GHQ Cover Story 08/05: The Target at the Top

Discussion
Aug 08, 2005
George Anderson

By George Anderson


Through special arrangement with Grocery Headquarters magazine, we present these opportunities to discuss the subjects of GHQ’s monthly cover stories.


Is Wal-Mart vulnerable? Will we begin to see grocery stores recapturing market share previously
lost to the world’s largest retailer?


Wishful thinking, perhaps, but as Grocery Headquarters‘ August 2005 cover story, The Target at the Top, tells it, “There is a growing feeling among some grocery operators that if they develop a good merchandising and marketing strategy they can turn the tables on the giant retailer that has been grabbing market share from them for nearly a generation.”


Beating Wal-Mart in the competition for shopper dollars comes down, say experts, to delivering where Lee Scott and company are weak — product assortment, customer service and the shopping experience.


An unidentified food sales and marketing agency (food broker) representative operating in the southern U.S. told GHQ, “Wal-Mart will be its own worst enemy. They’re saturating the market. They’re on every corner. They lack service; especially in perishables, the service is terrible. Pricewise, on hardcore groceries, you cannot beat them, but on customer service they are poor.”


While most who have tried to compete on price have failed, some operators such as Aldi and dollar stores have found ways to attract the price-sensitive shoppers who make up the core customer group at Wal-Mart.


The sales representative noted that consumers, such as his wife, are going to dollar stores to buy certain categories of goods they see as more affordable than what Wal-Mart sells. “Dollar General is Wal-Mart’s biggest competitor coming up,” he says. “They are like Wal-Mart in years past. They are small establishments and just carry the staples, but they are much cheaper,” he said.


Candace Corlett, a principal in WSL Strategic Retail, agrees dollar stores are a threat. “One can’t overlook the growing presence of food in Family Dollar and Dollar General,” she said. “I am blown away by the aisles of food and the national brands presented in Family Dollar now.”


Even with the apparent chinks in its armor, the rep pointed out the enormity of the task for any company looking to displace Wal-Mart in this part of the country. “Most of the people down here worship Wal-Mart,” he said. “On Sunday they’ll go to Wal-Mart, go to church, then go back to Wal-Mart. It’s that kind of mentality.”


Wal-Mart is not blind to its own areas of weakness and the retailer has begun to make changes. For example, Wal-Mart is upgrading product quality in categories such as household goods and apparel in an attempt to get more affluent bargain hunters who typically buy “center store” goods at its stores to also purchase items from higher margin departments. Some wonder, however, if by going more upscale, Wal-Mart may distance itself from its core consumer.


“Wal-Mart has realized their vulnerability by having such a single-minded focus on low-income shoppers. I think they are going to stumble terribly as they launch more upscale brands because, for all of the consultants they are hiring, they don’t have the passion for merchandising–and that’s cultural.”


Moderator’s Comment: Have grocery retailers as the Grocery Headquarters‘ article suggests, found ways to “turn the tables” on Wal-Mart? What will
Wal-Mart’s strategic response be to the competitors who are looking to push it from its perch on the top of the retailing mountain?

– George Anderson – Moderator

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10 Comments on "GHQ Cover Story 08/05: The Target at the Top"


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Craig Johnson
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Craig Johnson
15 years 6 months ago

There was an interesting thought regarding the consolidation of grocery retailing. Will bigger be better? Sure, in terms of logistics and efficiencies…but not so in terms of feeling, being, and acting local. The national grocery chains have virtually abandoned that sense of community their businesses were built on…except for those that are succeeding. Whole Foods has built their own community and HEB is linked forever with theirs. Will Albertson’s and Kroger ever learn?

As for whether it will work or not, let’s watch as Federated and Macy’s rolls across the country on former May Co. stores. We may just find that national grocery and department formats are both ‘dinostores,’ no matter how much window dressing you put on them.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 6 months ago

Although WM sells more groceries than anyone, many industry sources would opine that they are not grocers. WM is shelving, and their current objective is to run shoppers by as many feet of shelving as possible, selling whatever they can. Food is very personal and intimate. It’s also romantic and social, from purchase to consumption. So, what’s personal, intimate, romantic, and social about WM? Nada.

WM will always be around selling their Chinese imports. They’re a major player in a global economy and a significant contributor to this country’s global business presence. Thanks, WM. But, they’re clearly supply-oriented rather than merchant-oriented. As regional grocers get past the panic stage and realize this truth, they’ll crank up the personal, intimate, romantic, and social elements of their businesses — the stuff that got them to where they are today — and continue being successful grocer merchants.

David Livingston
Guest
15 years 6 months ago

I disagree that Wal-Mart has saturated the market. They have so many more places to go with both their large and small supercenter formats. I also expect to see more Neighborhood Market format opportunities as conventional chains like Winn-Dixie and A&P continue to downsize.

Personally, I don’t see any established chains coming up with any effective new ideas on how to battle Wal-Mart. Those who have held their own and grown were already winners before Sam Walton’s hair turned grey. The only new ideas I have seen are only recycled ideas from the past that look good on paper but are never executed with success.

I also don’t see the dollars stores as much of a threat to Wal-Mart. The sales these dollar stores do in a week, Wal-Mart turns in a couple of hours. Obviously Wal-Mart cannot be all things to all people. But they have such a big lead that, even if they blink or look back, there is no one else in sight.

