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CORPORATISM -
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Putting on the Brakes

Posted in the database on Wednesday, May 25th, 2005 @ 01:52:39 MST (1414 views)
by Michael Barbaro    Washington Post  

Untitled Document At first glance, the numbers seem arbitrary.

Legislation before the D.C. Council would ban new stores with more than 80,000 square feet that devote 15 percent of their space to food and other nontaxable merchandise.

A bill passed by the Maryland General Assembly would require companies with more than 10,000 employees to spend 8 percent of payroll on health care.

A zoning rule approved in Montgomery County restricts the location of outlets larger than 120,000 square feet with a full-service grocery and pharmacy.

But behind the hodgepodge of figures is a very specific goal: Keeping out Wal-Mart Stores Inc. As the discount giant shifts its focus from the Washington region's fast-growing fringes to its dense urban center, it has become locked in a bitter behind-the-scenes struggle with the local unionized grocery industry, which is scrambling to erect legislative barriers to the chain's growth.

The fight is taking on national significance. Wal-Mart, which has conquered rural America with more than 3,000 stores, desperately needs to break into the urban market to maintain its phenomenal growth. So far, it has been rebuffed in Chicago, New York and Los Angeles, and the retailer views Washington as an important frontier for expansion.

The Bentonville, Ark., company has already made strong inroads here. Since its arrival in the region 13 years ago, Wal-Mart has quietly planted 147 stores in Maryland and Virginia, including 32 in the greater Washington area. It is now the No. 1 private employer in Virginia and one of the top 10 in Maryland, with 52,000 workers in both states.

But the company has succeeded in such places as Prince Frederick and La Plata in Maryland, and Warrenton and Burke in Virginia, far from the region's center.

Across the area, big-box stores are facing growing resistance from communities worried about increased traffic and environmental impact. But Wal-Mart's inability to open a store in the inner suburbs is unique. Both Home Depot and Best Buy have stores inside the Beltway and the District. And Target, Wal-Mart's closest competitor, has seven stores inside the Capital Beltway. Its first location in the District is scheduled to open in 2007. "We'd like to be a part of that success," said Mia Masten, Wal-Mart's head of corporate affairs for the East Coast.

Although Target, Home Depot and Best Buy have no union, and Target is moving into the grocery business, local unions are giving those chains a pass to focus their energies, and cash, on a single foe.

"Wal-Mart is the biggest threat to our members' way of life," said C. James Lowthers, president of United Food and Commercial Workers Local 400, which represents local grocery workers at Giant, Safeway and Shoppers Food Warehouse.

Local unionized grocery chains, which dominate the area's closer-in suburbs, fear they cannot compete with Wal-Mart's rock-bottom prices, technology-driven efficiencies and cheaper, non-union labor force. Wal-Mart is now the nation's largest food seller, and although it operates few of its full supermarket formats in the Washington area, the chain says it wants to build the more profitable stores wherever possible.

Giant Foo, Safeway and Shoppers Food control 55 percent of the local grocery market, and their union is relying on its strong political ties and sympathetic shoppers to stop Wal-Mart's expansion. At stake, the union says, is the future of more than 20,000 supermarket jobs that offer a middle-class lifestyle to the region's unskilled workers.

Wal-Mart's opponents, led by Local 400 and Giant Food, have already won several high-profile victories. Six jurisdictions, including Prince William, Calvert and Montgomery counties, have passed zoning rules that make it harder, if not impossible, for the chain to open a supercenter, its most profitable format. Several more jurisdictions, including the District, are considering such rules. And in April, the Maryland General Assembly passed a bill backed by Giant and Local 400 requiring Wal-Mart to spend more on employee health benefits. The governor vetoed the bill, but some legislators have vowed to override it.

"Our goal is to block them out," Lowthers said. The union has circulated sample zoning bills targeting Wal-Mart to local governments, rallied members to speak out against the retailer at public meetings and called on state leaders to support anti-Wal-Mart legislation.

It was a Local 400 official, for example, who first suggested the idea of a big-box bill targeting Wal-Mart in the District, said D.C. Council member David A. Catania (I-At Large), who sponsored the legislation. Catania said he agreed to offer the measure because he believes Wal-Mart's employee health care benefits are inadequate. As the bill was drafted, Catania said, the union was consulted on the language.

Wal-Mart, which has traditionally balked at answering its critics, is fighting back in hopes of showing it can find the formula for moving into urban areas. When Montgomery and Calvert counties recently proposed zoning restrictions, Wal-Mart commissioned opinion polls that showed residents opposed the rules, gathered signatures on petitions supporting the chain and set up meetings with local officials.

Both counties eventually passed the anti-big-box regulations, but that has not stopped Wal-Mart. In Calvert County, the chain proposed splitting one of its large stores into two to skirt a rule banning stores over 75,000 square feet, though it ultimately agreed in the face of community opposition to build a single store within the limit.

