Retailing wonder of the world: WAL MART

October 1, 2004
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Retailing wonder of the world: WAL MART

by Jill Bruss
Wal-Mart continues to capture the industry’s and the public’s attention.
The Wonders of the World – the ancient, the forgotten and the modern – capture people’s attention for reasons ranging from architectural sophistication of a structure to the simple magnanimity of a naturally occurring phenomenon. Including the more-memorable Great Pyramid in Egypt, the Hanging Gardens of Babylon, the Statue of Liberty, Big Ben, the Grand Canyon and the Great Barrier Reef, to offer up a few, most of us can only rattle off a couple of the wonders or even speculate what they may be. However, the common attribute with all of them is that we are awed by the size, sophistication or sheer presence of these wonders.
In the retail world, it’s fair to say that the size, sophistication and ever-growing presence of Wal-Mart are awe-inspiring to many, whether you’re a competitive retailer, a manufacturer or simply a consumer of Wal-Mart’s “Everyday Low Prices” goods or private label items. Wal-Mart has made a mark on retail, keeping even the most fringe competitors on their toes and staying the course in its efforts to keep prices down and consumers at the center of its philosophy.
“We’re a national brand company first,” says Wal-Mart’s Bob Anderson, vice president/GMM proprietary brands. “Our private label exists to service the customer as an alternative. If customers want a national brand, we have them. But there is a customer base that is looking for a quality, value alternative. That’s a strong element of the Wal-Mart culture – we’re trying to bring quality and value to America, and now we’re taking it around the world.
“We’re trying to lower the cost of living for people. We’re not trying to be the biggest, as a lot of people think, we’re trying to be the best,” he adds. “We’re looking to improve the standard of living in communities by offering quality merchandise.”
Wal-Mart’s diligent focus on satisfying its customers catalyzes the continuous growth of the customer base for the $256.3-billion, Bentonville, Ark.-based retailer. A recent study from Retail Forward, a management consulting and marketing research firm, reports 50 percent of all U.S. primary household shoppers visit a Wal-Mart monthly and 25 percent shop at a Wal-Mart Supercenter weekly. The Wal-Mart Shopper Update also reports that two-thirds of Wal-Mart Supercenter shoppers shop both sides of the store, tapping into Wal-Mart’s food, non-food and general merchandise offerings.
Consumers exploring both sides of the store bodes particularly well for Wal-Mart’s private label program, a vast one including more than 50 private labels and exclusive lines spanning the store. Wal-Mart’s two-tiered food program focuses on national-brand-equivalent Great Value products, which are complemented by select items falling into the premium Sam’s Choice lineup, a line saluting Wal-Mart founder Sam Walton. Great Value offers more than 1,300 SKUs and is continually evolving to meet the needs of consumers and stay fresh in product innovation and packaging.
“Great Value carries the expectation that we’re equal to or better than the leading national brand,” Anderson says. “It’s pretty clear that we have to have excellent packaging, physical product and great attributes of a product with a strong value relationship. Consumers can easily compare what they’re buying and decide why or why not to buy Great Value over the national brand.”
Wal-Mart’s been underway with a packaging redesign on Great Value for nearly two years, and currently Anderson says, the packaging evolution is 90 percent complete.
Illustrating the current and potential private label growth at Wal-Mart, Retail Forward also reports expectations that private brands at Wal-Mart will account for 25 percent of grocery sales in five years, up from about 20 percent today. The icing on the cake for Anderson, who has been with Wal-Mart since the start of the Great Value brand about 14 years ago, is that Boston Consulting Group recently declared Great Value the best-selling brand in the U.S. grocery market. Skeptics could argue that sheer volume drives much of the more than $5-billion in Great Value sales, but nonetheless, private label plays a big role in the wonder that is Wal-Mart.
Build it to Last
The lineup of products in the Great Value line is particularly strategic, as Anderson points out there is a focused approach to “making each SKU the best it can be for our customer.” Recognizing that the consumer-base varies and there’s a need for variety within a category, be it  in national brands or private label, Wal-Mart’s buyers, like all other buyers, must address the limitation of finite amounts of shelf space and the national brands’ continued focus on creating a presence.
“We can’t keep making our stores bigger to accommodate all these trends and new packaging, so what we’re trying to do is hit the mainstream customer with quality and value,” he says.
Anderson says in private label there needs to be an unbending commitment to evaluating category needs and watching trends, not fads, when making product launch decisions and building a strong program.
“Some categories only need a national brand. Some only need a national brand and a regional brand, and some need a national brand, regional brand and private label brand,” he says. “It all depends on how well each brand has sold itself to the customer.”
Great Value, Anderson asserts, has created a high level of trust with consumers, an asset Wal-Mart protects by being fastidious about introducing new items and line extensions in the Great Value line. In the premium lineup under the Sam’s Choice label, especially, items must have attributes that make them significantly better than national brands. That’s not to say there haven’t been new introductions, but that new items are carefully calculated for both consumer reaction and bottom line results.
“Many retailers put an item in every category for the sake of gross,” Anderson says. “I think you’re going to run a collision course with your customers with that strategy. One of the things that has made Great Value very successful has been the trust that our customers have in Wal-Mart, first and foremost, and then the brand itself.
