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Island Lawmakers Investigate Wal-Mart's Bid To Buy Amigo
By Iván Román
November 3, 2002
SAN JUAN, PUERTO RICO -- With that now-familiar violin ditty in the background, the jovial Puerto Rican grandfather appears on television screens on the island, speaking in Spanish about how Wal-Mart is his place to get little skirts for his granddaughter and oil for his car.
"I go to Wal-Mart so much, my car basically gets there all by itself," he says while at the wheel.
That's what many here are afraid of.
Big bad Wal-Mart, as many from California to Maine like to call it, has been raking in the cash in Puerto Rico for 10 years. But it wasn't until the world's largest retailer decided last January to buy Supermercados Amigo, the island's second-largest supermarket chain, that all kinds of economic forces in Puerto Rico joined hands to take on the retail giant.
Even legislators from all three political parties came together this week -- a rarity -- to "urgently investigate" Wal-Mart's proposed $225 million purchase of Amigo's 38 stores.
Although the resolution simply calls for a 30-day probe into the matter, lawmakers seem to have made up their minds about the sale that is pending approval by the Federal Trade Commission. It says Wal-Mart appears to be anti-labor and manipulates the workforce into part-time, lower-paying jobs. It also cites academic studies that show when Wal-Mart moves in, thousands of businesses -- and jobs -- are lost.
"We feel unanimously that competition is precisely the guarantee we have for society, for the workers, for the consumers," said pro-statehood Sen. Norma Burgos of the opposition New Progressive Party. "None of us can agree with favoring or depending on a monopoly."
The fears about shoppers flocking to 19 Wal-Mart and Sam's Club stores built on coastal plains and nestled in hillside cities reflect a longtime trend in Puerto Rico. The Amigo purchase is simply the latest -- and because of the players involved, the most visible and symbolic -- display of U.S. and foreign companies taking a bigger share of Puerto Rico's economy.
With $1.16 billion in sales in 2002 in Puerto Rico, Wal-Mart officials say it would have 24 percent of the food market if the Amigo sale goes through, while its critics say it would spike to more than 40 percent, which could constitute a monopoly.
"Before, we were fighting this alone; and now, there is a united front to fight this octopus that has come to cover the island," said Ricardo Calero, president of the 18,000-member United Retailers Association of Puerto Rico. "If we can prove that it's going to be a monopoly, the government has the obligation of not letting it go through."
Wal-Mart, which has $220 billion in annual revenues worldwide, has been taking its case directly to the people with full-page newspaper ads touting its low prices and saying it helps to increase, not limit, competition. Wal-Mart also gets 83 percent of its supermarket items from island businesses, the company says, and buys from local suppliers to export to its stores across the United States.
"Legislating to restrict the operations of successful retailers will not make Puerto Rico more competitive or economically stronger," Mike Schmidt, Wal-Mart's vice president of development, told legislators at a hearing about monopolistic practices last week. But critics say buying up the competition is no fair way of competing. They accuse Wal-Mart of predatory pricing, selling below cost to wipe out competitors so it can then raise prices once they're out of the picture, a claim company officials vehemently deny.
Wal-Mart, which has bought five supermarket chains in Mexico, South Korea, Germany and parts of Europe since 1996, is already being investigating by Mexican trade authorities on suspicion of pressuring its suppliers not to do business with any competitor. In California, communities and state legislators have been passing laws aimed at blocking Wal-Mart from taking root there.
There are indications that critics have cause for concern. Kenneth Stone, professor of economics at Iowa State University, who has studied Wal-Mart, said recent experience in Mississippi shows that once it opens in an area, food sales in surrounding stores drop 18 percent in three years. In some places, Wal-Mart has more than 40 percent of the market.
"The local grocery stores just can't sustain that," said Stone, who also documented drops in employment and thousands of business closings in Iowa as a result of Wal-Mart. "They just don't have the wherewithal to fight in a price war. There are some markets in which they have a third of the market already, so yeah, the grocers in Puerto Rico should be worried."