Pete Hisey
Guest
Pete Hisey
15 years 6 months ago
I think this “Wal-Mart is tipping over” stuff is overblown, but the fact that so many articles have appeared signals that there are problems in Bentonville. From my perspective, they’ve grown almost as much as they can. Scott has said they can put in twice as many supercenters as they have, but I remember when they were saying the same thing about Sam’s Club in the Florida market, and ended up having to close a bunch of them when they figured out that the 7-11 model doesn’t work with warehouse clubs. Their main weakness, in my opinion, is that while they have perfected the packaged goods distribution business, they’re having real problems with products like meat, produce and apparel that do not lend themselves to that model. Those are very individual purchases, and traditional grocers and more adept apparel retailers are able to exploit their advantage in selection and quality. Wal-Mart is trying to address these issues by, for instance, signing up smaller food processors to regionalize its selection of fresh and processed meats. It’s… Read more »
Herb Sorensen
Guest
15 years 6 months ago
Dollar stores aren’t the only ones successfully competing with Wal-Mart. HEB has done very well in its own markets. I see three elements that are typically considered in the competitive assessment: 1. The relation of products to shoppers. This includes mix, pricing, brand, etc. People who think shopping is all about the products tend to focus here, and Wal-Mart has this base well covered with a solid scientific understanding of how their shoppers relate to the products. 2. The relation of shoppers to the shopping experience. This includes service, convenience, ambiance, image, etc. Some parts of this are deliverable in any quantity by just making the investment, but others are hard to deliver in very large quantities. How do you guarantee that tens of thousands of associates will be friendly, helpful people? Human nature will probably make this an open competition now and forever. 3. The inherent behavior of shoppers in a shopping environment. This third element is beginning to be leveraged by a few of the most advanced retailers. For example, if people walk… Read more »
Mark Lilien
Guest
15 years 6 months ago
What are the best winning strategies for conventional supermarket chains? A dozen questions but no answers. Of the top 100 retailers in the US (by sales volume), about 23 are conventional supermarkets (not warehouse stores like BJ’s or discount stores selling food, like KM and WM). All these chains gross more than $2 billion each annually. There is bright neon sign in my head saying, “None of these guys is national, and all but Whole Foods are getting killed by WM, who is now the largest grocer in the US.” Is this correct? Conventional supermarket chains need to be rolled up so they can compete against WM? Are they like the small countries of Eastern Europe in the 1950’s versus the Russians? Or will merging the chains together simply make them one giant weak entity instead of many smaller weak entities? Would supermarket profitability grow by a quantum leap if there were greater scale? Or would the diseconomies of scale just about equal the anticipated economies of scale? Is the solution to “get national” enough?… Read more »
Tom McGoldrick
Guest
Tom McGoldrick
15 years 6 months ago

Wal-Mart may be more in danger from trying to move its product and customer focus upscale than from other retailers. How many times have we seen a large company unsuccessfully react to a threat by changing focus? This may be why so few business achieve the success they saw under their founder when new management takes over.

Wal-Mart can take on anyone in the world when it comes to operational efficiency and price to consumers. They should focus on this and not try to become something they aren’t.

I am willing to pay more to shop in a pleasant environment and have fresh produce. I cannot imagine a scenario in which Wal-Mart could get my business.

Greg Coghill
Guest
Greg Coghill
15 years 6 months ago

I am not an expert on logistics and distribution, but it seems as though there should be a way for the smaller chain stores and independent operations to combine efforts to minimize cost. I hope it is possible. Time is of the essence.

Len Lewis
Guest
Len Lewis
15 years 6 months ago

Anyone who’s at the top is the target. But retailers are starting to see the chinks in Wal-Mart’s armor. They are realizing that this is not an invincible force and that they don’t have to suffer Wal-Mart’s slings and arrows.

Wal-Mart is an outstanding operator in many respects. But they are still not expanding into other formats fast enough. They can’t do the supercenter forever. They need the Neighborhood Market — and variations on it. And why hasn’t the company gotten into the convenience store business?

However, the rest of retailing can’t just sit back and wait for Wal-Mart to fall on its face. You need to focus on your own creativity — to create in-store events and interest that will make customers realize they have more to offer than just a few cents off on commodities.

Gene Hoffman
Guest
Gene Hoffman
15 years 6 months ago
It has forever been true that the higher the monkey climbs up the flagpole, the more he has to protect his back side. So too must Wal-Mart. Thus, a challenging article in a trade magazine makes good provocative copy, whether truly timely or not. Yes, there are new penetrators in the food sector such as the Dollar Stores mentioned. They must be contended with. But at this moment, the momentum still seems to be with the sharply-focused Bentonville bunch, at least with price-oriented consumers. Food retailing, like life, is an ever-expanding mosaic of vicissitudes. Voids are continually created and filled by someone. Demand is unceasing. Innovation change everything. Convenience is a force multiplier. While not privy to the brain waves in the minds of Lee Scott et al, I’m inclined to bet that they aren’t so “tunnel-tied” to supercenters and the price crowd that they aren’t planning for new outlets to compliment their store formats and their growth requirements. This must be an essential strategy for Wal-Mart, for history has shown us that many previous… Read more »
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