Walmart, p.1
Walmart, page 1
PRAISE FOR WALMART
Every brand wants to understand how to sell to Walmart; this book empowers the reader to understand the strategy behind the giant retailer and gives the reader a strong foundation to improve their relationship and sales with all retailers. This is not a book for those who want to sell at the cheapest price – it is a book that teaches how to build a long-term branded business.
Phil Lempert, Supermarket Guru and editor The Lempert Report
An insightful, comprehensive and well signposted piece of research that will aid the investment community’s understanding not just of Walmart but also of food retailers in general and the implications for consumer staples manufacturers.
James Amoroso, President, Consumer Analyst Group of Europe (www.cag.eu.com)
Walmart is a unique book. It combines a comprehensive history of Walmart’s methodical rise to greatness with a host of scenarios for its future growth. Must-reading for anyone who wants to know how Walmart did it and where it could be going – in the US and internationally. Roberts and Berg have a done a terrific job.
Brian Sharoff, President of the Private Label Manufacturers Association (PLMA)
An incisive assessment of Walmart and its pivotal influence across global retail.
Siemon Scamell-Katz, Founder, TNS Magasin
Note on the Ebook Edition
For an optimal reading experience, please view large
tables and figures in landscape mode.
This ebook published in 2011 by
Kogan Page Limited
120 Pentonville Road
London N1 9JN
UK
www.koganpage.com
© Bryan Roberts and Natalie Berg, 2012
E-ISBN 978 0 7494 6274 1
Full imprint details
CONTENTS
Acknowledgements
01 Is Walmart the best-positioned retailer on the globe?
02 Rise of consumerism
Arrival of the boom times
03 House of (Walmart) brands
Shifting away from national brands
Great values
The globalization of private label
The brands behind the private labels
04 Don’t aggravate the customer
I can’t believe it’s not on shelves
We didn’t add back 3,000… no it was more like 9,000
SKU rationalization: far from perfection but a vital process
Doing more with less
Outsmarting the elephant
05 It’s an EDLP world
The consumer advocate and king of deflation
Recession lesson #1: never take your eye off the customer
The path to efficiency
How Walmart broke the supermarket pricing model
Too concerned with trading down over trading out
No need for weapons of mass distraction
Preço Baixo Todo Dia: is it an EDLP world?
EDLP doesn’t exist without EDLC
Kakaku Yasuku – EDLP implementation isn’t always seamless
Walmart versus inflation
06 Walmart and its suppliers
Walmart and its suppliers: the evolution of collaboration
Canoeing with P&G
Dinner with General Electric
Collaboration takes hold
Is collaboration on the wane?
‘Tough but fair negotiations’
The dependence of US suppliers on Walmart
Pharmaceuticals and alcohol have a convoluted route to the shopper
Tobacco & confectionery – the McLane clause
Lack of disclosure from private and international businesses
Reliance on Walmart as high as 55 per cent
P&G leading the way
The power is now with Walmart
Walmart’s shopper-centricity driving customer-centricity from suppliers
Is Walmart lacking insight?
As Walmart evolves, suppliers must follow suit
Structural alignment is key
Assortment editing and the impact on suppliers
Vendors and sustainability
07 Removing the margin-takers
The evolution of global sourcing at Walmart
New global sourcing strategy unveiled in 2010
Does global buying really exist?
Grocery is still a national business
Walmart’s quest for leverage
Global Brands Imports gaining traction
GMCs yielding results
08 Still leading in logistics
The scale of Walmart’s logistics system
In-house supply chain development
Food for thought
Supplier collaboration
Globalizing supply chain excellence
Globalizing one country at a time
Greening the supply chain
Implications for suppliers
09 The surest way to predict the future is to invent it
Technology takes hold in the 1970s
The 1980s: technology acceleration in-store
Opening the inner sanctum: Walmart’s use of third-party IT suppliers
Data warehousing: helping Walmart drink from a hosepipe of information
Retail Link: a new era for Walmart and its suppliers
The false dawn of RFID
The globalization of technology in Walmart
Technology and private label development
Price optimization
Bean counting and number-crunching
In-store technology
‘Our computer really does give us the power of competitive advantage’
10 Facing up to a multi-channel future
From Little Rock to Big Apple
The Supercenter and Walmart’s rise to grocery domination
The final frontier: getting bigger by going small
The icing on the cake
The British are coming
Grandma, the Manhattanite and fraternity boys
The kings of convenience: US drugstores
Living off Walmart’s crumbs
Digital evolution
Democratization of technology
Amazon – ‘the Walmart of our era’
Going global.com
11 Going global: Walmart’s international retail leadership
Walmart International’s market entry strategies
By the numbers
Walmart International in context
Walmart International performance
The scope and scale of Walmart International
Channel strategy
Small-box development
Walmart International: the good, the bad and the ugly
Where next?
12 Tomorrow’s Walmart
Appendix
Further reading
Index
ACKNOWLEDGEMENTS
Natalie and Bryan wish to thank Joanna Perry for getting the ball rolling and for her invaluable guidance in all matters technological. They also wish to express their gratitude to all past and present Walmart associates who contributed their insights and opinions, both on and off the record. Thanks also to the whole team at Kogan Page for their support.
