Letter from Ed - 'The Wal-Mart Blues'
Dr. Brindley raises concerns over the future of the industry and the impact a strong Wal-Mart/Chep relationship might have on recyclers!
By Dr. Ed Brindley
Date Posted: 9/1/1999
The pallet industry has changed a great deal and promises to change even more in the future. In the center of these whirlwind changes, Chepís management decisions are having a significant impact.
Increasingly, I have noticed more Chep pallets at our local Samís Club and Price Costco stores. The U.S. Chep pool has grown in quantum leaps; estimates run at 30 million or more. And Wal-Martís recent negotiations with Chep to handle its distribution centers may be the most significant Chep move yet. While Chep and Wal-Mart have not announced a signed agreement, industry sources indicate that operational aspects of the agreement have begun.
Chep delayed entering the U.S. market while it worked around the world, gathering both impetus and experience. The company wanted to be as prepared as possible to tackle what would be its biggest challenge and greatest potential reward. While in some ways the U.S. was likely to be the most resistant to Chep, Wal-Mart provides the greatest lever that Chep has ever had.
By its very size, Wal-Mart provides an unprecedented avenue to encourage its suppliers to do what it wants to have done. According to industry sources, the Wal-Mart/Chep relationship is quickly bringing blue Chep pallets into Wal-Mart distribution centers and stores by the tens of thousands. This offers a serious threat to the pallet recycling industry as we know it today.
Chep has designed a program to handle the pallets in all of the U.S. Wal-Mart DCs (over 40 of them). Industry insiders indicate that Chep is moving into roughly one DC a week with a plan to complete the network rapidly. Wal-Mart may want to deal with a single company in its DCs. This would require one arrangement instead of many different kinds of deals with a variety of recyclers around the country. While some recyclers are still serving their Wal-Mart DCs, the transformation is taking place as I write. A number of recyclers, including PalEx, have been displaced from at least some of their DCs.
Reportedly, the two sides are working on an agreement that would give Chep exclusive control for the dock clearing of the U.S. DCs. In addition, Wal-Mart would encourage its suppliers to ship their products to Wal-Mart on Chep pallets.
No where else in the world is there a retail company with the influence enjoyed by Wal-Mart. This power could have a profound influence on the pallet recycling industry. Given Wal-Martís position in the market, a strong alliance with Chep could make it more more difficult for any new pallet pooling company to enter the U.S. grocery market. By
Chep is placing a team of people in each DC to manage the pallet flow. These DCs are being manned by established pallet recycling companies, but that arrangement could be very tentative. They will order pick onto Chep pallets for shipping into Wal-Mart stores. Reports are that thousands of plastic blue pallets are being positioned to handle much of this downstream product movement.
The impact on pallet recycling is likely to be extreme. Financial analysts have speculated that a Wal-Mart/Chep agreement could alter the industry landscape eventually forcing many manufacturers to start leasing pallets from Chep instead of buying them from independent recyclers.
Unfortunately the Wal-Mart blues could become the pallet industry blues as well.
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