As Oil Prices Rise, Wal-Mart Rethinks its Global Food Sourcing Tactics

Wal-Mart, one of the largest food retailers in the United States, is known for its inexpensive food due to its incredible network of global suppliers. Traditionally Wal-Mart has been successful at finding the cheapest products anywhere in the world and importing them to its stores nationwide using various modes of transportation while taking advantage of inexpensive oil prices. Now, with the price of oil and transportation skyrocketing, Wal-Mart is being forced to rethink its food supply chain, and is beginning to purchase locally grown products instead (Philpott, 2008).

Because ease and affordability of transportation have been major contributing factors to globalization, the financial strain of keeping those established trade routes open is beginning to show. This could be very good news for many local businesses that have been threatened in the past by foreign sourcing competition as well as large chain stores. In the case of Wal-Mart, small farmers that can not compete are joining the giant in order to remain profitable. Linking with larger corporations is a well established method of protecting a company’s domestic niche (Bartlett et al., 2004, 215). It seems many local farmers are taking advantage of this opportunity. Since 2006 Wal-Mart has expanded its local sourcing by 50% so that at least one-fifth of all produce in their stores is grown and sold within the state. And aside from the support local communities are getting because of this shift, Wal-Mart has cut its costs by million of dollars. For example, by locally sourcing peaches alone Wal-Mart saves $1.4 million every year and uses 112,000 gallons less of diesel (Maestri, 2008). Sourcing locally seems to be beneficial to everyone involved - Wal-Mart, local farmers, and the environment. The only remaining question is whether or not Wal-Mart will actually be able to maintain its trademark low prices by cutting down its oil/transportation costs, but at least they are trying.

References:

Bartlett, Christopher A. Ghoshal, Sumantra. Birkinshaw, Julian. (2004). Transnational Management. Fourth Edition. McGrawHill Irwin. USA.

Maestri, Nicole. (July 1, 2008). “Wal-Mart to Source More Fruits and Veggies Locally.” Reuters UK. Reference URL: http://uk.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUKN2730901520080701?sp=true

Philpott, Tom. (July 11, 2008). “Wal-Mart Comes to the Farmer’s Market.” Grist - Environmental News and Commentary. Reference URL: http://www.grist.org/comments/food/2008/07/11/index.html