Bryan wishes to thank Suzy for her support and editorial input and also Luca and Fynn for putting up with countless research trips to Asda.
Natalie wishes to thank Steve for coping with endless dinner chats about EDLP and range rationalization during their first year of marriage, and her Mom who has always been so supportive.
01
Is Walmart the best-positioned retailer on the globe?
There are some very visible success stories in the globalized economy. Billions of consumers around the world are familiar with names such as McDonald’s, Coca-Cola, Heinz, Apple and Nike. Manufacturers, financial services providers and retailers have built up vast multinational empires, seeking to profit from consumers in wealthy developed markets and exploiting the rapid growth potential of less affluent markets. In this book, published in Walmart’s 50th year, we will portray one of the biggest and most successful proponents of global growth.
There is a Fortune article from January 1989 that hangs in the Visitors Center in Bentonville, Arkansas, titled ‘Walmart: Will It Take Over the World?’ Some quotes from that article (written by John Huey) include ‘In just a couple of years, Walmart Stores will be the largest retailer in the US’ and ‘You may never have shopped in a Walmart because the company is really just getting started… so sooner or later, there’s bound to be a Walmart in your future.’ Looking back, the understated prescience of the article is spot on.
The truth of the matter is that, globally, Walmart is only just getting started. CEO Mike Duke told investors at the 2011 Shareholders meeting that ‘the same culture that drove our growth during our first 50 years can drive our growth for the next 50 years’, adding that ‘Walmart is the best-positioned retailer on the globe.’
No disrespect to the good people of Arkansas, but the state is an unlikely home for one of the largest and most technology-driven enterprises on earth. From these humble, and somewhat unlikely, roots has blossomed one of the most impactful organizations in the history of humanity. Not only has the company grown into the largest retail enterprise on earth, with a lead that is unlikely to be challenged by any retailer other than Amazon, but its influence on the broader global retail and fast-moving consumer goods (FMCG) industries has been virtually immeasurable. Walmart’s impact has reshaped the world of distribution. The company has directly influence d the technology that is now universally used to make sure that shoppers get the products they desire. Walmart’s economic impact, in terms of bringing lower prices to shoppers, runs into billions and billions of dollars. The company accounts for a massive chunk of the annual revenues of many of the world’s largest consumer goods suppliers. Walmart has perhaps caused, or undoubtedly accelerated, the demise of many competing retailers. Simply put, it is one of the most important commercial organizations in the world.
There are many facts and figures that are testimony to the sheer scale of the business:
Walmart’s annual sales in 2010 stood at $419 billion: if it were a country, it would be the world’s 25th largest in terms of gross domestic product (GDP), ahead of Norway.
It is the world’s largest commercial employer, and the second-largest employer in the world behind the Chinese military.
Procter & Gamble’s sales to Walmart amount to some $13 billion, bigger than the total sales of many leading retailers and FMCG suppliers around the world.
Walmart now sells more groceries than Kroger and Safeway combined – it is salient to remember here that Walmart only started selling groceries in a meaningful fashion a little over 20 years ago.
Over the same period, over 30 sizeable supermarket chains in the United States have entered Chapter 11 bankruptcy protection.
Four of the top ten richest people in the United States are from the Walton family.
As a standalone retailer, Walmart International will be the world’s second-largest retailer by 2012, trailing only Walmart US. Its rapid growth has been juxtaposed with former number two Carrefour’s divestments and stagnant trading.
We are assessing the world’s largest retailer at an intriguing time. We cannot refute Mr Duke’s claim that Walmart is currently the best-positioned retailer in the world. Owing to their scale, they are best positioned to absorb inflation, to drive efficiencies in the supply chain, to leverage power over their suppliers, to influence the millions of consumers who shop at a Walmart every week. They have achieved unprecedented levels of growth in their 50-year history.
But the question is – just how much is left? Walmart got to where it is today because of ruthless efficiency. Very simply, focusing on driving costs out of the business has enabled them to offer consistently low prices on a wide assortment of branded goods. Price and assortment, price and assortment.
But is this enough for today’s demanding, tech-savvy shoppers? It’s no secret that when Walmart veers away from its core business model of price and assortment, it fails. This is why we witnessed over two years’ worth of declining comparable store sales in its domestic business. ‘We recognized we needed to improve in certain areas and we are working hard to do that. We must increase customer traffic, uphold our price leadership and make sure that we have the broadest assortment and the right products in every store’, Bill Simon, President and CEO of Walmart, told the authors in an exclusive interview for this book.
But the challenge facing Walmart is that today price and assortment are simply prerequisites for many consumers, and increasingly they are finding another one-stop shop that delivers even greater price transparency – the internet.
Another hurdle will be the imminent saturation of the Supercenter format in the United States, necessitating the need for Walmart to unleash new growth channels and tap into markets previously deemed too challenging, whether that’s the bright lights of New York City or the vast plains of sub-Saharan Africa.
