specified three categories for achieving sustainability initiatives: Those that produce positive ROI, those that produce a “reputational dividend, and those that lose money for a company’s shareholders. But really, what is all the fuss about? 5/10/2007
looked broadly at the ideas these retailers are exporting, and how they will play out in their new surroundings, in the end, success or failure may come down to the details. 5/15/2007
Wal-Mart Prepares Launch Of Its ‘Marketside’ Concept explains that Wal-Mart is a giant company; it
probably wouldn’t launch any concept unless it could see the potential for a substantial business. However,
Wal-Mart hasn’t signed a thousand leases or done any other concrete action to commit to opening a thousand
stores. It is more correct to call such an expression a hope than a plan. When the VP developing the project
leaves, it raises concerns about Wal-Mart’s commitment to the project. 8/19/2008
Digging Into Wal-Mart’s ‘Locally Grown’ Numbers reports Wal-Mart’s
announcement to buy local is nothing new, although, they seem to
typically refer to produce grown “in state” as local. Wal-Mart doesn’t
ever officially define what it means by “locally grown,” so it is
difficult to ascertain the significance of the effort. Wal-Mart’s
state by state chart of locally grown produce leaves us uncertain
these products really make a lot of sense to view as part of a locally
grown initiative. Once again, we come down to the meaning of local.
8/28/2008
Wal-Mart’s Marketside Format Opens In Fresh & Easy’s Back Yard
reports that next week Wal-Mart will open the doors on its first four
Marketside stores in the Phoenix area and they have made a point of
emphasizing that this is most definitely a test, rather than a
roll-out. What will the pricing strategy be? What will it do in this
new venue? How great will the assortment and quality of the prepared
foods section be? Earlier in the process, each store was going to make
its own prepared foods on site, if this plan has survived, how will
each store deal with food safety and variety challenges? But mostly,
the question is how dedicated is Wal-Mart to the concept? 9/26/2008
A Triumph in Phoenix — Wal-Mart’s Marketside Hits The Trifecta One
Open Question: Do Suburban Consumers Want Small Grocery Stores?
paid visits to all four stores and went to see several local Fresh &
Easy operations and studied carefully to see if Wal-Mart offered the
consumer a more or less compelling proposition. Our conclusion:
Although much depends on day to day execution and certainly there are
things we will recommend Wal-Mart reconsider, the new Marketside
format is a triumph and, in almost all cases in which Marketside might
compete directly with Fresh & Easy for American consumers, those
consumers will strongly prefer Wal-Mart’s Marketside over Tesco’s
Fresh & Easy. Here are three reasons why. 10/4/2008
More Thoughts About Wal-Mart’s Marketside comments how after
visiting Phoenix to see the launch of Wal-Mart’s Marketside concept,
we wrote a Special Report which we entitled,
A Triumph in Phoenix — Wal-Mart’s Marketside Hits The Trifecta… One
Open Question: Do Suburban Consumers Want Small Grocery Stores?
Now that we had a chance to sleep on it, a few additional thoughts
come to mind. 10/7/2008
Question For Fresh & Easy And Marketside: Are Americans Really Ready
For “Ready Meals”? points out that although these formats have
much to differentiate themselves from one another, they share one
important element: an emphasis on “ready meals”, specifically, food
that is prepared by a vendor or in a commissary and then packaged for
the consumer to reheat. Yet we wonder if both Tesco and Wal-Mart
aren’t misinterpreting the consumer research as to the extent of the
market for these foods in the United States. To some extent these
“ready meals” strike us as an “in between” product squeezed on both
ends by more compelling propositions. 10/14/2008
Why Do Ready-Meal Programs Fail? our piece —
Questions For Fresh & Easy And Marketside: Are Americans Really Ready
For “Ready Meals”? — brought a contribution from one of America’s
most respected authorities on retailing fresh foods who writes that
ready-to-eat meals are not a novel concept, and it is unclear why
successive attempts at making it work persist. So why did Tesco build
its concept around this offering… and why has Wal-Mart chosen to also
walk down this path? Everyone at retail wants to believe there’s a
future for ready-made meals, yet changing consumer habits is very
difficult. 10/15/2008
Advice For Wal-Mart As It Asks Chinese Suppliers To Be More Socially
Responsible relates how Lee Scott, CEO of Wal-Mart, flew to China
and the company issued an announcement: “Wal-Mart Announces Global
Responsible Sourcing Initiative at China Summit - Company sets new
goals and greater expectations for environmental and social
compliance, transparency and accountability.” Yet, though Wal-Mart’s
initiative is strategic and will surely have some good effect, there
are really only three things Wal-Mart or any other buyer need to say
and do if they want to boost the standards of their Chinese supply
base. 10/23/2008
As Aldi Opens In Orlando, The Age Of Deep Discounters Is Upon Us
explains how deep discounters such as Aldi have been talking up its
compensation policy as it looks to attract employees. Tesco’s Fresh &
Easy, whose journey to America we have been chronicling
here, also promotes that it pays $10 an hour. Fresh & Easy has not
promoted what it will pay managers, but we understand Aldi managers
are far better paid. We wonder if both Tesco and Wal-Mart — with its
Marketside stores — didn’t make a mistake in not focusing their
small-store concepts on a very clear value proposition such as Aldi.
