Former Wal-Mart Executive Bruce Peterson
Presents At The London Produce Show And Conference:
ASDA As A Case Study — The Pressures On Retail And The Path To The Future
Jim Prevor’s Perishable Pundit, June 6, 2016
When we announced Bruce Peterson’s retirement from Wal-Mart, he had already had a formidable career. As the organizer of the largest produce procurement operation on the planet, he had had an impact that would never fully dissipate.
But Bruce has gone on to continue to impact the industry. It is fair to say that the Produce Traceability Initiative was Brace’s brainchild, to use just one example. He remembered the constant flow of recalls Wal-Mart experienced on packaged goods and contrasted the calm way these were recalled with the almost hysterical problems caused when some produce item had a problem. He realized that the difference was traceability… that a canned soup manufacturer could confine a recall to the lots that were suspect, whereas the produce industry often could not. It remains a work in process, but as better traceability becomes institutionalized; we may never again have another Spinach Crisis.
He has his consulting business and, of course, in that capacity has helped many firms, but another way Bruce assists the trade is with his teaching. Some of this is at schools and some of this at industry events. We have been honored to have Bruce participate in both The New York Produce Show and Conference and The London Produce Show and Conference since their inception.
Some would argue for different speakers, but we stand committed to different ideas. You can’t duplicate the perspective of someone such as Bruce, as nobody else in produce can tell you what it is like to be hired by Sam Walton and to discuss a plan to build the biggest supermarket in the world. So we consider ourselves very lucky to have Bruce back in London this year.
We asked Pundit Investigator and Special Projects Editor Mira Slott to find out what Bruce is focusing on this year in London:
Former Senior Vice President and
General Merchandise Manager
of Perishables for Wal-Mart Stores, Inc.
Even before you did your presentation at the 2015 London Produce Show, the preview Q&A of your talk generated an avalanche of letters from industry executives, praising your pull-no-punches acumen:
Bruce Peterson, Founder Of Wal-Mart Produce Program, Will Urge Industry To Rage Against Mediocrity, Value Experience Over Education, And Merchandise To Wow The Consumer At The London Produce Show And Conference
Pundit’s Mailbag: Bruce Peterson Hits 'Nail On The Head' When It Comes To Retailers Hiring Credentials Over Experience, and Pundit's Mailbag —On Bruce Peterson And The Importance Of Being Mentored But Is Mentoring A Dangerous Activity These Days?
Your wisdom and willingness to tell it like it is without pretenses in order to help the industry move forward is refreshing, albeit you acknowledge doing so isn’t always easy. Your talks have certainly hit the nail on the head many times, keeping attendees on their toes in London and also at The New York Produce Show & Conference, and we have profiled many aspects of your career:
Bruce Peterson Focuses On Traceability
HEADLINER AT THE LONDON PRODUCE SHOW AND CONFERENCE: Former Wal-Mart Exec Bruce Peterson Speaks Out On Consumer Value Perception And The Future Of UK Retailing
Wal-Mart’s Bruce Peterson Resigns
YottaMark Advisory Board Adds Bruce Peterson To Roster
Bruce Peterson Focuses On Traceability
Bruce Peterson Lands At Naturipe As Its New President/CEO
Naturipe’s Peterson Builds All Star Management Team
Peterson Steps Down As President/CEO Of Naturipe, But Joins Its Board Of Directors
Q: How will you be challenging attendees in London this year?
A: Let me tell you how the topic came to be. Jim (Prevor) said he was interested in me speaking again in London. Tommy (Leighton, managing director of the London Produce Show) called me up and said, ‘I think the audience would like to hear more about ASDA and the reasons behind its current difficulties and would appreciate your perspective, even though you’re not at Wal-Mart anymore. Would you write something on the subject for a magazine we’re putting together in connection with the Show, and the talk could correspond to that?’ The content is essentially the core messages I’ll be getting out in my talk.
I don’t want the talk to be about ASDA per se. I don’t want people to think, this is just going to be a pile on ASDA thing because it’s not. There are so many positive things about ASDA, rich in its own history as well as its access to the global Wal-Mart network. However the challenges I am most interested in that ASDA is facing are actually the same challenges Wal-Mart is facing, and in a different kind of way Whole Foods is facing, and in a different kind of a way Tesco is facing. They are the challenges of retailing at this moment of the 21st century.
