Feds and Wal-Mart Team Up To Kill Small Grocers

As if Wal-Mart's impact on small businesses were not devastating enough, now the giant retailer is getting an assist from the Federal government.

Just before Christmas, The Family Nutrition Store (FNS) in Topeka, Kansas, which is the only grocery store in the area that solely serves people on the Women, Infant's and Children's (WIC) program, shut its doors for good---a victim of Sam Walton's store and Uncle Sam's bureaucracy.

Under the WIC program, the Federal government provides grants to States for supplemental foods and nutritional education for low-income women, and to infants and children up to age five who are found to be at nutritional risk. In Kansas, the WIC program is administered by the state Department of Health and Environment. According to the Topeka Capital-Journal newspaper, The Family Nutrition Store was killed off by the United States Department of Agriculture (USDA), which adopted a regulation last year that cut payments to certain stores participating in the WIC program. Similar WIC-only stores in Kansas City, and Garden City, Kansas also shut down.

The Family Nutrition Store on California Ave in Topeka, offered grocery items only to those participating in the federal program. Wal-Mart supercenters, which include a full-line grocery store, also sell WIC products---but they sell to a much larger segment of the public as well. In 2006, the USDA changed the WIC rules governing payments to small, WIC-only grocery stores. David Criswell, the owner of The FNS, says new USDA rules ran him out of business. "I think their whole goal was to put small stores out of business," Criswell told the Capital-Journal.

Under the old rules, WIC vendors were classified into six pricing levels. Smaller stores, like the FNS, were paid more than larger stores. Vendors like Wal-Mart, which has more buying power, were paid less, because their products cost less. But under the new USDA rules, payments to WIC-only stores "may not result in higher food costs than if program participants purchased their WIC foods at regular vendors," the rule states. In Kansas, the Department of Health and Environment applied reimbursement rates to the smaller stores based on the average reimbursement of the bigger stores.

These new regulations in essence require WIC-only stores to compete in price with big-box discount retailers. But the rules hurt WIC-only stores because they faced higher operating costs than larger stores. The regulation doesn't apply to other groceries. For Criswell's store, that meant lower payment rates, because stores like Wal-Mart already control a large part of the WIC market, driving down the average cost of the program. Criswell says the new payment scheme actually paid him less than he had to pay for the products in the first place. "How were we supposed to survive?" he asked.

With reimbursements driven down by Wal-Mart's price-advantage, Criswell ended up having to close three of his stores over the past few months. According to Criswell, the WIC-only stores were the only ones hit by the new "averaged pricing" system---while regular retailers still are placed in higher pricing levels. FNS was paid less than any other store in Topeka, except for Wal-Mart.

Criswell did not take this lying down. He contacted his Congressmen for help. In 2006, U.S. Representatives Dennis Moore, Todd Tihart, and Jerry Moran, and U.S. Senators Sam Brownback and Pat Roberts, sent a letter to the USDA saying that 42 of the 43 WIC-only stores in Arkansas had closed. "The recent regulations make it impossible for small WIC-only stores to continue doing business," the lawmakers' letter said.

But the Congressional pitch fell on deaf ears at the USDA. Criswell's FNS in Kansas City died of red ink in November, and his two other stores closed this past week. "This is just un-American," Criswell complained.

Not only was Criswell upset, but his customers were not pleased either. More than 600 customers of the FNS in Topeka signed a petition protesting the new rule. Many of Criswell's customers were Spanish speaking, and having a Spanish-speaking manager was a key draw, said Jorge Escalante, the Topeka FNS manager. "The service I give is better than any other store," Escalante said. When the USDA launched this new payment rule, it admitted that "the rule may have a significant economic impact on a small number of vendors that have been authorized to participate in the WIC program."

But the USDA says it adopted the rule to save money, allowing the program to reach more consumers. USDA officials say the regulation was part of a cost-containment effort approved by Congress. Some WIC-only stores had been found to be charging consistently higher prices than other groceries, and federal officials hoped that cost-containment would maximize the number of women and children served. Criswell, who leads a national coalition of WIC-only stores, said more than 300 such businesses have closed across the nation since the regulations were issued. Customers at Criswell's store said they used the store because they couldn't find a lot of the items at other WIC-approved groceries. At the other grocery stores, many WIC-qualified people often mistakenly pick up a product that isn't WIC approved, creating confusion at the checkout counter.

The FNS stores are now history, thanks to Wal-Mart and the USDA. "You know we're not like Kroger and Wal-Mart that have a lot of high-dollar lobbyists in Washington, D.C.," Criswell told the Kansas City Star, "and unless you're one of those types of companies, you just don't have a voice these days."