Perhaps they didn’t think they could do it any better? 10/23/2008
Can Whole Foods Survive Prolonged Economic Downturn? explains that
Whole Foods has seen its stock price decline 78% over the past year,
it has already eliminated its dividend and scaled back capital
expenditures; now the word on the Street is that sales trends have
gotten worse and that the company is expected to reduce its guidance.
Perhaps Whole Foods selling itself to another retailer could carry it
through the recession. Crazy as it sounds, it would also be a perfect
fit for Wal-Mart, very little customer overlap, different positioning
in the mind of the consumer. There is a real risk of culture clash,
but if Wal-Mart could run it as a separate division it would be a
winner. 11/4/2008
Small Format Stores And The Ever-Changing Retail Environment our
analysis of small-format stores has left open one question: Do
American consumers want to shop in small format stores? The basic
argument against small stores is that they are inherently not
convenient. We thought Wal-Mart did a better job with its Marketside
concept by focusing on well known brands. Still, a smaller format
almost inevitably means fewer choices. As a result, although we can
see these “general interest” small format stores succeeding in urban
areas, we have trouble seeing Americans abandoning their large stores
in suburbia to shop in these venues, unless, of course, the
supermarkets voluntarily give up their assortment advantage. 12/9/2008
Pundit’s Mailbag – The ‘Culture’ Of Wal-Mart our
piece —
Can Whole Foods Survive Prolonged Economic Downturn? raised the
issue of how Whole Foods could deal with a predictable cash squeeze,
and we raised the possibility of Whole Foods selling itself to another
retailer better able to carry it through the recession. We received a
response from Wayne Davis of Backyard Beauties who echoes our
suspicions that a Wal-Mart buyout of Whole Foods wouldn’t work because
many of its employees consider Wal-Mart downright evil. So it would
really take quite a tight-wire act for Wal-Mart to buy Whole Foods and
keep it as anything resembling the Whole Foods of today. 12/9/2008
Project Sombrero: Wal-Mart To Test New Latino Store Concept
observed that for several years now, the success of Wal-Mart in
Mexico has been so substantial that Wal-Mart has been the largest
private employer in the country. While the tiny little Marketside
division has been getting all the press and the media is playing up
Wal-Mart’s Marketside vs. Tesco’s
Fresh & Easy as some kind of “battle of the titans,” it appears
that Wal-Mart has been working diligently on still another new concept
store, one that has “Success” written all over it. It is all
very cloak-and-dagger with the whole enterprise being referred to by
James Bond-like code names. The overall project is code-named — we kid
you not — Project Sombrero. 12/18/2008
Aldi Challenges Wal-Mart As Low-Price Leader reveals that one of
the great mysteries of American retail history is why supermarkets
were so slow at emulating the Wal-Mart supercenter as it rolled out
across America over the last 20 years. Now one wonders if Wal-Mart, in
its response to Aldi, isn’t setting itself up to fail by not moving to
copy the Aldi format — just as supermarkets once failed to respond to
the Wal-Mart supercenter. The Wall Street Journal ran a piece
entitled, “Aldi Looks to U.S. for Growth”, detailing how an
already-established and growing concept is primed to use the current
economic situation to pursue even more rapid growth. A concept that
consistently underprices Wal-Mart is not just another competitive
concept; it is a competitor striking at Wal-Mart’s core competency.
