ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, September 18, 2007

Low Prices Aren't Everything

which is true... because there's always the assessment of the quality received for the price. If the quality (real or perceived) is better, customers are often willing to pay a higher price.

What the heck am I talking about? Well, the St Louis Post-Dispatch Piece of Trash has this ridiculous op-ed in today's paper:

Low prices aren't everything
Tuesday, Sep. 18 2007

If Wal-Mart were only about low prices, we might be inclined to look favorably on the retail giant's recently annnounced plans to add grocery operations to four of its area stores. According to a study released over the summer by professors Emek Basker of the University of Missouri and Michael Noel of the University of California, when a Wal-Mart Supercenter comes to town, grocery competitors lower their prices by 1 to 1.2 percent.

Sometimes, just the anticipation of Wal-Mart expansion affects competition. At the start of 2007 year, for example, Schnucks stores announced they would cut prices on some 10,000 items; Dierbergs quickly followed suit.

This is great news, right? Consumers get to enjoy lower prices instead of padding the profits of those greedy, coporate grocery store chains... Right?

But low prices are only part of the Wal-Mart picture.

At Schnucks, Dierbergs and Shop 'n Save, our area's three major grocery chains, a new union contract ratified earlier this month pegs the average hourly wage of a full-time worker at $16.43, according to the United Food and Commercial Workers Local 655. The labor group represents 9,500 employees at the three firms' 98 area stores.

The contract also includes comprehensive health coverage for workers and their families, for which employees currently pay no premiums. In 2009, they will begin paying a modest part of the cost of their health insurance. Nearly all workers take the coverage.

Soooo... their health care coverage is going to start to look like most Americans' coverage in the 21st century - your employer covers most of the premiums, but you pick up a portion. That they haven't paid a premium yet for coverage is pretty remarkable.
In contrast, the average hourly pay for non-supervisors at Wal-Mart is $10.47, according to the company. It says that it provides some level of health insurance coverage to 47 percent of its workers, although critics have said its available health plans fall far short of comprehensive. Other Wal-Mart employees are covered under a relative's health insurance policy, and some make so little that they qualify for Medicaid. Nearly 10 percent of Wal-Mart workers have no health insurance coverage at all.

Four years ago, the grocery chains, their workers and our community endured a 25-day strike after contract negotiations broke down. The issue: the supermarkets' demand for concessions in the face of growing competition from Wal-Mart. This time, the companies and the union reached agreement on a new contract without a strike.

Wal-Mart's low prices are partly the result of efficient management practices, but they also are the result of employees who receive low wages and skimpy benefits. A healthy American economy needs more than low prices. It also needs good wages and decent benefits for working people, which are exactly what strong companies and strong unions can achieve when they work together and bargain in good faith.

Americans want low prices, but they also want to know that the checkers and baggers and stock people who serve them at the supermarket can provide for themselves and their families, too.

Of course, this just demonstrates that Wal-Mart values the skills of checkers & stockers less than Dierbergs, Schnucks, and Shop & Save. (One item of note - all three grocers are local players and it would be interesting to see the other national chains are paying their employees and whether they would undercut the trio if they were to move into St Louis. That other competitors have not been able to break into St Louis is a testament to the Old Boys' Club network that is the St Louis economy. If WalMart were only a supermarket chain, it's unlikely it would get zoning for any locations.)

And, let's look at the last paragraph and perhaps make it a bit more accurate.
Americans Overpaid socialists who are editors for crappy newspapers want low prices, but they also want to know that the checkers and baggers and stock people who serve them at the supermarket can provide for themselves and their families, too.

The Post-Dispatch doesn't prescribe any solutions to this problem - although I can imagine that they have several in mind, ranging from banning of Wal-Mart entirely, "livable wage" minimums, or an excess profits tax.

Of course, the truth is that Americans don't really consider the wages of the checkers, baggers, and stock people when they purchase their groceries - or that it is of a lesser concern than low prices. Otherwise, the consumer would be flocking to the higher priced supermarkets. How much better is the service that you get at a Schnucks or Shop 'n Save from the checker there (or the automated checker system!) from the service that you receive at Wal-Mart? At Shop 'n Save, their idea of customer service is, "Bag it yourself, numb-nuts!"

The fact that Wal-Mart is so successful is because people would rather pay the lower price at a SuperStore than a higher price (with fewer selection) at a pure supermarket.

Let's be honest - it's slightly better. Is it $6/hr better? I don't think so.

Consumers aren't paying for the friendly smile - because they get that from any of those stores... And if they don't, it's because they're getting that computer-generated female voice telling them when to swipe their card for payment.

No, consumers are flocking to Wal-Mart because it's not only cheaper, but because of the selection and variety available. Dierbergs, Schnucks, and Shop & Save had better differentiate themselves, become more efficient, and properly assess the value of work that they're receiving from their checkers, baggers, and stockers.

Of course, this all reminds me of a South Park episode - here are the details.

*** UPDATE ***
CafeHayek points to this WalMart site (Save Money, Live Better) that was created to make the point that lower prices are good for the consumer. Comments Russell Roberts:
The Ultimate Indictment
Russell Roberts

If you want to know what's wrong with economics education in America, go here. It's a web site created by Wal-Mart to convince viewers that Wal-Mart is good for America because lower prices free up income for people to enjoy other things. How bizarre is it that a company has to spend thousands if not millions of dollars on this web site and elsewhere making the case that low prices are good?

We're doomed...

Your Co-Conspirator,
ARC: St Wendeler