Q: So, in a sense, you are going to use ASDA as a case study, a prism through which to view retailing today, both in the UK and elsewhere? It sounds like you’ll be putting a new twist on a provocative topic you delved into at the inaugural London Produce Show in 2014:
HEADLINER AT THE LONDON PRODUCE SHOW AND CONFERENCE: Former Wal-Mart Exec Bruce Peterson Speaks Out On Consumer Value Perception And The Future Of UK Retailing…
A: There are basically four things that happen. I’m thinking of starting out with a slide talking about Sears, Roebuck. & Co. In the late 1950’s, 95 percent of consumers who spent money in United States spent it at Sears, in its stores or in its catalogs. Now Sears is just a shell of what it used to be, and there’s a significant question of whether it is going to be a viable enterprise in a few years. You could make that same statement for JC Penney and others. I’m not saying Sears is going to go away entirely. But I am thinking, “how the mighty have fallen.”
Here’s how I’m trying to spin this talk around. What’s happening in the UK is not materially different than what has happened in a lot of other places in different parts of world. Retailers with a tremendous reputation in the marketplace, hitting all their numbers like crazy, all of a sudden are losing position and market share, and not achieving the kinds of numbers they were used to. Everyone starts to call into question what’s wrong with these guys. One of the key messages is… nothing is wrong with them per se. They are experiencing things other retailers before them experienced; they just didn’t think it would happen to them.
I think there are four components to that. The first one is the only controversial thing in my talk, and it’s what I call arrogance.
Q: Arrogance is an inflammatory word…
A: I always say there is a fine line between supreme confidence and arrogance. If we take ASDA, for example, or Tesco, for example, or Sears for example, they had earned the right to be supremely confident. Let’s focus in on ASDA for a moment. ASDA started out as a dairy company and grew to where it had the Number Two position in market share in the UK. ASDA was taking on some of the finest retailers in the world. Tesco was a world-class retailer. There was Marks & Spencer, and Sainsbury's, a long established company. Safeway (which was ultimately sold to Morrisons) was there too.
Q: How and why did that fine line between supreme confidence and arrogance get crossed?
A: People who knew Sam Walton would say his biggest worry was the success of our company. It’s almost axiomatic. As a company becomes more successful, decisions get worse. You may ask, “How can this be? That doesn’t make sense.” But if you think about it, when a company is small, take ASDA, it was growing and trying to get a foothold in the UK marketplace; every single decision it made was critical. If it made a wrong decision at that point in the company’s history, the company would instantly feel the financial impact and it could be severe, even fatal.
As you get bigger, if you make a bad decision, oh well, so what, we’ll just recover because we’re dominant in the marketplace. Think about McDonald’s, another great example of this. McDonald’s had so many stores, you could burn 200 to the ground and it wouldn’t affect business. Look what has happened to McDonald’s. And Coca-Cola and its decisions.
Sam Walton and the people who had reported to him used to spend two seconds on what we were doing right and hours on what we were doing wrong.
I remember a meeting in Kansas City. I was with my boss and several of my direct reports, sitting in a room having a beer with the president of ASDA at the time, along with several of his senior managers. We were all food people. The head guy at ASDA at the time said to the group, “Wal-Mart is really fortunate it acquired ASDA, and now ASDA can teach Wal-Mart how to sell food.” My boss was standing next to me and I whispered in his ear, “Would it cause much of an international incident if I beat the hell out of this guy?!” You had to laugh.
Q: It’s probably good you maintained some restraint.
A: Yeah, at that time for my career, it probably was prudent! I remember talking with my boss… “These guys think they’re pretty good.” That’s where I got the sense of what I call the arrogance of ASDA. And this is the important thing to stress. They did a lot of things really well. I spent some time looking into its operations. A number of us actually got into ASDA before Wal-Mart bought it. I was impressed… These guys were doing some really cool and innovative things.
Q: What did ASDA do well? Could you bullet point some of those really cool things?