1/28/2009
Peterson Steps Down As President/CEO Of Naturipe, But Joins Its Board
Of Directors recognizes that the man who built the largest produce
operation in the world is going to be a focus of interest for this
industry for a very long time. When we first announced
Wal-Mart’s Bruce Peterson Resigns, the industry was dumbstruck as
company after company recalled meeting with him when Wal-Mart had
seven, eight, nine supercenters and recalled an earnest young
evangelist for Wal-Mart telling them of Sam Walton’s vision for the
largest food store in the world. They marveled at how so many players
in the industry had grown with Wal-Mart. Soon though, Bruce startled
once again as he moved over to selling side of the business. Now, as
quickly as it began, it is over… or almost. Bruce is joining the Board
of Directors of Naturipe Farms and is relinquishing his role as
President and Chief Executive Officer of the company. 1/29/2009
Mike Duke, Wal-Mart’s Leader, Recommits To Saving People Money reveals Wal-Mart’s new CEO is making some
tough decisions. Here we reprint a copy of a memo he sent out to associates at headquarters which touches on
changes to come. Although we doubt we will be seeing Mr. Duke do the
hula down Wall Street, we actually detect something in this memo that shows Duke swims in a stream with
direct links to Sam Walton: “We know that millions of working men and women are relying on our low prices more
than ever before, and we must continue to be an advocate for them.” This notion ties directly into the
wellspring of Wal-Mart values that it fundamentally is the buying agent for the consumer. 2/11/2009
End Of An Era At Wal-Mart reports that Ron McCormick, longtime
Vice President/DMM of Produce & Floral at Wal-Mart, has been
reassigned to a new position focusing on local purchasing and
sustainability. We are not precisely sure what this new job will
entail and no replacement has been named yet, though Wal-Mart has been
hot on sustainability for some time and Ron has shown interest in the
subject. We, of course, wish Ron well in his new endeavors and now we
have a new question for the industry to ponder: Who ought to sit in
what is arguably the single most important produce-specific position
on the planet earth? 4/22/2009
Did Wal-Mart Have A Role In Ballantine’s Fall? although we had no
reason to think it was going to fail, we can’t say that the collapse
of Ballantine Produce was a shock. We had heard they were slow on
paying growers and that led to a loss of volume. When a few big
growers decided to leave, that led to a collapse. One of the key
factors that many in the industry feel led to this collapse was the
way Wal-Mart has been dealing with the California tree fruit industry.
Put another way, if one’s biggest customer won’t let you make any
money, what is the point of struggling to continue? This is the habit
that is inching through the industry, in which our best producers who
take supply chain obligations most seriously are put in a position of
competing with secondary producers on price. 5/12/2009
Pundit's Mailbag — Mike Stuart Of FFVA Speaks Out On Ballantine And
Buyer/Seller Relations received many letters on our recent piece,
Did Wal-Mart Have A Role In Ballantine’s Fall?, which focused on
the implications of the story for the future of the industry,
including this one from Michael J. Stuart of the Florida Fruit &
Vegetable Association. Mike asks the question precisely: “At the end
of the day, how are these firms going to make significant investments
in food safety, traceability, sustainability and other important
industry initiatives if the profitability of the business is squeezed
to the breaking point? How are they going to survive at all?” As
consolidation continues on the buying end, it becomes more and more
difficult for producers to say no. Perhaps big retailers should
rethink their interests. After all, the US did break up Standard Oil.
If large retailers come to be seen as domineering — squeezing
independent business people and farmers so tight they can’t make a
living or can’t properly produce high quality, safe and sustainable
products — the government could well decide that the US could live —
perhaps live better—with smaller retail organizations. 5/15/2009
Another Sea Change At Wal-Mart thinks that in a sense, it is not a
particularly important piece of news that Pam Kohn, who had been named
to succeed Bruce Peterson when he left Wal-Mart as Senior Vice
President, Perishables and General Merchandise Manager, has left the
division to move over to global procurement. For Bruce, being VP of
Produce and then Senior VP of Perishables, was a career… a life’s
work… to build and elevate Wal-Mart’s produce and broader perishables
area. It was a position requiring special expertise in the field and
was the fulcrum for passion about fresh foods at Wal-Mart. Now, it is
a slot to be filled a few years at a time by executives who need to
get their resume punched that they have perishable experience.
