Tuesday, June 10, 2008

Walmart & Food Price Inflation

Fortune has an article about how Walmart is working to maintain low retail prices despite the surge in commodity costs. Here is a brief excerpt from the article:

Ever wonder why that cereal box is only two-thirds full? Foodmakers love big boxes because they serve as billboards on store shelves. Wal-Mart has been working to change that by promising suppliers that their shelf space won't shrink even if their boxes do. As a result, some of its vendors have reengineered their packaging. General Mills' Hamburger Helper is now made with denser pasta shapes, allowing the same amount of food to fit into a 20% smaller box at the same price. The change has saved 890,000 pounds of paper fiber and eliminated 500 trucks from the road, giving General Mills a cushion to absorb some of the rising costs.

The interesting thing about these types of moves is that they reduce costs, AND they are environmentally friendly. More and more companies are searching aggressively for ways to eliminate waste, and particularly, to reduce fuel consumption. The high oil prices are, in fact, driving fundamental changes in behavior. We are seeing innovation and increased efficiencies result from the desire to counter the high price of oil/gas. In the long run, such moves may have wonderful positive effects for companies as well as for the economy as a whole.

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