The Indianapolis Star carried a related story this week about Wal-Mart donating $1,400 to participants of the WIC program in Morgan County, Indiana. The donations were in the form of $50 Wal-Mart gift cards---which means the women will now have to redeem their cards at Wal-Mart, and spend their "gift" only at the company that made the donation. So the gift will keep on giving back to Wal-Mart.

The USDA WIC pricing rules amount to nothing more than a giant gift card from federal taxpayers to Wal-Mart.

Comments

[JudyGee]

We are living in the USSR. What irony. These free marketers (halting stock market trades when the stocks are free-falling, is their idea of free markets). The thing is, as the poster Wilburrr noted, we wouldn't be slaves to these deep discount walmarts and their crappy, toxic merchandise if we had jobs that paid living wages. It's not just the employees who can't afford anything else, it's the customers everywhere. Our standard of living, once the highest in the world, is a plane crash. We're just hanging on by our fingernails. The China outpost is very unnerving and strange, I have never seen so many ugly, cheap garments or scary toxic products and of course, the filthy food - and it all winds up at walmart. And, sadly, it's not cheap, look at what it has cost us.

[nedpotter]

I don't believe that I, the taxpayer, have an obligation to subsidize smaller, less efficient businesses. I am the owner of a small family-owned machine shop business, 3rd generation. If a mega-sized competitor moves in down the block and puts me out of business, I'm not going to run to the government for a handout, because the taxpayers of this country don't have an obligation to keep me in business--that's my obligation, and mine alone. If there is enough demand for small, specialized grocery stores, then they will stay in business. If there isn't, then poof---away you go. Owning a business is a full contact sport.

[Pdubya]

Managed corporatism, the ill since 1913 and what gave "free markets" a bad name.

what will we call this WallMart fiasco?

The New Deal II?

will they have a bread line next year when the dollar collapses?

[Spookcatcher]

Does someone who owns local stores who's business only thrives because it is living off one of my taxdollar paid programs derve more credibility? A shouldn't the government, who is supposed to make sure my taxdollars get the most bang for my buck, realize this, and the end result is Wal-Mart and other larger chains (that also hire local residents to work) offer more efficiently the federal program and the products at cheaper prices, thus saving U.S. Taxpayer dollars and less duplication of sevice in the market place what we look for or expect? Sorry, but if the owner(s) of these local stores can't find retail items with out utilizing a government program to get customers, they should fail. In the same vein, i don't want I don't want farmers subsidized to not grow crops either. I have owned local retail stores and find plenty of items and/or services to "retail" without any government subsidy or fear of Wal-Mart price cutting me out of business. In fact, its because Wal-mart is so big a lot of savvy retailers are making local businesses resugent in many communities, and are thriving because customers are looking for other places to shop, choose alternative product lines , and even willing to pay more on similar items by getting to do it! I do.

[suki21693]

I see no point in having a WIC only store. It is actually an absurd idea as far as I can imagine. We have WIC in Virginia, but recipients shop in normal stores along with everyone else. When I was younger I worked in as a cashier at a couple of grocery stores and WIC people never caused any particular problem. We were all trained to help them find items that were WIC approved (which even had special shelf tags).

Why should additional tax money be used to pay higher prices so WIC recipients can shop at specialty stores instead of at the same stores as the rest of the general public?

And the fact that they gave out gift cards does not negate the reality of the donation. If they had come and given them $50 worth of product from the store directly would you feel the same way? That is essentially what they did. I am sorry but this whole post just seems petty.

There are plenty of legitimate complaints about Wal-Mart, but this is not one of them. Beating the Wal-Mart hating drum about such a non-issue only brings the legitimacy of valid issues into question.

[realitytrumpsbull]

I'm ambivalent about WIC. I'm unsure why it's
even needed. Maybe if they stripped all the
federal funding for this and that out of all
of this, and stores just set the best price
possible that let them stay in business and
stuff, then there wouldn't be all of this.


Wal-Mart buys cheaper because they can buy
high volume and make some money at it. Are
they the devil? Well, no. They sell stuff.
They can beat the competition. Like it or not,
the mom n pop shops are going to 'eat it' in
the global market. Wal-Mart may yet fold up
like a cheap kite, too, at which point it's
going to be really hard to find those lead-based
chinese toys anywhere. Kids will be back to
playing with used tires, and parents will be
back to making rock soup with dead weed garnish.
Cat sandwich?

LOL