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Produce Business

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American Food & Ag Exporter

Cheese Connoisseur



Pundit’s Mailbag —
Wal-Mart’s Path Of Decreased Store-Level Execution

Jim Prevor’s Perishable Pundit, October 25, 2007

Our piece, Wal-Mart Tightens Quality Specs, which followed up on our piece, High Lettuce Prices Strain Supplier Relations With Wal-Mart — which dealt with topics raised in our piece, Wal-Mart’s ‘Opportunity Buy’ Policy Reveals Much About The Company from a few months ago — has brought forth many industry comments. All seem to agree on our main point: That Wal-Mart’s quality problems have nothing to do with procurement and everything to do with store level execution.

We ended our last piece by saying:

The produce executives in Bentonville have total control over procurement and almost no control over store level hiring, staffing levels and training. So if top executives lean on produce to get better quality, they wind up pushing the procurement button, but it’s the store level execution button that needs a work-out.

One Wal-Mart vendor responded this way:

“…store level execution button that needs a work-out…” is an understatement!

The breakdown in produce quality is between the DC and the customer: mostly the store level itself.

Wal-Mart’s poor performance in the produce department is not a consequence of poor vendor quality “IN” at the front door of the DC’s. Wal-Mart demands US #1 quality levels on arrival on all items.

I personally recall being re-aligned to a DC and having an entire load of Iceberg lettuce rejected only to have it be Federally Inspected the next day at another dock, receiving a US #1 rating. I was then told it didn’t meet Wal-Mart’s “standard for salability,” which translated to, ‘Don’t bring it back.’ They were flexing their muscle and we came to a mutual understanding.

Conversations with other Wal-Mart vendors continually confirm it takes an act of Congress to get a “Quality Exception” below US #1 authorized by corporate managers in Bentonville regardless of floods, hurricanes, heat waves, rain, hail, freeze, fires, etc.

The internal view is that any quality-exception authorization is an invitation to failure, and the “powers-that-be” won’t put their necks on the line 99% of the time because privately they know systemwide the stores can’t be trusted to merchandise the product as needed and limit “markdowns”… Wal-Mart’s term for how to handle/move non-stellar produce and/or account for shrink.

The growing perception by consumers about the decline of Wal-Mart’s produce image I believe can be traced back to about 4 or 5 years ago when, coincidently, after about a year or so of significant RPC usage, as a method to improve overall bottom line numbers, Wal-Mart made the decision to reduce the number of “associates” (i.e. less salaries/benefits) in various departments.

The effect of this was painfully evident in the produce department. The expanding use and proposed efficiency of RPC’s supposedly showed that the same volume of produce could be moved through supercenters while eliminating what appears to be at least 50% of the produce staff.

The ‘ease’ of using RPC’s to replace/refill empty spaces on the shelves supposedly allowed 1 associate to do the work of 2 or 3 in the same time. What has been lost in Wal-Mart’s produce departments is the attention to detail shown by other retailers, which is needed with perishable items to make fruits and vegetables desirable to the consumer.

It is simple to eliminate associates from the paper goods or canned goods section as a can of soup is a can of soup. A shortage of man hours may just mean an empty shelf. Produce, however, requires attention. By Wal-Mart taking out the TLC needed for success in the produce department, many locations have become just slight improvements over weekend flea markets (note — not weekend “Farmers Markets”!).

If Wal-Mart wants to move back to a place of dominance in the produce business, as they were racing toward 4 to 5 years ago, corporate executives at Wal-Mart need to be willing now to step back, actually be honest with themselves, and make the first corrections at home — at store level in the produce departments where the visual desirability of produce is what gets the $$ out of customers’ pockets and into the register.

As a child, if I did something wrong, to correct my lack of judgment or inappropriate actions, my grandma used to say, “lie to me, but don’t lie to yourself”. A hard lesson to follow that was sometimes slow in coming but worth it in the long run.