5/19/2009
Pundit’s Mailbag — Response To Ballantine’s Fall: ‘Just Say No’
received an avalanche of letters related to our piece,
Did Wal-Mart Have A Role In Ballantine’s Fall? We thought this one
raised an interesting point: “when you ‘Just Say No’ to a business
relationship …and win the battle (if they come back) do you lose the
war by selling to them again?” Philosophically we agree with our
correspondent. Producers are responsible for the deals they enter
into, and they are foolish if they enter into deals that will not be
profitable. Business should not be a habit. A business has to respond
to price signals. That being said, this is easier to do in theory than
in practice. What we liked best about JC’s letter, though, is his vote
for loyalty in business and it is the lack of loyalty that seems to
grate so much among those really angry at Wal-Mart. 5/19/2009
Special Buys, Wal-Mart And The Meaning Of Loyalty shares the thoughts of one very insightful participant
in the California tree fruit industry who had a different take on the interplay between Wal-Mart and the
collapse of Ballantine Produce. We appreciate the input but find this analysis raises as many questions about
Ballantine, shortages, owning fruit vs. buying fruit and loyalty, as it answers. We were brought up to believe
that loyalty was a value in and of itself. We can’t get excited about a loyalty that says you still get the
business as long as you are as cheap as anyone on the planet. 5/21/2009
Pundit’s Mailbag — Wal-Mart’s Nature our piece,
Did Wal-Mart Have A Role In Ballantine’s Fall? — continues to bring in an avalanche of mail. Roughly 90%
of the notes we receive at the Pundit are one-liners and we don’t typically run too many of them. This time we
received some short notes with some substance. Someone once told us a little saying, and we have somehow come
to think of it many times while doing business. They said if an elephant and a mouse can’t get along, you have
to assume that the elephant isn’t doing all it could. What Wal-Mart is doing won’t stop many people from
profiting while supplying Wal-Mart. What it does, though, is reward a certain type of intelligence and
expertise; it gives the edge to the crafty and the shrewd. Not bad people, necessarily, but those who figure
out how to work the system and be quick on their feet. 5/21/2009
Pundit’s Mailbag — Retailers Should Pay For What They Say They Want our piece
Mike Stuart Of FFVA Speaks Out On Ballantine And Buyer/Seller Relations brought several letters including
this one from one of FFVA’s members, Tom O’Brien, President of C&D Fruit and Vegetable who comments that over
past several years while retail prices have inched up, producer prices have inched down. We appreciate Tom’s
earnestness and understand the frustration he feels. Pricing is a business strategy, and if one retailer wants
to be very cheap on meat — and thus charge high margins on produce — we can hardly say he is “unethical”
compared to a retailer who wants to discount produce and earn big margins on meat. The issue is not that
retailers like Wal-Mart should always pay more, per se; the issue is that retailers should pay for what they
say they want. 5/21/2009
Wal-Mart’s Current Behavior recalls how we’ve recently run a series of articles discussing the current
impact of Wal-Mart on the industry. Now one Wal-Mart vendor sees a portent of the future… and a problem for
both Wal-Mart and vendors in the Behemoth-of-Bentonville’s current behavior. In this letter, our correspondent
insightfully deduces the logical implication of Wal-Mart’s intention to buy cheaply. If it continues down this
pathway, Wal-Mart may find it is easy to forget how much work the vendors are doing and how hard it is to
maintain a seamless supply chain. 5/22/2009
Pundit’s Mailbag — Fruit Patch Speaks Out our piece,
Special Buys, Wal-Mart And The Meaning Of Loyalty, included a letter from a tree fruit industry
participant who took a swipe at the model followed by tree fruit companies that are not, in our
letter-writer’s opinion, sufficiently vertically integrated. Specifically the letter named Ballantine and
Fruit Patch. Ballantine, as we pointed out
here, is not in a position to respond, but in this letter included here, Rick Eastes, VP of Sales &
Marketing at Fruit Patch, responds on the record. Rick’s letter is on target in pointing out that it’s not
just Wal-Mart that has changed. Everything has changed. The players have consolidated; the issues — food
safety, sustainability, traceability, etc. — have increased the complexity of the business enormously.
5/22/2009
How Do Kroger, Safeway, Tesco And Bashas’ Stack Up Against Three Of
Wal-Mart’s Store Concepts? borrows from the May 2009 issue of
PRODUCE BUSINESS, which included the 19th chapter of
our Wal-Mart Pricing Report and was focused on seven separate store
concepts in the Phoenix, Arizona market. These reports are always
intriguing, this Phoenix report, though, offered several insights of
great significance for the broader industry. So we thought we would
highlight some of these key points for Pundit readers. Our first
highlight: The extraordinary dominance of Wal-Mart on price. 5/27/2009
Vendors Beware As Wal-Mart Alters Course On Procurement remembers
when Wal-Mart came to develop its produce procurement system, it was a
brave band of brothers in the early years, vendors willing to
experiment and improvise, that made it happen. Now that system is in
flux and many fear for the supply base… and for Wal-Mart. This
old-timer who wrote to us recently accepts the critique of Wal-Mart
but also warns the supply base that they can’t change the customers;
they can only change themselves. It seems that the bottom line is
this: Wal-Mart is changing the way it approaches vendor relations.
Wal-Mart vendors have to be mindful that they now live in a much more
adversarial world than they entered into years ago. 5/27/2009
Pundit’s Mailbag — Wal-Mart’s Lack Of Passion For Perishables our
recent piece
Another Sea Change At Wal-Mart, highlighting the departure of Pam
Kohn from the Senior VP Perishable slot at Wal-Mart brought a
surprising amount of mail, including this note from Dr. C. Brent
Rogers, Associate Professor of Agriculture at Morehead State
University, who gives his impressions as a Wal-Mart consumer. Alas,
Wal-Mart’s problem is irregular execution in the field. Unfortunately,
it is very difficult to control what happens at thousands of stores,
so Wal-Mart tends to try to control what it can. So if the produce or
meats are bad, the inclination is to raise procurement standards.