Walmart International continues to be a key growth vehicle; in fact, 2010 was the first year when Walmart’s overseas stores outnumbered stores in the United States. It is its International division that will most likely enable Walmart to become the first retailer in the world to break the trillion-dollar mark. Yet, having learnt from previous blunders in Germany and Korea, Walmart today is taking a much more cautious and increasingly flexible approach to international development. It’s no longer about planting flags. It’s no longer about exporting big boxes around the globe, and crucially, it’s no longer about broadcasting from Bentonville. Instead, Walmart is sharing best practices and drawing on local expertise, whether that is using the UK team to help launch grocery e-commerce in the United States or creating a new concept in China based on a Latin American bodega. It is exploring new, underpenetrated geographies such as Africa and the Middle East, while backfilling its most promising existing markets in Latin America and Asia. Private label development, supply chain efficiencies and ongoing investment in systems are also central planks of Walmart’s global growth strategy.
Throughout this book, we will assess how the changing strategies of Walmart will impact competitors, suppliers and shoppers. Walmart is at an interesting point in its evolution, and we firmly believe that the strategic reconfiguration that is under way in Bentonville will continue to reshape the world of production, distribution and consumption.
As independent retail analysts, we have immense respect for what Walmart achieves as a commercial entity. In our opinion, it is certainly one of the best and by far the most efficient retailers – in the world. That said, Walmart is not perfect – it can certainly do much better in certain areas like labour relations, ethical sourcing and vendor relationships, to name just a few. In many respects it is no better or no worse than many of the retailers it competes with. Walmart is neither the down-home rustic innocent it would like to think it is occasionally, nor is it the source of all of the world’s evils that its detractors would suggest. Yet one thing is for sure – no other company has had a greater influence on the world of consumption over the past 50 years.
02
Rise of consumerism
In 1919, a 21-year-old demobbed soldier was returning to England after the First World War. Using his £30 stipend, the young Jack Cohen set up a market stall in London’s East End. His business model was simple: buy surplus groceries from the armed services and sell them cheaply to his budget-conscious customers. His business soon flourished and expanded to additional market stalls and a wholesale unit. However, this wasn’t enough for the ambitious Cohen. In 1924, he signed a deal with a tea supplier, TE Stockwell, to sell their unmarked tea under his own brand. Cohen took the first three letters of his supplier’s name and the first two of his own and the very first Tesco private label item was launched.
Tesco today is one of Walmart’s fiercest competitors in the multinational food-retailing arena. In stark contrast to Walmart, whose ‘house of brands’ model initially left little room for private label, Tesco made private label a core component of its business strategy from day one. Today, it is arguably the world’s most successful private label retailer, with Tesco-branded goods accounting for approximately half of all products that go through the till. It was the first retailer to establish a three-tiered ‘good, better, best’ private label portfolio, a strategy that has since been admired and replicated by leading retailers across North America, Europe and Asia. Its Value range was launched in 1993 as a means of fending off competition from new entrants to the UK market: discounters Aldi and Lidl. Five years later, through the analysis of shopper data, Tesco recognized that there was a gap in the market for premium private label items and launched its Finest range. Today, Tesco Value and Finest are both £1 billion+ brands, making them larger than national brands such as Walkers or Coca-Cola in the UK. The company has found equal success in non-food private labelling. Its Florence & Fred apparel line has been turned into a standalone clothing store in the Czech Republic, competing with fast-fashion chains such as H&M. Meanwhile, Tesco has extended its brand into financial services, letting its shoppers decide whether their car insurance requirements fall into the Tesco Value, Standard or Finest bracket.
The company’s unparalleled success with its private label portfolio helped it to drive shopper loyalty, differentiate from competition, increase profit margins and cement its status as the world’s third-largest grocery retailer.
Yet in spite of Tesco’s accolades, its turnover is equal to just one-fourth of Walmart’s. While Tesco looked to private label to drive loyalty, Walmart’s notion of attracting shoppers was based on the premise of stocking national brands, albeit at the lowest price around. In fact, its first major private label launch didn’t take place until 1983, nearly 60 years after Tesco introduced its branded tea to London shoppers.
Despite the fact that today Walmart and Tesco are major competitors on a global front, it’s important to look at their domestic markets to understand how each strategy evolved. Market conditions have played a major role in the global development of private label. In Western Europe, a combination of retail concentration and the presence of hard discounters paved the way for private label development at an early stage. In fact, according to Nielsen, Switzerland, the UK and Germany are the global leaders, with private label accounting for more than half of all products sold in Switzerland alone. Meanwhile, in Walmart’s home territory, private label today continues to lag behind Europe, with a modest share of 22 per cent of the US market. Despite bouts of retail consolidation over the past several decades, the US grocery sector remains extremely regional in structure. This, combined with the fact that the United States is a vast, sparsely populated country, means that private label has not had the opportunity to build up the same level of scale as it has done in the more concentrated European markets. As a result, US retailers have historically put minimal effort into their private label items, leaving it to be perceived for many years among shoppers as the ugly sister to the national brand, a generic alternative that historically lacked in quality.