Wal-Mart executives bluntly stated the truth years ago. The Saturday meetings in Bentonville, Sam’s flying from store to store. They were all expressions of this truth: Pay attention to the store level details and instead of everyone up and down the ladder always doing a C-Y-A, your eventual answer to the share holders will be: “you’re welcome”.

A perceptive letter. And one filled with business lessons for everyone. Because all businesses tend to departmentalize, it is common for complaints to go to the obvious party — not necessarily the real party.

So if Eduardo Castro-Wright, President and Chief Executive Officer of the Wal-Mart Stores division, is unhappy with the quality of clothing sold in the stores, he probably tells the person in charge of clothing to do something about it. And that makes sense.

However, the people in charge of produce don’t have control over the levers needed to fix the problem. They can’t decide to hire more employees in each store or dictate who gets hired or require them to come to Bentonville for training before touching any produce.

So, instead they put enormous effort and pay great expense to make tiny incremental advances in the quality of produce procurement, while the real problems at store level fester.

Of course, Wal-Mart has made some attempts to improve store-level execution. In response to a letter from Keith Anderson of Management Ventures, we wrote a piece entitled, Pundit’s Mailbag — Wal-Mart’s Market Managers, which dealt with the creation of a “Market Manager” position and, as we explained, each market manager had a Market Grocery Manager to help. The goal was to execute programs at individual stores. But, as we explained, there were real problems:

The first problem is that very few of these merchandisers are really experts at merchandising a full range of food. A break down might go something like this:

  • 25% of them are very good and really make a difference
  • 25% of them are horrible and should be doing something else for a living
  • 50% of them mirror their background. For example, if the MGM was formerly a bakery manager, then he or she is very good in the bakery but only marginal in produce.

In other words, the bulk of these MGMs are severely limited in the contribution they can really make.

The second problem, and probably the bigger issue, is that though, theoretically, the MGMs are there to help the stores “run the play” or, put another way, they are there to help store and departmental managers execute the corporate merchandising plan, in actuality, the MGMs serve at the whim of the Market Manager and this fragmentation of authority has caused there to be less uniformity in execution.

This is quite significant because anyone who visits as many Wal-Marts as the Pundit does knows instantly that the biggest problem with Wal-Mart is that they offer an inconsistent presentation to the consumer.

The “Achilles heel” of Wal-Mart right now is inconsistency in retail execution.

Now one solution would be to go in the direction today’s correspondent suggests — increase staffing in produce and increase the expertise available to the produce department. For example, every Market Manager could have a specific Market Produce Manager. If Wal-Mart was willing to hire experienced produce merchandisers for every 10 stores and give them authority to require staff training and certain staff levels, it probably would make a big difference. It would also cost a lot of money.

We wonder if the whole concept shouldn’t be re-thought. We’ve thought a great deal about Wal-Mart’s deli operation, including here and here, and questioned whether the whole idea of service deli really makes sense in the Wal-Mart concept.

Perhaps, much as Wal-Mart went with case-ready meat, maybe it needs to go with “case-ready produce” — in other words, although it may go against Lee Scott’s focus on reducing packaging, maybe Wal-Mart’s produce department should look like the produce department of Marks & Spencer and most British stores where almost everything is in a clamshell or a bag.

Everything will come in perfectly labeled by suppliers with country of origin, organic status, etc., clearly indicated on the package and, literally, the kid who puts out packages of underwear will be fully qualified to put out packages of nectarines.

True the popular perception is that Americans like the farm stand look of bulk produce, but one should never be certain on these things. In this age of food safety concerns, perhaps Wal-Mart could subtly promote that the produce is never touched by human hands — at least at the store.

The efficiency of handling evenly packaged items and the ability to not require expensive expertise in produce merchandising might even allow for lower price points.

In any case, the status quo is not working at store level, so Wal-Mart confronts a fork in the road; do they increase staffing, training and hire more produce expertise or should Wal-Mart reengineer the department so that it can produce a more acceptable outcome without these increased inputs.

In any case, more stringent metrics at procurement are unlikely to make much difference.

Many thanks to our correspondent for his thoughtful letter.

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