A: ASDA had a huge emphasis on price. The expression we used to use with Wal-Mart, and I’ll coin the phrase -- it’s called item and price merchandising. Basically it means you put up a big display of a single item and put a sign that has the greatest price on the planet, as opposed to what you’d call assortment merchandising, where you have five or six items on display with signs on sale. ASDA was very good at item and price.
Q: But Wal-Mart was doing that strategy. So they took the idea from Wal-Mart?
A: Well, I don’t know that. But what we said as a group when we walked over to the display, was that ASDA must have been studying Wal-Mart. I thought they were very, very good at item and price merchandising. I was amazed at their associates; the people who worked in the stores. I think they call them colleagues. They were friendly, cheerful, and seemed excited to work there. ASDA had this “us-against-the-world” mentality, which I really admired. Wal-Mart was like that. They were absolutely determined to succeed and do better.
I thought the assortment was good without being ridiculous. The size, grade and condition of products wasn’t the best; it wasn’t Marks & Spencer. I thought their buying office was doing a very good job of setting standards for what they had and still delivering on price that was right in line. They were very, very good at that.
This brings me into the second point that is important. It was clear ASDA had a core value proposition, and it was price. They had this thing they called the “pocket tap,” which referred to the tapping of the wallet in your back pocket. And the associates would do the pocket tap, which meant, we’re saving you money. I thought that was great. So that was their deal. They were noted for that.
Q: Did ASDA veer from that focus?
A: Yes, and Wal-Mart probably had as much to do about this as anybody. ASDA started getting excited about two things: general merchandise and supercenters. It was principally a grocery store, but entered into the supercenter arena. At first, they were called ASDA-Wal-Mart Supercenters — then ASDA took Walmart off the name. They got into this chain of George stores, based off George Day, a designer of clothing in London with the George brand. What happened was ASDA started to focus on other things outside of its core competencies. Wal-Mart helped them with that. Don’t misunderstand me. There were people at Wal-Mart working with ASDA on some key decisions.
The fact of the matter is, they were branching out to a whole lot of different types of stores. Supercenters weren’t uncommon in the UK; people were familiar with the concept, but they were basically companies like Auchan, and Carrefour, and Intermarche to a certain degree. There really weren’t any UK retailers in the supercenter business per se. ASDA decided to get into this, and that decision is coming back to haunt them. I’ll come back to that.
ASDA started to become distracted from its core competency. Part of that is because of arrogance. They thought, “We’ve got this figured out, we are so good at this, we can now take on other kinds of things because we’re such a success, we don’t have to worry about it.” The ASDA executives took their eye off the ball.
Q: What other factors contributed to ASDA’s difficulties?
A: The other thing I want to talk about is a big deal. ASDA’s “cheese” got moved. There was a business book in the 1990’s “Who Moved My Cheese” by Spenser Johnson. The idea was if a company was doing something successfully in the marketplace but the marketplace changes, you’ve got a problem. In the book, it used the analogy of a mouse running through a maze. If you put the cheese in the same place, the mouse will learn the maze to get to the cheese, but if you move the cheese, the mouse still runs to the end, but doesn’t get the cheese because someone moved it.
That was the metaphor for what happens in business. ASDA was successful in the UK marketplace because the UK marketplace had stabilized. Now, guess what happens when Aldi and Lidl move in and Waitrose proliferates? You’ve got a problem, because what was your value proposition? Price. But you can’t compete pricewise with Aldi because Aldi’s operating structure is much less than yours. And remember, a lot of ASDA’s stores now were supercenters, and products consumers used to buy in supercenters, they often buy on line now.
When I’m talking to a class of students, I’ll ask, by a show of hands, how many people buy CDs? Nobody does. They download music online. The thing about a CD is it has revenue and margins for your store. Now you have a whole category of products people aren’t buying anymore, or not as much. Clothing is the same way. People buy clothing online. What happens if you have a supercenter like ASDA (and Wal-Mart has the exact same problem), and you have entire categories of merchandise people are no longer coming to your store to buy anymore? You have entire categories of merchandise not selling and some categories just vanishing.You still have your operating expense, and you still have to keep the lights on in the store even though you’re not selling as much.