In Prince William, the company is negotiating to put a store inside Manassas Mall, which is exempt from the county's big-box bill. In another show of force, the company has threatened to pull plans for a Maryland distribution center that could employ as many as 1,000 workers if the General Assembly overrides the governor's veto and turns the health care legislation into law.

At the same time, Wal-Mart is in talks to build two stores in Prince George's County, one inside the Beltway, and it is scouring the District for potential sites. Wal-Mart came close to selecting a location in the city's Brentwood neighborhood last year but backed out at the last minute, saying the site was too small.

Wal-Mart, which opened its first five-and-dime store in Bentonville, Ark., in 1962, did not arrive in the Washington region until three decades later, when it had already become the nation's largest retailer.

Its first local store, which opened in Prince Frederick in Calvert County in 1991, was the subject of so much consumer curiosity that employees taped paper over the front windows before the grand opening. Over the next 13 years, it continued to nibble at the region's edges, with stores in Waldorf, Bowie, Leesburg and La Plata.

"People did not perceive them as anything but a good thing," said Peter Framson, president of Greenlight Retail, a Bethesda retail brokerage.

That changed in the mid-1990s as Wal-Mart moved nearer to the Beltway and deeper into the supermarket business.

Closer-in communities such as Montgomery County proved a harder sell for the chain. Such communities, dense from decades of development and populated with higher-income shoppers with upscale tastes, began to fight the retailer at zoning meetings and planning sessions. In 1994, Wal-Mart said it hoped to build at least four discount stores in Montgomery. Today there is just one, in Germantown.

Meanwhile, Wal-Mart was realizing that it could increase profit at its stores by carrying a full line of grocery products, housed in a massive facility called a supercenter. Buyers applied the same techniques used throughout the company: purchase in bulk and negotiate the industry's lowest prices.

Unionized grocery chains do the same, but they simply cannot match Wal-Mart's buying power or its lower labor costs. Wal-Mart's hourly wage in the Washington region is $10.08, while Giant's and Safeway's is $13.19, the companies said. With overtime, the figure rises to $16 an hour for the union chains. Giant's and Safeway's health care plans cost the chains $12,249 for every full-time employee, nearly twice what Wal-Mart pays for a typical family plan, the companies said. Wal-Mart's cost for health benefits depend on the plan and deductible chosen by employees. While Wal-Mart workers have a 401(k) plan, with the chain matching up to 4 percent of employee contributions, depending on annual profit, Giant and Safeway are required by the union contract to pay into a more expensive pension plan.

The results can be seen at the cash register. At the Wal-Mart supercenter in Spotsylvania County, which opened in March, a basket of 23 popular household products, including such brands as Jif peanut butter, Maxwell House coffee and Reynolds Wrap aluminum foil, cost $60.37. At the nearby Giant, less than a mile away, the same 23 products cost $75.55, or about 25 percent more.

In the Washington area, Wal-Mart's grocery sales have grown to $442 million in 2004 from $48.4 million a decade ago, according to Food World, a Baltimore trade publication. It now sells nearly 4 percent of all groceries in the area. During that same period, Giant's and Safeway's shares of the local grocery market have fallen 12 percent and 9 percent, respectively.

Grover and Linda Wilson, both self-employed, drive 25 miles to the Spotsylvania supercenter from their home in Rhoadsville, Va., passing both Giant and Safeway on the way. The Wilsons don't mind that Wal-Mart workers have no union.

"You can't pay people $20 an hour and sell bananas for 33 cents a pound," Grover Wilson, 62, said.

In Spotsylvania, population 112,000, business leaders and economic development officials actively courted Wal-Mart. The chain had closed its only county store in 2001, and "we desperately wanted them back," said Bill Vakos III, vice president of Vakos Real Estate, who helped develop the store.

The supercenter employs 500, will generate as much as $1 million a year in county sales tax revenue and has already given $12,000 to local charities, according to the county.

"Having Wal-Mart here," Vakos said, "is a big deal."

Lowthers, the union president, acknowledges that Wal-Mart has lower prices, but he said the union's job is to show consumers there is a cost.

"When Wal-Mart comes to town, good jobs are replaced by bad jobs," he said.

Wal-Mart is unapologetic about its lower labor costs, and its chief executive, H. Lee Scott Jr., believes it is the unionized grocery stores that must change.

"If you sell the same product and you sell it for 20 or 30 percent more than your competitor, you've got an issue with your business model, Scott said during a recent interview.

But those lower costs, and the growing belief that Wal-Mart's highly touted efficiency is depressing wages throughout the economy, have snowballed into an image problem that is making it increasingly hard for Wal-Mart to build stores in the Washington region.

"I would not stand up in front of a zoning meeting and say, 'I am here to bring you Wal-Mart,' " said one local developer, who spoke on condition of anonymity for fear of jeopardizing future relations with the company. "This is an anti-Wal-Mart hysteria in this area."

© 2005 The Washington Post Company



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