retail Giant Cries ‘Unfair’

Times Staff Writer

Wal-Mart Stores Inc., the retail giant infamous for crushing competitors and putting mom-and-pop retailers out of business, is now worried that its British rival might be too big.

H. Lee Scott Jr., Wal-Mart’s chief executive, told a London newspaper last week that British authorities should be concerned about a retail chain having too much market clout.

Tesco, Britain’s largest supermarket, has a 30% share of the food market and is expanding fast, thanks in part to an aggressive discounting program. Wal-Mart-owned Asda Group Ltd., Britain’s second-largest retail chain, controls 16% of the market.

“As you get over 30% and higher, I am sure there is a point where government is compelled to intervene, particularly in the U.K., where you have the planning laws that make it difficult to compete,” Scott told the Times of London, adding that “at some point, the government has to look at it.”

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Those remarks raised some eyebrows in the United States, where the Bentonville, Ark., retailer is regularly accused of abusing its clout to squeeze pennies out of its supply chain, trounce its competition and expand its sales.

“Wal-Mart is asking for an antitrust investigation of a competitor?” asked Albert Foer, president of the American Antitrust Institute in Washington, a think tank. “How delicious.”

Wal-Mart is known for its super-sized profile. It has the world’s largest workforce, 1.6 million at last count, more than the entire population of Montana. And 138 million shoppers visit its 5,379 stores and restaurants worldwide each week, racking up $285 billion in sales in 2004.

The retailer’s protestations leave people wondering why it would complain about Tesco, given that any debate over curbing power in the global retail market is likely to shine the spotlight on Bentonville.

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“Wal-Mart has done a good job of escaping from close antitrust scrutiny in this country, and a lot of people are wondering whether they are vulnerable in this area,” said Foer, who had persuaded Wal-Mart Chairman S. Robson Walton to address his annual antitrust conference in Washington last year.

Walton denied that Wal-Mart used its clout to bully suppliers and unfairly drive competitors out of business.

“The real secret to our low prices is not tied to the deals we get with suppliers,” he said. “Rather, our low prices are derived from a company culture that is passionate about taking unnecessary cost out of the business and equally passionate about investing in more-efficient business practices.”

Wal-Mart has 10% of the U.S. retail market. But in at least two other places, the company has come under the scrutiny of antitrust regulators. In 2002, Mexico’s Federal Competition Commission looked into complaints that Wal-Mart de Mexico, known as Walmex, was forcing suppliers to charge the retail giant’s competitors higher prices for the same products. After Walmex, the leading retailer, agreed to write to its purchasing department that such a practice was not allowed, the commission closed the investigation.

When Wal-Mart bought Supermercados Amigo Inc., the largest Puerto Rican grocery store chain in 2002, the U.S. Federal Trade Commission required that the company sell off four stores to ensure competition on the island.

But in Britain, where Wal-Mart bought the Asda chain in 1999, Tesco is the market leader. Nick Agarwal, an Asda spokesman in London, said Scott was not referring specifically to his firm’s rival in the Times of London interview but was speaking generally about the dangers of market concentration.

“Lee did not say he wants an investigation of Tesco,” he said. “What he did do was say that he understands why, when food market share reaches 30% or higher, the government might want to look at that.”

Scott has had his own run-ins with Britain’s antitrust regulators. In 2003, British authorities turned down Wal-Mart’s bid to purchase Safeway, saying the combined stores would have too much clout. At that time, an Asda-Safeway chain would have controlled about 26% of the food market, less than Tesco has today.

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Tesco declined to respond directly to Wal-Mart’s comments. But in a written statement, the company said British authorities had already investigated the retail market and found that it “operates in the consumer interest.”

Wal-Mart representatives insist that anti-competitive issues aren’t a concern with their company, because it controls small portions of the market in most parts of the world.

“We’re pretty small potatoes outside the U.S.,” said William Wertz, a Wal-Mart spokesman in Bentonville. “It really hasn’t been an issue.”

Critics have suggested that Wal-Mart already poses a threat in some markets. Take Canada, for example, where the retailer has 256 stores and its share of department store sales has risen to 52%, according to Talbot Consultants International, a Toronto-based research firm.

Asked whether Wal-Mart could face antitrust scrutiny in Canada, Wertz said, “I can’t answer that,” adding that competition laws and market forces are different in every country.

But critics who have launched a global campaign to slow the retailer’s expansion accused the company of doublespeak.

“The unmistakable irony here is that Wal-Mart is accusing its British competition of accomplishing exactly what it has planned for its U.S. operations,” said Andrew Grossman, executive director of Wal-Mart Watch, an anti-Wal-Mart coalition backed by some of America’s leading unions.

The emergence of big-box retailers such as Wal-Mart with global supply chains and markets has created new challenges for antitrust regulators who are constrained by outdated laws and national boundaries. Wal-Mart doesn’t fit the traditional definition of a monopolist, an entity that uses its dominant market share to push up prices.

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But Wal-Mart’s growing influence as a buyer has prompted a debate in antitrust circles about whether a concentration of “buyer power,” known as a monopsony, is harmful for society.

Some legal experts say that improved technology and the lowering of trade barriers has made it more difficult to determine when a global player is exerting too much power. For example, though global companies such as Wal-Mart and Tesco are improving efficiency and lowering costs, they may also be undermining societal goals such as preserving small businesses.

“It all comes back, at some point, to politics and to the vision people have of the kind of country they want,” Foer said. “I’m not castigating Wal-Mart; I think they have done a lot of good things. I’m much more worried about where we go from here and what things we need to worry about as a society to keep us going in the right direction.”


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