Q: What’s the solution? What’s ASDA’s best path going forward? For instance, will a low-price value proposition, which helped ASDA shine originally, still cut it now that Aldi and Lidl have made such strong inroads?
A: Some categories have vanished, so what do you do? It’s not such a matter of ASDA being a bad company but the marketplace changed. When somebody moves the cheese, you have to figure out how to navigate the maze or you’re going to starve.
The final thing is new channels of distribution. People talk about Amazon Fresh and home delivery. You can go to a lot of different stores now and buy fresh fruits and vegetables. There’s a dairy chain here in Arkansas called Braum’s. Imagine a store where you can go in and buy an ice cream cone, but you can also go in there and buy produce, meat, and frozen food products. Many formats are now carrying products that you used to have to go to ASDA or Tesco to buy.
Q: There was a recent news story in the Telegraph: Amazon prepares to deliver fresh food across UK…
A: Jim Prevor wrote a column more than 20 years ago titled Death By A Thousand Cuts and he perfectly predicted the fragmentation of the marketplace that was to come. I have adopted his nomenclature, it is death by a thousand cuts. It’s not as if the average customer in London is buying all their food someplace else, but they have different options. So when that happens, it’s very difficult to drive your revenue. If you can’t drive your revenue, you have to increase margin to cover expenses, and when you do that, you become less competitive. This happened to ASDA. It happened to Wal-Mart too, but Wal-Mart is so big you don’t see it as much.
In the UK, you’ve got Aldi and Lidl on the low end of the price scale, and you’ve got Marks & Spencer and Waitrose at the upper end of the price scale. So where does that put ASDA? It puts it in the middle. And the last place you ever want to be is in the middle. Of course ASDA is not alone with this problem. It describes the mainstream supermarket business in the UK, in America and many other places. Of course because ASDA and Wal-Mart were specifically identified as the low price leaders in their markets, their positioning is more vulnerable when others can effectively claim the low-price mantle.
Q: Will you be intersecting your points specifically to the produce department?
A: What I’ll do in the talk is give a higher concentration of emphasis to the produce department, although it applies to every department in the store.
Q: Aren’t there unique circumstances in discussing produce as compared to some of these general merchandise items such as CD’s? For example, produce as a category is not vanishing or changing dramatically like in the field of technology…
A: Actually, produce has changed dramatically when you think of different channels of distribution. There are also different ways consumers, and especially millennials, are getting nutritional benefits from fruits and vegetables. It’s true in the UK as well. For example, juice as a category is going off the scale. If you look at produce departments today, the amount of space given to juice and juice-type products, you would never see 10 years ago. The amount of packaged goods has proliferated. Now in the UK, it’s different because retailers always had packaged goods in produce.
Produce departments are going to be smaller, particularly in the conventional supermarkets like the ASDAs. They are going to have less SKUs, and those SKUs are going to be more concentrated in prepared items. Consumers aren’t going to be cutting and slicing and dicing like they used to be; they’ll be buying more fresh-cut products, for sure. And retailing is going to be more highly fragmented.
Q: Could you elaborate on how that fragmentation is going to pan out?
A: The word fresh means different things to different people. If you’re an urban dweller, what we’re starting to see in the States is more urban farming. I know different operations where they actually buy an old warehouse they use to grow produce, picking items out of the back to bring to the retail front, which is kind of cool.
Fresh markets, farmers’ markets, natural markets, organic markets, you name it; it’s becoming almost boutique-like in how people are shopping. It puts conventional supermarkets in a tough place because the whole idea at one time was to get all your stuff at this one store. Now people are willing to buy their meats in one place, their fruits and vegetables in another place, and it depends on the occasion too. If someone’s having a dinner party, they might go to Whole Foods or Fresh Market to get their tomatoes, but may pick up tomatoes at Wal-Mart for the family during the week.
Basically what’s happening is the demise of the mass market. That’s really the biggest change. The consumers can get whatever they want whenever and wherever they want and at the price they want to pay for it.
Q: To clarify, you’re saying these trends — smaller produce departments, less SKUs, more prepared foods, etc. — will occur across the board?
