Richard J. George, Ph.D.

Groceries a Bigger Part of Wal-Mart's Business

April 2, 2010

FROM RETAILWIRE:
Back in the 1980s when Wal-Mart opened its first Sam's Club (1983) and Supercenter (1988), it was fashionable to debate whether the company had the chops to make it in the food business. Today, Wal-Mart Stores is the largest grocer in the business and last year food reached 51 percent of its sales. That was up from 49 percent in 2008. How has Wal-Mart changed the grocery retailing landscape, in your opinion?      [more...]

Until recently, the Walmart model, particularly as it relates to food, has been one of collaboration with its manufacturing partners to efficiently and effectively satisfy the needs of its target customers. Apparently this model has worked, not only in terms of Walmart's food v. non-food business, but in terms of Walmart's share of grocery dollars, the USA leader.

This model is in sharp contrast to main stream food retailers who make money on the buy, i.e., manufacturers' deals. In fact, one could argue that these retailers focused more on the "back door" than the "front door." Seeking customers to clear the shelves of deal-generated merchandise, allows for the purchase of more deal-generated merchandise.

By focusing on low price, Walmart has been able to position itself relative to the "big middle" who do not have a clearly defined positioning, neither low price nor excellent service. Food will continue to be the draw for Walmart for reasons noted by them, including traffic builders. This leaves the rest of the market with the challenge of competing with Walmart on a non-price basis. I am not suggesting that competitors ignore prices (they never have) but to develop a strategy that will positively differentiate them from Walmart. Some have done a good job here, namely, Wegmans, Whole Foods and Trader Joe's. The rest, including the big middle players, need to think more like brands while acting like a retailer.

Ironically, going forward, the success of Walmart may be more influenced by its own potential missteps (changing their collaborative model) than by anything that the competition does in reaction to them.