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Pundit’s Mailbag —
Wal-Mart’s Upscale Effort

Jim Prevor’s Perishable Pundit, December 5, 2006

Our piece, Hormel, Wal-Mart And The Meaning Of Upscale, brought a number of comments. The piece began by dissecting an article about Hormel and, specifically, the difficulties the maker of Spam experienced in trying to broaden its market to upscale and ethnic foods. The article detailed how Hormel used various brands to market various ethnic lines.

The Pundit tried to apply some of these lessons to Wal-Mart and pointed out the difficulties of attracting more upscale consumers:

Wal-Mart doesn’t need a branding consultant. It needs a sociologist who will explain that what upscale consumers want most in their life is the one thing Wal-Mart can never deliver: To NOT be associated with the people who shop at Wal-Mart.

It is snobbery but it is also human nature. Throughout history, the affluent have adopted modes of dress and comportment to distinguish themselves from those less fortunate.

Instead, we urged Wal-Mart to try a completely different approach:

The big opportunity, though, is to not look at the issue in terms of how Wal-Mart can get more people in its stores. Its opportunity is to serve more people through more concepts…If it feels its growth is constrained because it has saturated the market in many places for consumers who live paycheck to paycheck, it shouldn’t knock its head against the wall trying to convince upscale consumers to buy amidst their downscale brethren. It should develop a separate store concept.

And we summed up as follows:

It is often said at Wal-Mart headquarters that this is their problem: If they sell diamonds of better quality and at a better price than your typical mall jeweler, they still don’t get the business because no guy wants to tell his girl that he got her an engagement ring at Wal-Mart. No girl wants to tell her friends that her ring came from Wal-Mart.

To change this dynamic is certainly difficult and probably impossible. Wal-Mart needs to get back to its roots of Every Day Low Prices and start an upscale concept under a different name to capture more affluent consumers.

And by the way, the definition of upscale has changed. In the 70s, it might have meant little jars from Europe filled with interesting stuff. Today it means fresh. A commitment to an upscale product would be a commitment to a substantially expanded fresh food and floral effort.

An experienced producer of the kinds of products that are not fruits and vegetables but are typically sold in the produce department as accompaniments sent us this note:

Your article on Hormel, Wal Mart and Upscale was very interesting. Your definition of “upscale” is not complete. We have been an “upscale” brand for close to 30 years and the concept of “upscale” is in a continuous state of change as styles, tastes and ideas change. While fresh is a component of upscale, that is not enough. Today, flavor, freshness, convenience, quality, perceived value, uniqueness, relevance, pricing, packaging and availability all enter into the mix.

Consumers have difficulty with the thought process of a retailer or a manufacturer noted for every day low pricing selling unique, higher quality, higher priced, better flavored, better packaged cutting edge and stylish products. To many it is a bifurcated thought process. A classic example of a brand that has spent years upscaling its brand and image is Gallo wines. To move from one end of the scale to the other takes time, commitment, creativity, an ability to be ahead of the trends and vigilance. To be able to do both is much more difficult as the thought processes are so divergent.

In retailing, it is going to be interesting to see how the purchase of Bristol Farms by Albertson’s plays out as Bristol Farms is a very high end retailer. Your articles are very interesting and thought provoking.

We thank our correspondent for the letter and appreciate being called “interesting and thought provoking.” Our correspondent makes five separate points:

  1. That fresh is not sufficient to define upscale.
  2. Consumers tend to have silo thinking at retail. You are either upscale or downscale or midscale or something else, but not many things.
  3. Brands can change their image but it is difficult.
  4. To be two things at one time is difficult both for consumers to perceive and for businesses to execute.
  5. It is uncertain how it will work for retailers to own wildly divergent concepts such as Albertson’s with Bristol Farms.

The points are all well taken.

Point one is certainly true. Fresh is neither a necessary nor a sufficient condition to be perceived as upscale. But, certainly, there has been a shift in the food business and consumer perception. Specialty foods started out in the U.S. as being a lot of European imports, typically jarred or canned. Now the feeling of walking into an upscale store is that you are going to be surrounded by bakery and produce, floral, foodservice operations, a broad assortment of olives and artisanal cheeses. These are the cues that tell a consumer that this is an upscale venue. It is very difficult to imagine an upscale emporium that doesn’t do fresh.

Point two confirms our point. It is going to be very difficult to get consumers comfortable with the idea that Wal-Mart is the place to go for values when you live paycheck to paycheck but that it is also a great place for people with money to burn to buy their fashion-forward clothes.

Point three, with its reference to Gallo wines — an effort that has taken decades — points out that what Wal-Mart wants to do may be theoretically possible but is fraught with difficulties.

Point four reminds us that being two things at once isn’t only difficult for consumers to perceive. It is difficult for an organization to execute. If you know your job is to offer “Every Day Low Prices” to people who live paycheck to paycheck, you have a benchmark against which to evaluate your decisions. But if sometimes you are doing that and sometimes you are selling upscale people who are attracted to the store by a sale on hot toys, you lose any basis for deciding what products to carry, how to price things and, in general, lose focus.

Point five reminds us that many times retailers mess up the ownership of multiple concepts. This is typically because they lose sight of the consumer and are focused on logistics and supply chain management.

A&P got in trouble years ago after buying Waldbaum’s when it wanted to buy more efficiently and changed many specs to A&P specs. Business fell off and old-timers found themselves being called out of retirement to reinstitute old ways as the Waldbaum’s clientele rejected the A&P specs.

More recently, Safeway got in trouble as it purchased strong regional chains such as Dominick’s in Chicago, Randall’s in Texas and Genuardi’s in Pennsylvania — then proceeded to abandon much of the brand equity it purchased as it looked to gain production efficiencies by putting Safeway private label items in stores, even if consumers preferred the old stores’ private label brand.

Ownership doesn’t destroy a banner. It is owners who do.

Speaking of owners, we also received this note in regard to the same article:

This reminds me of a conversation I had with Ernest Gallo in another career about twenty years ago. He wanted to upscale the image of his wines. I explained to him that he’d spent a half billion dollars over a forty year period positioning Gallo as good cheap wine. (Remember Gallo Hearty Burgundy?) I told him it would take a generation and a billion dollars to accomplish this task. He said, “I better get started right away.” Family companies have options that public companies don’t.

— Frank McCarthy
Vice President of Marketing
Albert’s Organics/United Natural Foods

Indeed they do. Publicly held companies probably wouldn’t have the time horizon or willingness to pay the price to do what Gallo has done. Of course, I am not sure they should. What Gallo did was important to Earnest Gallo and worth it to him, because it was his name on the bottle.

A normal company would say it is not worth the effort to rehabilitate a name. It is cheaper and easier to just grab a new one. Which was our suggestion to Wal-Mart.

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