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Wal-Mart Effect

Josh Hanshaw

20th Century Innovation
Dr. Bowles
March 10th, 2012
Q1) How did Wal-Mart grow its Pharmacy business? Who did they learn from? Give specifics. In 1981 Clarence Archer was hired by Wal-Mart. He was a 48 year old previous pharmacist and current pharmacy manager at Kroger’s. His job was to take one of Walton’s secondary projects, Dot Discount Drugs, and make it a permanent fixture of Wal-Mart. When Archer joined up Wal-Mart had 300 stores, 16 pharmacies and space for another 100 should they choose to end the lease on the current tenants (Fishman, 2006, p. 38). So there certainly was a lot of promise for such high ambitions, but there were also hurdles. Wal-Mart had real competition to contend with, as well as consumer stereotypes to break or change. Archer moved slowly at first focusing primarily on price and people. Another key move by Archer that later proved vital, “was to hire the number-one pharmacist in the market. People will follow their pharmacist because of the way a good pharmacist communicates with you. When we would open a new store, we would hire the best pharmacist in town, no matter the price” (Fishman, 2006, p. 41). Wal-Mart moved aggressively both with their price point (coupons/incentives), and their overall pharmacy openings. Today Wal-Mart continues to dominate the market. In Sept. 2006 Wal-Mart introduced a $4 prescription program, as well as a $10 program on 90-day supplies to over 300 generic medications (Wal-Mart, 2010). Q2) Explain why you think the author uses Makin Bacon to illustrate how Wal-Mart has changed the supplier/manufacturer relationship.

I think the author uses the example of Makin Bacon because it epitomizes the change in dynamic due to the unique surrounding circumstances. Makin Bacon was a small start-up company between a father and daughter. Successes before Wal-Mart were incremental with high and low periods of volume. The agreement with Wal-Mart proved to be a game changer. As the text mentions, “when things go well with Wal-Mart it’s good for everyone: vendors, factory workers, customers, even the customers of Wal-Mart’s competitors, people who refuse to shop at Wal-Mart” (Fishman, 2006, p. 56).

The author goes on to elaborate more on the Wal-Mart effect. Due to Wal-Mart’s giant global reach, for any that can break into a market that size, it can have not only a stabilizing effect on the company but also the market. In the case of Makin Bacon the company is able to keep prices lower thanks mainly to the volume afforded by Wal-Mart. On a larger scale Wal-Mart even affects inflations rates (Fishman, 2006, p. 58). According to an article in Economy Lab food inflation in Canada last year rose at a rate of 1.7 percent in December, while overall inflation was 2.4. The article attributes the lesser number mainly to Wal-Mart and their ability to keep pressure on other retailers forcing them to keep prices in check (Grant, 2011). Q3) What is monopsony, and what examples does the author use to explain it? Is he being fair to Wal-Mart in the process?

Monopsony is a form of price control comparable to a monopoly, but instead of controlling it as a supplier you control it as a buyer.
The author uses the Wal-Mart/Vlasic relationship to highlight monopsony. In this case the issue revolved around the gallon jar of pickles. This was something that Wal-Mart wanted and Vlasic agreed to. In the end it helped and hurt Vlasic. They had to sell the gallon jar at an incredibly low rate to Wal-Mart, which consumers loved. But this in turn sent their sales of other products plummeting. What Vlasic saw was business growth in terms of volume, but overall devastating losses in profit (Fishman, 2006, p. 81).

Though I consider this an example of monopsony, I don’t think the author is being altogether fair here. Though correct, I feel it’s a case by case scenario. I’ve heard of other similar situations relating to Wal-Mart, but I’ve also heard of countless...
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