BEEF recently spent some time with Peterson at Walmart's home offices in Bentonville.

BEEF: How are you positioning beef in your meat cases as you continue to establish Wal-Mart in the food business?

Peterson: We've tried to apply our value proposition to all the meat products that we sell. The same principles of value, price and quality that apply to things like television sets also apply to food. We offer cuts of meats and meat products that fit the demand of our local customers. This “right-item, right-store” concept is a huge initiative for us.

BEEF: You transfer meat though 29 of your distribution centers. Can you walk us through this process?

Peterson: Meat orders are generated from our stores and sent directly to our suppliers, who in-turn ship orders to a distribution center.

Looking at it simply we have a process that when a T-bone steak goes through checkout, the cash register recognizes a T-bone has been sold and another T-bone steak is needed in that store. We don't maintain inventories — the product just flows through the center.

The whole idea is to minimize the time the product resides in the supply chain and maximize the time the customer can keep it in the home.

BEEF: What roles are you expecting beef producers and your suppliers to play in providing Walmart's meat customers with a safe beef supply?

Peterson: The customer doesn't expect the producer or the processor to take the responsibility for providing safe food. They expect the retailer to do all the things necessary to assure that the products they have in their stores are safe.

We follow all the government and industry rules and guidelines in our own safe-handling protocol. Our suppliers also follow those regulatory guidelines.

I think you're going to see more retailers looking for ways to eliminate or reduce risk as the understanding and technology to control pathogens like E. coli improve. But, the relationship we have with our suppliers is very collaborative — we're not going to impose any activity on a producer without first sitting down with a supplier and assessing its overall impact.

BEEF: We see a heavy emphasis on IBP products in your meat cases. Did this come with Walmart's move to case-ready meats?

Peterson: Depending on the community, we do business with all the major meat suppliers. We've had a case-ready proposition in all our proteins for about 18 months now. Of course Walmart has been leading that charge (see sidebar). IBP was the first company we worked with in a big way with case-ready beef — so they probably have a more significant penetration than do our other suppliers.

BEEF: A great deal of your fresh beef products are “enhanced” with a water-based solution. What drives the decision to merchandise beef this way?

Peterson: I think the whole idea of solutions, or “pumped” product, is going to revolutionize the meat industry over time. The solution process will ultimately be one of providing a flavor profile. This is no different in meat than in other foods. “Cooking” at home is becoming a lost art — much by choice — therefore the consumer is expecting to buy a piece of meat that has a particular flavor profile, stick it in the oven for 15-20 minutes and yet have something they remember eating when they were growing up.

Food additives, whether in solutions or otherwise, are becoming part of our food experience. The fresh beef area is one of the last great food bastions that have been generally untampered.

Preservative issues are more a factor of the packaging, as opposed to the solution itself. Clearly there are color stabilization benefits with the herb-based solutions we use.

BEEF: How are you going to address the country-of-origin labeling law (COOL) that's due to become mandatory next year?

Peterson: There are two issues with it — one is legislation, the other is regulations.

This is the only labeling law in the U.S. that requires the retailer to validate information on a label. In the past, it has always been the supplier's responsibility. The regulations are going to change and I'm sure they are not going to be as onerous as they appear today.

Whatever the regulations though, Walmart will obey the law. But, for us to comply with the law by Sept. 30, 2004 we have to impose some pretty strict things on our suppliers. The tracebacks simply don't exist. I cannot validate with 100% assurance the accuracy of information that I'll be required by law to provide without demanding things from suppliers. The bottom line is there's no way today that the meat industry can comply with the current regulations of COOL. The industry could do it in a few years, but all the documentation is not in place for the calves already born.

One thing I'm going to demand is indemnification. If I get a $10,000 fine, I've got news for you — it's going upstream. Suppliers are going to have to make sure the system is mistake-free.

Ideally, we think the law should be repealed. But, I don't know that there's an attitude in Congress to cause that to happen.

BEEF: How do you perceive your customer's attitudes with regard to COOL?

Peterson: COOL sounds good, until you try to enact it. But, if you ask our customers what factors go into their purchasing decisions, country of origin isn't even on the chart. I have 40 million people/week buying food in my stores and I've never had a single call or letter — not one — asking where something is produced.

Who do you think is going to hear from a consumer first — a producer or me? If consumers were clamoring to know the country of origin — retailers would already be labeling products. We'd be idiots not to take advantage of something like that.

What's nuts about COOL is that if it's such a big consumer right-to-know issue, why is poultry exempt? Why are food service entities and restaurants, where 53% of American food is consumed, exempt?

The only reason COOL is out there today is because some producers think the customer will believe something must be wrong with a product if it comes from anywhere but the USA. That's just not the case. We're simply not going to — and are not able to — market a product that has something wrong with it, no matter where it comes from.

If you're a beef producer, the enemies are not Argentina or Canada. The enemies are the other protein choices out there. If you want people to eat more beef, don't drive them into buying the enemy.

It's clear the proponents of COOL don't understand the consumer. COOL applies costs to the system and provides zero benefits to the consumer.

BEEF: Are you concerned about future beef supplies and the relationships necessary to insure an adequate supply of beef?

Peterson: It's my sense that current U.S. beef production levels will, even though they may be falling, support our needs for quite some time.

The conventional supermarket business is growing at only 1-1½%/year. So, in order for Walmart to grow I must take business from my competition. In doing so, I must also penetrate into my competition's supply base.

Beyond that, beef producers should know that jointly, we have the same customer. Everything we do must be geared toward benefiting the end-user. If we do that, the customer will reward the supply chain. If we don't, the customer will punish the supply chain.

Producers should keep in mind that behind retailers are shareholders demanding a return on their investment. Producers might not like some decisions we make; but if viewed in that light, it might help understand why we operate the way we do.