Unfortunately small improvements in product at the door of the DC
cannot make up for poor execution at store level. 5/29/2009
Pundit’s Mailbag — Poor Management Attitude Leads To Food Safety
Failures our piece,
Economic Reality Trumps Official Policy Every Time, wrestled with
the disconnect between official policies businesses adopt and the
incentive structures which often lead to unintended behavior. Frequent
contributor Richard Yudin of Fyffes shares this note with us of his
insights gained from setting up farm audit systems. Recently a friend
working at a Wal-Mart told us that the manager, frustrated at how
slowly a crew was working, ordered everyone to clock out and then
finish the work. When he was CEO of Wal-Mart, Lee Scott sometimes
would say that the problem at Wal-Mart is that they were known for
their exceptions, so one rogue manager such as this could cause so
much trouble. Now if Wal-Mart can’t stop the rogue store manager we
mentioned, who is doing something clearly against the law and against
policy, how much harder is it in food safety, where the buyer is not
doing anything illegal — he is buying legal product — but he’s just
not willing to pay extra to buy from the guy with the top food safety
program? 6/4/2009
With Wal-Mart’s Marketside Concept In Stasis, Let’s Pause And Examine Ready-Meals Programs remembers when
Wal-Mart introduced its Marketside concept, we hailed it as a triumph but with a
big proviso. We’ve dealt with issues related to prepared foods before in pieces such as
Question For Fresh & Easy And Marketside: Are Americans Really Ready For “Ready-Meals”? and
Why Do Ready-Meal Programs Fail? Yet the simple fact remains that, although individual market
opportunities, of course, vary, the only big foodservice segments that retailers do well at nationally are
chicken — both rotisserie and fried — pizza and sub and sandwich programs. If we had to identify a fatal flaw
in the Fresh & Easy and Marketside concepts, it would be that they are both built around ready-meals and
Americans don’t eat many of these British-type offerings. 6/10/2009
Wal-Mart Re-Positions Marketside explains that the launch of
Tesco’s Fresh & Easy concept made the prospect of examining
Wal-Mart’s Marketside concept particularly intriguing. Now comes word
that Wal-Mart has decided to rebrand the stores to herald the Wal-Mart
ownership. David J. Livingston, a consultant quoted in an article
announcing the switch, is a frequent Pundit contributor and he points
out that in this day and age, Wal-Mart executives must have decided
that it was advantageous to tie in with the Wal-Mart name and its
reputation for economy. We suspect such a change also speaks to how
Wal-Mart intends to use the banner in the future — most likely in
markets where Supercenters and Neighborhood Markets are part of a
broader retail mix. As to whether it is a smart move or not, we have
some doubts. 6/12/2009
Pundit’s Mailbag — Setting Policy vs. Setting Incentives revisits
one of our
recent pieces which drew on an anecdotal experience whereby a
Wal-Mart manager demanded that employees work off the clock. The piece
brought this note from George Worthy of Worthy Enterprises. His letter
points to the undeniable point that attitudes are set from the top and
that leaders that behave in an ethical way set the example. In the
Wal-Mart situation, it still doesn’t answer why the store managers
behaved in violation of company policy and the law. Certainly we have
no reason to believe that the top executives at Wal-Mart in some way
modeled that behavior. As we discussed in the piece, the more logical
assessment is that although the policy is clear, the incentives are
divergent from the policy. 7/1/2009
Assortment Rationalization And Private Label Margin saw The Wall
Street Journal ran two pieces that, taken together, constitute a
one-two punch against the way food retailing has been conducted for 20
years. For years retailers packed shelves with myriad brands, sizes,
colors, flavors and prices, these days, less is more. Wal-Mart is
approaching the matter analytically, adding variety and shelf space in
the fastest-growing categories and to trim variety and space in slower
ones. On Wall Street, one of the biggest jobs analysts have right now
is predicting how Wal-Mart’s product rationalization strategy will
affect individual companies that sell to Wal-Mart. 7/14/2009
Wal-Mart Must Include Adequate Return On Capital In Its Sustainability
‘Index’ Or It Will Do More Harm Than Good reports Wal-Mart has
announced a major new sustainability initiative by holding a
“Sustainability Milestone Meeting” and issuing a statement from
Wal-Mart CEO Mike Duke. The gist of the proposal is to do three
things: First, ask 15 questions of suppliers; second, work to
establish a consortium of universities that will establish a database
of the lifecycle impact of products; and third, make this information
available and meaningful to consumers. We’ve heard that Mike Duke is a
man of integrity, so we accept at face value that Wal-Mart means good
for the world by promulgating this initiative. It is, however, a train
wreck waiting to happen and will probably do real harm to the world.
