WALMART’S INVESTMENT IN THE LONG GAME

WALMART’S INVESTMENT IN THE LONG GAME

Retail’s food frenzy is in full swing. Dollar stores, hard discounters, mass merchants, convenience and drug retailers are all expanding their edible offerings as never before and for good reason. Despite paltry margins, food drives traffic and, when done right, gets shoppers meandering into other more profitable areas of the store. The rub is that the grocery business is notoriously complex and often thankless, as even the baseline expectations of shoppers are difficult to meet. Retailers that have signed up for the challenge find themselves one limp head of lettuce or out-of-stock squash away from creating a bad impression.
Walmart hasn’t shrunken from these challenges and in fact has doubled down on its determination. In his presentation to the Bentonville Bella Vista Chamber’s WalStreet supplier group, Charles Redfield, Walmart’s executive vice president of its U.S. food division, outlined the many ways that the 50-year-old retailer is investing in its food business and beyond in order to “grow and win for the long term”.

POWER PILLARS

Redfield kicked off his presentation by outlining four pillars and supporting initiatives that continue to guide Walmart’s growth strategy.

1. Win with stores – Most large-scale retailers have awakened to the fact that brick-and-mortar locations enable their omni-channel aspirations. Yet, the game of digital catch-up has become a resource-intensive drain for many. Something’s got to give, and, for most, that something has been store upgrades. In a previous WalStreet presentation, Mark Ibbotson, Walmart’s senior vice president of its U.S. Central Division, outlined ways that Walmart stands out as an exception. Redfield reiterated Walmart’s shift back to its stores and the investments that it continues to make in people, processes and technology. As he noted, Walmart can do things in 4,500 stores that others can’t do online, and, at the end of the day, customers like to see, touch and feel what’s new. Although small formats continue to create buzz in the industry, Redfield emphasized the importance of complementing the acceleration of Walmart’s Neighborhood Market locations with what he called its “big, strong and profitable” supercenters.
2. Deliver value – Despite the dizzying number of new initiatives that it has introduced in the past few years, Walmart hasn’t wavered in making price leadership its top priority. Today, however, shoppers can easily validate retailers’ price claims online, and, according to Redfield, they “check it a lot.” Walmart must pass that intense scrutiny or risk losing its reputation for value.
3. Be great merchants – Redfield clearly relishes the merchandising side of the business or what he calls the “fun part”. Yet, he also acknowledged the need to temper the art of merchandising with the science of data analytics. I recently wrote about how, not that long ago, it was assumed that data would drive every important retail decision; today, retailers, including Walmart, are taking a more balanced approach that includes the human touch. On the art side of the house, Walmart has made major investments in new fixtures, lighting, signage and other eye candy as part of a complete reinvention of its produce sections in 3,300 stores. Since produce sets shoppers’ first impressions, optics are an important part of the equation.
4. Provide convenience – “Seamless” is the buzzword on the tongues of many a retailer these days. With its thousands of locations, well-developed e-commerce platform and user-friendly mobile ecosystem, Walmart is more prepared than many to deliver on the promise of providing an efficient, high-quality experience regardless of where, when and how its customers shop. Although “grocery home shopping” has been a staple in the UK for 18 years, Redfield shared that Walmart will “ramp up fast” stateside, since adoption rates for the solution in the U.S. already far exceed those initially established across the pond.

GET MORE FROM THE CORE

At a time when Amazon’s mega-marketplace can instantly commoditize otherwise novel items, the need to provide steady streams of product innovation and newness are top-of-mind for brand marketers and retailers alike. Redfield shared an interesting anecdote that reminded suppliers of how improving upon what already works can be just as powerful. According to Redfield, sales of the 88-cent mini pies that Walmart has carried for a couple of years have been impressive. Yet, when it tested a new two-for-a-dollar pricing scheme in 2,000 stores, sales went through the roof. Consequently, Walmart is currently scouting new suppliers that can expand pie filling options to support the resulting shopper add-ons, and it’s rolled the program out chain-wide.

“The customer told you what you did right and how you can make it better.

