Walmart held a grand opening Wednesday for its first U.S. food production facility — a milk processing plant in Fort Wayne, Indiana. According to TheStreet, the company will produce half-gallon and gallon jugs of whole, 2%, 1% and skim plain and 1% chocolate milk under its own Great Value brand.
Walmart will acquire the milk from 25 farms in Indiana and Michigan within about 210 miles of the new facility, Hoosier Ag Today reported. The company said the finished products will be shipped to approximately 500 Walmart stores in Indiana, Illinois, Michigan, Ohio and northern Kentucky.
When fully operational later this year, the plant will employ 200 people at $19 per hour, plus 100 or so contract truck drivers, according to Hoosier Ag Today. Walmart didn't put a figure on the construction cost, but The Journal Gazette newspaper in Fort Wayne reported it as $165 million.
Walmart received a number of financial incentives to build the 250,000-square-foot facility in Indiana. The state's economic development corporation provided $2.9 million in tax credits and a $850,000 conditional tax incentive tied to hiring plans, the Fort Wayne newspaper noted. In addition, local county commissioners OK'd tax abatements projected to save the company $10.7 million over 10 years.
Walmart plans to realize production efficiencies with the new plant, which began processing, filtering and packaging milk products last week. Company officials said the facility already supplies 38 Walmart outlets in Indiana and that acquiring milk from area farms will keep prices down. A nationwide truck driver shortage has increased transportation costs for many food and beverage companies, so the centrally located plant should help trim Walmart's operational expenses.
Other large retailers have been investing in processing and bottling their own milk supply. Kroger and Albertsons have both opened such facilities, and they can shift into making other beverages whenever demand and prices for liquid milk products decline. Owning the processing piece also allows more control over supply, plus they can more easily use milk as a loss-leader in their stores to get customers in the door.
The new Walmart milk processing facility isn't cause for celebration for dairy competitors. Dean Foods lost a big chunk of business due to the Indiana plant and was forced to notify more than 100 milk producers in eight states this spring that their contracts were being canceled. While Dean will continue to provide milk to Walmart stores outside the Midwest region, the Dallas-based company and its suppliers have taken a financial hit. And though Dean has been diversifying through investments in juices, waters and plant-based products, it doesn't help that its own milk brands are higher-quality and cost more than those at Walmart, Kroger or Albertsons.
If the Indiana plant works as envisioned, Walmart may end up featuring only its own private-label processed and bottled milk in its stores, which could be more bad news for other milk processors and brands if they get edged out. Walmart could also cut milk prices for its own brand, especially if it's already saving from operating the new plant, but the shakeout period is far from over. Competition for customers in the grocery business, especially for in-demand basic items such as milk, continues to be fierce, and there's no telling what Walmart might do to maintain pricing dominance over its rivals.