What financial impact will Walmart’s decision to remove hazardous chemicals from some of the products it sells have on its supply chain? by Jon Hansen

Posted on March 5, 2014


“Walmart and Sam’s Club believe that customers/members should not have to choose between products that they can afford and products that are better for them and the environment.”
Walmart-IA March 4th sustainablebrands.com article by Mike Hower was interesting on so many levels.

As someone whose family has eschewed factory food in favor of cooking healthy meals using real ingredients, I was already well aware of the dubious substances that go into familiar brands such as the orange dye that makes Kraft’s macaroni & cheese noodles glimmer on your plate.

In fact it seems that a week doesn’t go by that another startling revelation regarding the chemicals we are ingesting either by direct consumption or product use, hits the headlines.

This doesn’t mean that there are not healthy alternatives to many of the products that we use in our daily lives.  The question is one of affordability.  This is where Walmart’s initiative is both noteworthy and laudable.

For the longest time, we were seeing the emergence of a product class divide in which the average consumer could not afford to purchase healthy goods.  Think of it in the context of only being able to afford to buy a house that is insulated with asbestos.  Given a choice between living outside or in a house how many would choose the latter despite the known risks?  The same can be said for eating or not eating.

Of course looking beyond Maslow’s hierarchy, which is the main consideration here, I could not help but wonder what impact this will have on Walmart’s supply chain.

When I talk about impact, I am of course talking about the proverbial elephant in the room –  COST.  What will Walmart’s initiative actually cost and of even greater importance who, if not the consumer, will bear the brunt of the corresponding financial shift?

“McDonalds is not the only fast food company that operates with such low food costs and charges a much higher price. KFC, Wendy’s, and other restaurants are all selling chemically laden, poor quality, and highly refined meals to a public desperately in need of nutrient-dense, real food options.”

In the above excerpt from a January 7th, 2014 article, it becomes quite clear that restaurant chains are making a fortune by serving up menu items made with low-cost, high-hazard ingredients.

The question is what will happen to these margins and the chains themselves if and when a Walmart-type initiative forces them to use healthier ingredients?  Will these corporations be willing to earn less money while maintaining the affordable price point that currently makes their food products available to the mass market?  What is the breaking point in the taut balance between doing what’s right and corporate profitability?  Again, going healthy doesn’t count if no one can actually afford to eat the food.

In terms of Walmart, what happens when the pressure points cause unmanageable tension to their supply chain?

How long will the good intentions highlighted in the Hower article be sustained without something giving?  In a July 7th, 2009 post, I talked about the Walmart Effect, detailing how the retail giant walks loudly and carries a big stick in terms of the clout it has over its supply base.

The fact is that Walmart has yet to provide a financial game plan associated with the affordable/better for you focus of their initiative.  Either they haven’t calculated the costs – something with which I would be hugely surprised – or, they have, but will not disclose it because it will invariably identify the parties that will ultimately foot the bill for going clean as opposed to lean.

At this stage, I imagine that it would be best to assume a Christmas shopping perspective in that we will enjoy the presents under the tree today and worry about paying for them down the road.

In the meantime stay tuned, as this is a story in which the ending will be most interesting.


Posted in: Commentary