— Charles Redfield

COLLABORATIVE CREATION

Redfield shared another example of how joint innovation can breathe new life into mature categories. Walmart’s three-pound “Sasquatch” pizzas, which can feed a family for under ten dollars, are the result of a close collaboration between Nick, Walmart’s frozen food buyer, and a proactive supplier called Palermo’s Pizza. With a YouTube video from the 90’s serving as inspiration, Nick began to ponder the next innovation in pizza. Five short months and many brainstorming sessions later, voila, Sasquatch was born (and trademarked). Nick was so impressed with Palermo’s can-do attitude that, in a very un-Walmart twist, the price on Sasquatch wasn’t even discussed until the very end of the process.

PROCESS MAKES PERFECT

If Walmart made the mistake of treating food like general merchandise in the past, it has since seen the error of its ways. Redfield noted that a “farm to fork” sensibility is driving the proliferation of sourcing offices in non-U.S. countries, including Peru, Chile and Costa Rica, enabling Walmart to amp up its freshness proposition. He also spoke about changes to its customer availability program (CAP), specifically, how products are unloaded from trucks and re-stocked after hitting shelves.
Learn more about Walmart’s “top stock” program.
Redfield was a bit cryptic when it came to providing details on Walmart’s plans to launch a “sensory food lab” prior to its next shareholders’ meeting but he summed up the impetus for the initiative by saying that Walmart has the opportunity to shift from simply selling a lot of food to instilling a true “food culture” within the organization. To that end, he envisions a facility that will foster innovation in food (perhaps in a similar way to how Walmart amped up its digital innovation through the creation of the @walmartlabs satellite years ago).

DEDICATION DRIVES SUCCESS

Walmart’s ongoing organizational reshuffles and staff reductions always grab headlines. But the changes are more about future-proofing the company’s strategy by putting headcount where it matters most rather than attempting to operate with a skeleton crew, as Walmart’s addition of 8,000 department managers will attest. To “get better, faster,” Redfield further segmented responsibilities on his team by assigning senior-level team members to specific businesses. For example, one senior vice president previously had purview over produce, meat, bakery and in-store delis. Now, three people manage these areas, and one person is dedicated to adult beverages since it is a category with high growth potential.

DEMAND NOT DICTATE

Redfield’s response to an attendee’s question about Walmart’s organics strategy was particularly interesting. Clearly local co-ops, crunchy health food stores and Whole Foods no longer corner the market on organics. The space is getting downright crowded, and Walmart deserves credit for democratizing organics, particularly from a price perspective. According to Redfield, though, it all boils down to supply and demand. On the supply side, it takes three years for a farmer to transition a field over to organics, so expanding assortments takes time. But it was the demand side of the conversation that revealed what could be considered a contrarian strategy given other retailers’ recent moves. For example, Target and CVS have both taken a somewhat dictatorial stance on emphasizing healthier options. Target put major suppliers on notice and changed up assortments, while CVS eliminated tobacco in its stores and backed its decision up with an anti-tobacco crusade. Both moves were supported by shifts in consumer sentiments to some degree, but the magnitude of the changes that these retailers implemented veered toward shaping behavior, not just responding to demand. Redfield made it clear that Walmart will lean into organics, natural, gluten-free, non-GMO and other movements only to the degree that its customers support them. Since it still “over-indexes on belly-fillers” (Sasquatch pizza, anyone?), Walmart won’t be wagging fingers.

PRIVATE BRAND BOOST

When everyone has access to the same brands, the race to the bottom on price tends to accelerate. No wonder a slew of retailers, including J.C. Penney, Kohl’s, Kroger and Amazon, are getting back to the business of building or reinforcing their private brand arsenals. Proprietary brands drive differentiation and, once equity is established, they can even stimulate destination shopping. Redfield made it clear that Walmart looks at private brands, not just as marketing-less margin-builders but as viable options when national brand providers aren’t innovating. Walmart has also learned that shoppers who buy private brands tend to spend more altogether, and half of the extra amount spent tends to go toward national brands. Redfield’s claim that “everybody wins” when private brands are on the scene may be hard for national brands to swallow, but facts don’t lie.
Redfield cautioned against the insularity that can have suppliers myopically focused on internal metrics while turning a blind eye to the external dynamics that really drive the business. Under that scenario, suppliers may feel “fat and happy” while losing market share. Clearly, Walmart’s eyes are wide open, and it isn’t standing still as it attempts to secure its business now and for the next fifty years.