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The Debate About Wal-Mart’s Impact On The Local Economy Rages

Pros & cons of megaretailer’s acquisition of Amigo supermarkets examined; no Amigo stores up for sale yet


October 10, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

While Wal-Mart waits for the results of evaluations being performed by state and federal regulators regarding its purchase of locally owned supermarket chain Amigo, a coalition of organizations that oppose the acquisition has turned up the volume to alert the population of the negative repercussions the move would have on Puerto Rico’s economy. At the same time, two private-sector organizations have come out in support of the sale.

The coalition–whose members include the Food Industry, Marketing & Distribution Association (MIDA), the Retailers Association, the Wholesalers Chamber of Commerce, and other entities–points to the possibility of Wal-Mart destabilizing the local food market.

The supporters–the Puerto Rico Products Association and the Puerto Rico Manufacturers Association–say they’re defending a free market and cite Wal-Mart’s promise to help local businesses expand globally.

"Wal-Mart controls about 30% of the local food market," explained Fernando Bonilla, vice president of Pueblo International LLC. "This 30% is now handled by local distributors, but when they’re no longer needed because the megastore is importing food from outside, they will lose 30% of their revenue in one shot while still having the same operational costs. This will cause prices to retailers and consumers to increase. Once retailers are forced to increase prices, consumers will turn to Wal-Mart, which will be able to offer lower prices because it buys in much larger volumes."

Bonilla said Wal-Mart’s planned 800,000-square-foot distribution center in Vega Alta will be used to import merchandise, bypassing local distributors, a belief shared by many others in the retail industry.

In fact, the coalition claims in a written document that it isn’t economically feasible to use the distribution center exclusively to repackage merchandise from local distributors. It would be feasible, according to the statement, to use it to "bring large volumes of products from outside to distribute them in local stores."

But two leading private-sector organizations aren’t against Wal-Mart’s purchase of Amigo. The Puerto Rico Manufacturers Association (PRMA) and the Puerto Rico Products Association (PRPA) have publicly endorsed the move. "The board met recently to discuss the issue," said William Riefkohl, the PRMA’s executive vice president. "We have no objection to the acquisition of Amigo by Wal-Mart because we believe in a free market, wherein acquisitions occur and are natural and healthy. As long as Wal-Mart obeys local and federal laws and fulfills its promise to help local businesses export their merchandise globally, we have no reason to be opposed."

Meanwhile, the Puerto Rico Chamber of Commerce (PRCC) is still making up its mind. It has invited Wal-Mart spokesman Federico Gonzalez Denton to explain the megastore’s position before it decides whether to support the Amigo sale, said PRCC President Jose Joaquin Villamil.

Local economist & retail industry specialist Vicente Feliciano, manager of Advantage Business Consulting, said the transaction "is positive for both the economy and consumers and will require the competition to go the extra mile. It is important, however, that regional markets remain competitive, which is why some Amigo stores will have to be sold so consumers’ choices won’t be impaired."

Riefkohl said Wal-Mart has already demonstrated its commitment to local businesses by exporting products made by Vasallo and Pan American Grain. He noted that Wal-Mart’s deals with these companies were only made recently because the law that provides government incentives to companies that export local products was passed just nine months ago.

Rolando Avila, president of the Puerto Rico Products Association, said, "We have decided to endorse the move because our members, manufacturers, see it as a positive thing for their businesses. A survey we performed among our members showed that they are all willing to do business with Wal-Mart, and some already are."

Avila pointed to Thom-Tex, which produces notebooks, as an example. "Thanks to Wal-Mart, Thom Tex will soon begin selling the notebooks it manufactures here to the mainland U.S." He added that "Wal-Mart has been able to control inflation by offering low prices to consumers, and consumers seem to agree with this sale." He did admit, however, that he thinks Wal-Mart could eventually control 40% of the food market if the sale goes through.

Amid the debate, rumors abound that the deal is nearly done, but there have been no concrete indications to that effect. It has been reported that Federal Trade Commission regulators have insisted that four or five Amigo supermarkets must be sold for the acquisition not to result in an undue market concentration that may violate federal antitrust laws or constitute an undue restraint on trade. Yet no one in the industry can confirm that any Amigo supermarkets are up for sale.

This Caribbean Business article appears courtesy of Casiano Communications.
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