8/5/2009
RPA’s RFID/RPC Study: Pathway To More Comprehensive Traceability?
remembers when RFID was all the rage and the expectation was that with
Wal-Mart pushing the technology, the whole industry would be rapidly
transitioned to the radio frequency future. It didn’t quite work out.
The Reusable Packaging Association did a study that implied dramatic
reductions in the cost of RFID by utilizing tags multiple times on
RPCs. It seems like some kind of traceability dream, but one could
imagine an industry database with readers everywhere feeding into it.
Then we remember that even with as simple a supply chain as a shipper
selling to Wal-Mart and Wal-Mart delivering to its own stores, they
couldn’t make it work well enough or cost effectively enough to make
it happen. Of course technologies mature and, perhaps, they were just
all on the bleeding edge. 8/5/2009
Dangers And Broader Implications Of Wal-Mart’s Sustainability Index
as we detailed in
Wal-Mart Must Include Adequate Return On Capital In Its Sustainability
“Index” Or It Will Do More Harm Than Good, Wal-Mart’s
sustainability initiative is extensive. So we focused in on one
glaring problem: Wal-Mart’s decision to exclude the economic sphere.
The danger of Wal-Mart’s approach to this sustainability index is that
by excluding the economic sphere, it is encouraging companies to make
investments allowing them to score better on the index but that
actively waste financial resources. Wal-Mart’s initiative is far
broader than retail produce. We wanted to examine how it might
interact with other industry initiatives in sustainability. To do so,
we asked Pundit Investigator and Special Projects Editor Mira Slott to
explore the topic more by speaking to Tim York, President of Markon
Group. 8/11/2009
Wal-Mart’s Global Food Sourcing Initiative Closes The Peterson Era And
Threatens Sustainability Of Agricultural Base this summer an era
ended with the decision by Wal-Mart to proceed with their Global Food
Sourcing Initiative. The gist of the program is a decision to
completely reform the procurement of perishables worldwide starting in
the United States and starting with produce and, specifically, with a
pilot in Washington State on apples. The ultimate plan is to set up an
entity outside of the normal Wal-Mart structure to handle procurement.
The very goal of expanding the pool of vendors runs counter to
Wal-Mart’s other initiatives for
GFSI and
Sustainability. This really is the end of all vestiges of the old
Wal-Mart procurement system and the beginning of a new system with
ominous implications for the entire industry. 8/13/2009
Tesco Shifts US Strategy... Starts Buying Real Estate explains
that many have interpreted our critique of Fresh & Easy as a doubt
that Tesco will survive in America. Yet we don’t think the two issues
are closely related. Tesco is a large and wealthy company, and if it
has made the strategic decision to stay in America — regardless of
cost — it will stay, presumably trying new formats and revamping Fresh
& Easy until it stops hemorrhaging money. In that sense, Tesco’s
future in America has little to do with the success or failure of the
current Fresh & Easy concept and more to do with its ability to pump
cash in other operations. That is why if Wal-Mart really wants to lay
down the gauntlet and tell Tesco it better leave Wal-Mart’s American
turf alone, the place to send that message is not in Phoenix but in
London. 9/15/2009
Wal-Mart’s Marketside Deli Concept recounts how Wal-Mart’s test of
a small format store, which we profiled both
here and
here, has been problematic. There are many explanations why
planned stores haven’t opened, but one thing is for sure… the problem
is not that the initial four stores are making too much money. While
always clear it was doing a test, big companies like Wal-Mart
sometimes have a way of benefitting from new concept development other
than building retail stores. One prominent industry member, who is
part of this Pundit Intelligence Network, sent one notice of the way
Wal-Mart is leveraging its Marketside brand and experimenting in ready
meals, which begs the question, what does Marketside represent?
