Groceries a Bigger Part of Wal-Mart’s Business

Discussion
Apr 02, 2010
George Anderson

By George Anderson

It’s no secret why stores without a heritage in food have gone after the grocery
market. Groceries bring in shoppers more frequently. If retailers can capture
more of those trips, then perhaps they can get customers buying higher profit
products in other parts of the store, as well. North American chains, including
dollar stores, drugstores, home improvement outlets and mass merchandisers,
have to varying degrees tried out food as a way to capture greater share
of wallet.

Perhaps the most identifiably successful in this regard has been Wal-Mart.
Back in the 1980s when it 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.

Categories that lost share of Wal-Mart’s total business included apparel,
which dropped one point to 10 percent. Hardlines also fell by one percent to
12 percent of Wal-Mart’s total. All other categories were unchanged.

Grocery share of Wal-Mart’s business is likely to increase as the chain recently
announced it would engage in a major rollback on prices to help attract
more shoppers following disappointing results in recent quarters.

Discussion
Question: How has Wal-Mart changed the grocery retailing landscape, in your
opinion? Does there come a point where the smaller penny profits associated
with grocery sales begin to hurt businesses such as Wal-Mart that are pricing
these categories to drive store traffic?

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12 Comments on "Groceries a Bigger Part of Wal-Mart’s Business"


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Paula Rosenblum
Guest
11 years 1 month ago

This is a tricky question…but at the end of the day, I’d have to pick hard goods.

There’s no question that food is a customer magnet, but the margins are really thin. And apparel has high margins, but the merchant requires a certain je ne sais quoi to be successful selling it.

Consumer electronics is tricky. Anemic margins, and the challenge to be perceived as a quality competitor.

That leaves me with hard goods. Good margins, nice promotional opportunities, and recognizable brands that don’t require creating a fashion statement. For example, I often wish Sears could focus solely on its hard lines and forget about apparel.

Carol Spieckerman
Guest
11 years 1 month ago

Grocery has been Walmart’s killer app for years; one that short-sighted competitors ignored at their peril as they went after more straightforward margin opportunities such as apparel. Walmart is smart to protect its turf by owning price, as everyone from Dollar General to Walgreen and Target have caught on to the benefits that food can bring (mainly, frequency of visits which translates into sales of higher margin goods).

Retailers that look at the entire store as a portfolio of “positions” don’t shy away from such moves because they have plans in place to make it up elsewhere. Yesterday, my blog posting (EVP Linda Hefner Shares Vision for Serving Member Needs the Sam’s Way) spells this out as Sam’s adopts more of Walmart’s philosophies around portfolio management (while making them “uniquely Sam’s”).

Richard J. George, Ph.D.
Guest
11 years 1 month ago
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… Read more »
Gene Hoffman
Guest
Gene Hoffman
11 years 1 month ago

Wal-Mart has benefited from the desire of people to buy frequently-used products at low prices. When W-M went into the grocery business aggressively, they added another mighty string to their dynamic price-merchandising violin and started a trend which has landed them in first place in grocery/food sales. That in turn has made grocery the major player in W-M’s assortments.

As I reflect upon this, and maybe Paula is correct about hard lines, but I still wonder what W-M is really well known for other than low prices, wide variety and Ol’ Roy.

Anne Bieler
Guest
Anne Bieler
11 years 1 month ago

Walmart is likely to remain heavily invested in the grocery business, because it can execute so well. Walmart is EDLP, and they deliver in many categories. They know how to build private brands and how to grow them.

However they are at a crossroads in working with the national brands that are the reason many shoppers come to the store, particularly in higher margin cleaning, households, personal care etc. WM sales declined slightly the last two quarters, and they have had to go back to a number of suppliers that were removed from the shelves. They will have to chart their course clearly to maintain position and keep shoppers coming back. The industry has consolidated, become more focused and competition is getting smarter every day.

Kai Clarke
Guest
11 years 1 month ago

Wal-Mart needs to continue to bring in groceries, but cannot do this at the cost of more-profitable hard goods. Wal-Mart is a one-stop, EDLP leader, and to keep this position it must embrace one-stop shopping. This will keep their foot traffic high while allowing for Wal-Mart to continue to maintain a reasonable margin of return by providing a mix of goods for their customers.

Thane Callender
Guest
Thane Callender
11 years 1 month ago

Wal-Mart has demonstrated big success in the private brands arena for its grocery retail business. In this economy, price is a main driver and the value seen by the consumer in the private label brands available at Wal-Mart certainly is driving profits. Kroger has taken a different strategy – customer service. However as this plays out it will be evident that price AND customer service will be demanded by the public. Private brands enable the retailer to cut costs, improve profit and demonstrate value. It’s a win if this is carried out while improving the shopping experience.

David Livingston
Guest
11 years 1 month ago
Wal-Mart has been wonderful. What a blessing they have been for me. They have driven out weak retailers which were getting fat on mediocre efforts. They then made good grocery retailers get better. Hy-Vee, HEB, Aldi, Publix, Wegmans, Whole Foods, and Trader Joe’s have seen explosive growth since Wal-Mart rolled out their supercenters. The consumer has benefited on both ends of the retail spectrum. When stores go out of business, it means work for me as we evaluate the real estate. In order for some of the remaining weaker retailers, such as Supervalu, Safeway, Ahold, and A&P, to grow, they were forced to borrow money and buy out other mediocre retailers. Redundant stores are sold or closed which — whoo hoo! means more work for me. When Wal-Mart goes into a new market, guess who gets to do an impact study? Wal-Mart is the gift that keeps on giving the whole year through. Wal-Mart may have seen some negative same stores sales but I think that is mostly on the GM side. As for grocery,… Read more »
Oren Halperin
Guest
Oren Halperin
11 years 1 month ago

I think that Wal-Mart is doing the right thing with their strategy on grocery as it is a major traffic driver more so that any other category in the store. This can help Wal-Mart enhance its image as the leaders in low pricing as consumers frequently purchase grocery items and remember their prices very well. This could allow Wal-Mart to be a little bit higher in price for bigger ticket items and make more penny profit due to the lower frequency of purchase.

David Biernbaum
Guest
11 years 1 month ago

I do wish and encourage Walmart to rejoin the market data collection community (IRI and Nielsen.) FDMx (food, drug, mass, excluding Walmart) isn’t a very valuable tool with Walmart being such a significant part of both food and mass.

Tony Orlando
Guest
11 years 1 month ago

From the earlier comments, it was said that retailers focus on the “buy.” If I could get the everyday cost of goods like Wal-Mart does, instead of only getting a great deal every six weeks from the food manufacturers, I wouldn’t have to be so concerned about the “buy.” We have to stay competitive and I wish the independents didn’t have to focus so much on buying, BUT … it is today’s reality, and I’ll continue to beat Wal-Mart in perishables day-in and day-out.

Thanks and Happy Easter to all!!!

Mark Price
Guest
Mark Price
11 years 1 month ago

There is no question that Wal-Mart is revolutionizing the grocery business, as they have other categories, with low prices and superior supply chain management to manage and contain their costs.

The Wal-Mart strategy of driving traffic into the store for higher margin purchases is consistent with hyper-markets in Europe, and seems to be successful. Will it reach a point of diminishing returns? Not if W-M stays true to their overall business strategy of limited SKUs priced aggressively. If they stray and begin to enter the high-low pricing game, then the tactics will begin to impact the brand negatively.

Remember, if groceries is simply another category that fits into the overall W-M business model, there should be no reason that they will not succeed as they have done elsewhere. Similar customers + similar business strategy = similar results.

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