A: This is what’s going on right now. In conventional supermarket produce departments in the U.S., you’re seeing more and more space given up to juice and prepackaged product. Everything is packaged. I think one of the things driving that is health and safety concerns. It’s just become more and more challenging. The amount of prepackaged and pre-sliced items continues to proliferate. The U.K. and Western Europe have always been leaders in packaging technology for years. The packaging is slick.
What I would call the traditional brick-and-mortar stores, how do they combine the convenience of Internet shopping with the desirability of seeing the products fresh off the counter. People do like to browse the produce department and pick out the items themselves.
Q: But that also goes to those trade-offs of merchandising packaged items versus loose product in a farm-stand atmosphere, where consumers touch the fruits and vegetables, soak in the aromas, etc. Couldn’t this be stifled in an overly packaged produce department and counter to the specialty natural market trends you point to?
A: As long as they operate it and do it well… you’re not going to see these giant displays of whole peppers anymore. Places like Whole Foods and Fresh Market will be the upper end of that.
In conventional stores, you have a real problem because how are you going to leverage your expenses?
Consumers have a lot of ignorance in terms of what is fresh and what is not. They like to be able to go in and determine whether this is a good thing or bad thing. And a lot of people simply don’t know.
Q: Doesn’t that also relate to labor issues and service, and having trained associates who can educate consumers…
A: Yes it does. But another way to look at it is this: if I’m a consumer, why should I shop at that store? A couple of reasons… one, it’s on my way home and it’s convenient for me; two, they procure the products I need and at the price I want; and three, it could be, I don’t know how to prepare that, so someone needs to tell me how. That’s another reason why you’re seeing a lot of packaged things, because on the package it tells you how to cook it.
Q: Packaging allows marketing opportunities to provide recipes, promote attributes of the product, where it’s sourced, etc. Do you think sustainability issues and a company’s corporate social responsibility platform are becoming more important in consumer shopping decisions?
A: Social responsibility is a big deal for certain people. It’s not the driving factor for what would get someone into a store, but it could be a factor in stopping someone from shopping at that store. A consumer could say, “I like to go to this particular store because of the value and price, but I don’t like GMOs in my food, so if the store has GMOs, I don’t want to shop there.”
What I call social responsibility is an undercurrent for the principle value proposition of going into that store in the first place. Because someone claims they have more stable packaging won’t get you to shop there, but it will keep you from shopping there if they don’t. It actually affects the stock price more than anything else. If investors don’t perceive the store as a “good corporate citizen,” they may not invest in the company’s stock.
For the sake of the talk, corporate social responsibility isn’t a distinctive competitive advantage. It’s no longer a differentiating factor. Take Fair Trade; everyone jumped on the Fair Trade bandwagon. In Europe, GMOs were a big deal 15 years ago; in the U.S., we’re just getting around to talking about that right now. The fact of the matter and the perceptions are two different things, but perception drives reality. It becomes sort of a point of entry more than anything else. You can’t be on the other side of certain issues.
Q: What role did the produce department play within ASDA, and in the context of the changing retail market? Could produce be a winning ticket to gain a competitive advantage?
A: ASDA didn’t do anything in the produce department that drove its success. They just did a nice job like they did in everything else.
Q: We often hear in the produce industry (and perhaps some objectivity is lost here) that fresh produce can be a retailer’s star differentiator; create a gorgeous, colorful, sprawling produce department, drawing consumers in, right when they enter the store, and that could make your store great…
A: I’ll give you an example that was true when I was at Wal-Mart. When I was there, the way we used to look at food, and produce more specifically… produce was never the reason why customers came to a Wal-Mart store. What drove people to Wal-Mart was the price on basic consumables; Tide detergent, and cotton balls, and toilet paper.
We were a national brand house, so when someone came in and compared the price of what we sold Tide for versus what any other store sold Tide for, we were the best price on the planet. Once they’re in the store, let’s not give them a reason to go anywhere else. So, we had nice produce offerings at great prices. Now they don’t need to go to Kroger to buy grapes.
It was really funny to watch. Whenever we opened up a store in a new marketplace, supermarkets wouldn’t feel threatened because they’d see Wal-Mart as general merchandise and wouldn’t think we take that much market share away from them. A year later, those stores would close. People weren’t in the habit of buying the fruits and vegetables and meats and baked goods in our store. They were in the habit of going to Wal-Mart to buy merchandise and consumables long before Wal-Mart carried food. We just added on food.