9/15/2009
Pundit’s Mailbag — Produce Pricing Strategies… Does Stater Bros. Do It
Better Than Safeway? our piece,
Safeway and Stater Bros. Approach Recession Differently, brought a
number of letters, including this one from Dave Westendorf of Bay Area
Produce, Inc. We appreciate Dave’s analysis because it gives us an
opportunity to think about the nature of fresh produce and the
strategies likely to drive success both for individual companies and
the broader industry. Price is quite important but the consumer is
buying a range of services and experiences that go along with the
product. If Whole Foods were cheaper than Wal-Mart, it would lose
credibility with its core customer who believes that Wal-Mart is too
cheap to take care of all the things this customer values. Dave makes
clear that he recognizes some purchases are about image. “Oh, I went
to Wal-Mart” will create a different perception than if the answer is,
“I went to Whole Foods.” 11/9/2009
As Manolo Reyes Takes Over Ron McCormick’s Role, Wal-Mart Squeezes
Vendors To Generate Higher Profits reports that the big news at
Wal-Mart is that Manolo Reyes, a Costco veteran, has taken over the
functional role of
Ron McCormick’s old
position as Vice President/DMM of Produce & Floral, though perhaps
with a different title. Wal-Mart also has announced its earnings, and
news reports say profits are up while sales are down. One reason given
was an increase in advertising costs paid for by vendors. If it was
significant enough to mention, Wal-Mart must really be hitting vendors
up big time for advertising money. 11/13/2009
Pundit Mailbag — Is Wal-Mart Adopting Other Retailers’ Buying
Practices? our piece,
As Manolo Reyes Takes Over Ron McCormick’s Role, Wal-Mart Squeezes
Vendors To Generate Higher Profits, brought a number of
interesting notes including this one from industry veteran Alan C.
Fitzgerald, Chairman of Tri-Pak Machinery, Inc., who says it is basic
economics: "hundreds of suppliers selling (or trying to sell) produce
to only a few buyers puts the big chain stores in control of the
prices." With produce, yes, in the short run, big buyers can obviously
dictate the price. The produce is grown and packed and producers have
to take what they can get. In the long run, though, things are more
complicated. 11/20/2009
Retailers Eye Target’s Food Expansion Plans reports that the word
is out that Target is expanding the amount of food — including some
perishables — it will sell in some of its standard discount stores.
How significant is this effort — for Target and for the broader
industry? Well, we quickly got input from three well known retailers.
One of these retail executive saw in the effort an attempt to
capitalize on the failure of “small store” concepts such as
Tesco’s Fresh & Easy and
Wal-Mart’s Marketside. 11/20/2009
Flaws In Wal-Mart’s Produce-Procurement Thinking highlights a piece in The Financial Times that reports on Wal-Mart’s efforts to reduce supply chain costs. Although Wal-Mart’s claim that apple procurement costs went down 10% in the Washington pilot project is mysterious, the bigger point is that even if Wal-Mart’s number is correct, it is surely only a portion of the story. The truth is that when it comes to produce, Wal-Mart is wildly overestimating the impact of volume — at least over the long term. 1/5/2010
Wal-Mart’s Blind And Costly Focus On FOB’s our piece, Flaws In Wal-Mart’s Produce-Procurement Thinking, brought a number of interesting responses including this letter from Dan Sutton, Director of Produce with Albertsons, who points out the enormous problem with Wal-Mart claiming that its Washington apple procurement experiment was saving it 10%. When people who don’t know the business seize on something they can quantify — cost of goods sold — and work to reduce it, they should really step back consider the consequences of their actions. 1/18/2010
Wal-Mart Produce Procurement ‘Set Up For Devastating End’ explains that recently our coverage surrounding Wal-Mart has been on the effectiveness — or lack thereof — of a procurement model Wal-Mart has been testing in Washington State on apples. Now we received this letter from a knowledgeable observer who writes that its executives have effectively set Wal-Mart up for a devastating end in regards to the apple commodity. Some vendors hold out hope that as the losses become obvious, Wal-Mart may make a U-turn and reexamine a once very profitable system. 1/28/2010
The End Of The Sam Walton Era At Wal-Mart: Navigating A New Business Model reports that on February 3 Wal-Mart’s domestic buying apparatus that had been assembled mostly by Ron McCormick was “blown up.” Some made the cut, some were handed severance packages. It appears that Procurement will be divided into three sectors: Global Procurement, Merchandising and Local Sourcing. It is a big change and not just in personnel. It is a new model for doing business, and it raises at least five immediate questions we can try to answer. 2/9/2010
Wal-Mart Reports Strong Earnings: Is It Creating A Pricing Umbrella For Aldi? explains that recently, our series on procurement changes have made some think we were hostile to Wal-Mart. Our critique is not an attack on the Wal-Mart concept. It is a claim that some of things Wal-Mart is doing either A) will not, in the long run, help it achieve its own goals, and B) offers an assessment that there are contradictions between Wal-Mart’s professed values, particularly around sustainability, and its actions in agriculture. Which brings us to the latest news. Wal-Mart just announced strong earnings and we see long term problems growing out of the short term success. We look at Wal-Mart’s sales chart and then we look at Wal-Mart’s Profit Chart, we see something creating an opportunity for ALDI and deep discounters. 2/19/2009
Wal-Mart’s Auction System Leads To Less Sustainability received a letter from Rod Farrow of Lamont Fruit Farm Inc. who sees the drop in costs from Wal-Mart’s new produce procurement operation will be absorbed by the grower, and further states that this creates an unprofitable and unsustainable situation for growers. We appreciate Rod’s input and think he has an important point but think that the point needs to be more tightly focused. Rod’s point is to note the contradiction between Wal-Mart’s self-professed desire to emphasize sustainability and its willingness to put farmers into competition with one another on an auction basis, which challenges sustainability on at least three levels. 3/22/2010
Wal-Mart Swaps Strategy For Tactics saw that Business Week ran an article
titled: "Wal-Mart and the Paycheck-to-Paycheck Consumer”. The piece discusses
why the US Wal-Mart stores reported negative comps for the 4th quarter. It also
notes that Sam’s Club comps were up 0.7% during the same period. The article
also pointed out was that customer traffic was down. The piece cited food
deflation and speculated that Wal-Mart’s core customer was living “week to week”
as to the reason why. This may all be true, but a Pundit correspondent, who was
once a major vendor to Wal-Mart, suggested some other reasons. 4/16/2010
More Wal-Mart Straight Talk: Standards Will Drop finds some readers think we
need to write more bluntly about Wal-Mart. This comment comes from an important
supplier of grapes and tree fruit: "If Wal-Mart continues to try to take the
margin out of its suppliers’ profits, the first thing to happen is suppliers
will choose to meet ONLY the specs — or less, in tight markets." It is a funny
thing with produce, the guy who gets the lowest price doesn’t always get the
best deal. In large organizations everything is often about the personal career
goals and compensation programs of individuals. This may explain why Wal-Mart is
driven by short-term considerations. Nobody’s pay and position is determined by
what the situation will be with pears in 2019. 4/19/2010
Three Reasons Why Wal-Mart’s Visits Are Down explains how after enough years
of listening to the way retailers announce their sales and earnings, you realize
that with a few exceptions, these reports are often ex post facto attempts to
explain things in any possible way except to blame management. One got that
feeling in the recent Wal-Mart conference call covering first quarter earnings
of 2010. Once again, Wal-Mart’s United States same store sales were down while
profits were up. The explanations didn’t really make much sense, but we found
three hints in the financials, press release and conference call. 6/7/2010
Wal-Mart’s ASDA To Acquire The UK’s Netto Stores: Will They Bring The Small-Store Concept To America? explains that since Marketside is a bust, Wal-Mart needs a new vision for a small-store option. Wal-Mart has done what big companies typically do best: it just bought such an option. Its British subsidiary ASDA has announced that it is acquiring the British division of small store chain Netto. If it can operate these small stores profitably, it will probably try to bring them to America. The vision, however, is likely to be different than Tesco’s was in opening Fresh & Easy. Wal-Mart would have two options. 6/11/2010
Wal-Mart’s Heritage Agriculture Program Gets Good Press But Doesn’t Make A Dent
explains that although the free market is pretty efficient in determining where
things are grown, buyers seeking lower prices and better product are part of
that free market, so it is very desirable for a buyer of Wal-Mart’s size to have
a few people out there looking to find local procurement opportunities that are
unconventional and make sense. For the most part, though, as nice as this may
all be, it really is not significant. To an extent, it is no more than an
extension of Wal-Mart’s old “store of the community” program — trying to be
locally relevant. 6/29/2010
Pundit’s Mailbag — Wal-Mart or Walmart? mentions that lately we have been
getting some helpful e-mails on our spelling; they all relate to one company,
Wal-Mart, including this note from Jim Vangelos, President & CEO of Polymer
Logistics. Yes, the hyphen has disappeared from the brand and from the stores
and with it the capital “M” in Mart. However, the legal name of the corporation
remains Wal-Mart Stores, Inc. Wal-Mart themselves put it this way. 7/15/2010
Advice To Wal-Mart’s ‘Heritage’ Farmers: Don’t Put All Your Eggs In One Basket
received several phone calls from a few of the farmers participating in
Wal-Mart’s Heritage Agriculture program. The main topic of our discussions:
The danger of over-reliance on one customer. This is always a danger and, in
this case, we think the danger is acute. 7/20/2010
Does New Personnel For Wal-Mart Mean New Hope For The Vendor Community?
considers what the exits of both John Fleming, merchandising chief at Wal-Mart,
and Eduardo Castro-Wright, President/CEO of Wal-Mart’s US Division, will mean to
the retailer. Despite the personal reasons given for their departure, one would
be foolish not to think that if the last four consecutive quarters had been
barn-burners they may still be there. The team wasn’t producing. They set out to
make Wal-Mart more like Target, more like Tesco, and more like everybody else.
Yet the secret to its success, of course, was being what it uniquely was —
Wal-Mart. 7/27/2010
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