We made a point of offering exclusively Chiquita bananas because Chiquita was one of the top 10 brands in all food. If I had gone in with a less familiar brand at a cheaper price, consumers might think they were cheaper because the brand was cheaper. Back then the Number One item by revenue was bananas, and it may still be. It was the same strategy we used for Tide.
Q: Building the produce department was secondary in Wal-Mart’s case because of its value proposition. What if your value proposition is different?
A: It’s not just ASDA, but Tesco and others are having the same problem. If your calling card is price, and that’s your value proposition; and someone else has a better price, that’s a problem.
Q: But doesn’t Tesco have a tiered product strategy, so a higher-end premium brand wouldn’t necessarily be impacted by the price calling card…
A: Yes, that’s true that Tesco is a whole different animal. But Tesco still has the same problem. Whatever its lower tier product means to its total revenue, it’s losing that to the other two discounters. It’s not like ASDA or Tesco are going to close. They’re still doing a lot of business, but they’re not doing as much business and that hurts. It’s death by a thousand cuts.
I don’t know what percent of consumables and food are being bought online in the UK. Here in the U.S., people get a lot of things delivered to their homes. You can order everything online and don’t need to go to a store anymore. Where did that revenue go, not just revenue, but the margins? A lot of these online products are high margin. You start taking revenue away from brick-and-mortar, and it’s a problem because they can’t make the store smaller. The fixed costs of operating the store are the fixed costs of operating the store.
Q: They could try to be more savvy on the operational side…
A: What ASDA, Wal-Mart and Kroger are doing, well everyone is doing it, redeployment of space. If we’re not selling CD’s anymore, what goes there? I’ve been saying this for years, and I hate to say I was right, but when everyone was worried about home delivery, I kept saying, don’t worry about that. What’s going to happen is consumers are going to order most of their groceries on line, but they’re going to go to the store to pick them up. There is a proliferation of stores testing different concepts; some involve drive-hrough pickups and designing traffic flow, in other cases, consumers go into the store, where they end up browsing for other items to build incremental sales.
The message here is, how do brick-and-mortar retailers redeploy physical space to maintain productivity? It goes back to somebody moved the cheese.
Q: It’s a whole new way of thinking…
A: Exactly. One of the concluding things I’d like to say, and one of the reasons I’d bet on ASDA is because it’s always had this culture of it’s us against the world. It got fat, dumb and happy for a while. Competition makes you better. ASDA has to rethink its business. It’s not that everything is terrible, but once you get it in your mind you are vulnerable, you are not fire-proof or bullet-proof, you’re well on your way to making better decisions. I wouldn’t discount ASDA. People keep decrying Wal-Mart. I would never bet against Wal-Mart.
As usual Bruce brings us back to the essentials. In this case, what is the role for the conventional supermarket in the next few decades?
We have deep discounters; we have warehouse clubs, epicurean and health concepts; we have Internet plays, delivery services, a booming foodservice segment and produce increasingly being sold at drug stores, gas station mini-marts, convenience stores and more.
So what is the plan that supermarkets can use to define their own future?
Sotto voce, the question is applicable to the whole supply chain. Who will we sell? How will we supply them?
If we can throw a pebble in the lake, let us suggest that this is not simply a retail question. After all, a lot can happen in the supply chain that influences what consumers want to do in the future. Let us imagine that Wal-Mart, for example, secures exclusive global rights to certain genetics that provide extra-tasty grapes or berries. Wal-Mart may have started out with a national brand price position, but it could use its scale and financial resources to secure unique access to proprietary products.
Perhaps ASDA could piggyback on these lines, and the availability of products not available elsewhere could be a magnet to consumers who can only get the products at ASDA.
In other words, if the problem is someone moved your cheese, maybe you need to move to a location that is a winning one for you.
Please join us at The London Produce Show and Conference and discuss ASDA and the future of retailing with Bruce Peterson.
You can register for the event here.
You can book a hotel here.
And check out the event’s website here.