“When you get into categories where you’re taking your eye and your focus off quality to get in it for the sake of representation in that category, you’re doing everybody an injustice – your supplier, your brand and most importantly, your customer.”
In line with this philosophy is the Great Value team’s attention to two things that Anderson says are distinctly different – trends and fads. Trends, he says, are where his attention is because they define consumers’ changing needs. Fads, on the other hand, offset the balance of a program with in-and-out items, not addressing the bulk of a consumer base.
“Things that are sustainable long-term are trends,” he says, pointing to Wal-Mart’s recent emphasis on the obesity crisis and basic health issues. People choosing healthy foods, he says, is a trend demanding attention, and the Great Value line will reflect consumers’ increasing attentiveness to healthy choices.
Currently, Wal-Mart is underway on removing trans fats from products in the Great Value lineup. Anderson says this move is a much more focused approach to meeting healthy eating trends than the low-carb “fad.”
“At the end of the day, there’s going to be a fallout,” he says. “Items were taken off the shelf to put in the low-carb items. Like any good buyer, you have to be a risk taker, but you have to look at some of these things and ask the question, ‘why?’
History is a good thing. Low-fat and non-fat were the same way. The products were out there, retailers and manufacturers both confused their customers, and at the end of the day, the customer decided what they wanted and that’s all that’s left on the shelf.”
Taking trans fats out of products, Anderson says, doesn’t at all veer off the Great Value philosophy, as it simply serves to offer consumers healthier products, which Anderson says they’ll always opt for, given the choice. It’s been a long process, and not a technically simple one either, as removing trans fats can and does alter the taste, viscosity, color, mouthfeel or shelf life of some products.
“It’s been a long process because it’s easy to say, but it’s hard to do,” Anderson says. “There’s been no quid pro quo. We’ve been working on this item by item, supplier by supplier, for well over a year.”
Great Value items carrying trans fat labeling will hit the shelves in the next few months. The Great Value team is also working on gluten-free callouts on products, with this move based primarily on consumer feedback that gluten is an allergen greatly affecting American consumers.
Also addressing the goal of helping consumers eat healthy, all items in the Great Value line will soon carry calorie declarations on the front of the packaging. Of course, nutritional information legally required on the back of packaging will remain unaltered, but the packages will carry additional call-outs on the front as part of an effort to educate consumers.
“Calories-in, calories-out’ is a concept we can sell to anyone,” Anderson says, emphasizing the calorie-focused behaviors of consumers as a trend worth paying attention to now and into the future. “We thought it was important for the consumer to have us put how long it takes to cook an item, how big the package is on the front, but we’re not putting what really should be there to help consumers make a shopping decision,” he says. “With a food customer, you have a short period of time to capture their attention, and most are probably not turning the package over to educate themselves. The more we can do to educate the customer on what they’re eating, the better. We can help them make their choice.” Packaging with the calorie declaration on the front is expected to hit store shelves soon.  
On the Shelves
Wal-Mart’s focus on big-picture trends over fads should not be confused with a lack of innovation or new product introductions. The Great Value line continues to grow as consumer needs evolve and opportunity arises. While low-carb didn’t fit the Great Value team’s philosophy at Wal-Mart, and private label doesn’t have “the luxury of a complete full-calorie and diet line within the program,” there is still an acute focus on today’s hot-button issues, including the prevalence of obesity and diabetes in America. The team typically would not build a no-, low- and full-fat variety of one item into the Great Value program, but works to pinpoint the most relevant ingredient issues for Wal-Mart and Great Value consumers.
“There’s a need for non-fat and whole milk for nutritional needs,” Anderson says. “But in other categories, I’m not sure there really is. If you take a hard look at what’s really needed in a category, you can cut down handling, stay in stock better, lower the cost and address consumer needs.”
Given the increasing incidence of diabetes, however, Anderson agrees that variations in sugar-free “make sense.” The Great Value team is working to reformulate some items with high sugar content with Splenda, a new sweetener touting its origin from real sugar.
“Reducing sugar is a trend, from our perspective, not a fad,” Anderson says.
Some of the new lower-sugar or sugar-free Great Value items include a light orange juice with 45 percent fewer calories, no-sugar added pie filling, sugar-free powdered drink mixes in convenience canisters with twist-off tops and new this month are 98 percent fat free, no-sugar-added Vanilla Ice Cream Sandwiches. Hot cocoa and apple sauce have been converted to low- or no-sugar varieties thanks to the invent of Splenda, Anderson says, and several canned fruit items are reformulated. Also addressing healthy eating trends, Great Value has introduced soymilk and liquid yogurt smoothies. 
Not all of Great Value’s newest items are designed to be lower-calorie, as there’s a definite place for mainstream new items, Anderson says. For example, the refrigerator case now houses Orange Danish, ready-to-bake Danish in a tube.
As protein consumption has regained popularity and turkey isn’t soley for Thanksgiving, the private label team saw a window to grow the cranberry sauce category. This year, Great Value introduced raspberry cranberry sauce, a bold step away from private label simply emulating national brands. “It’s different,” Anderson says. “It hasn’t been done before, it offers something new.”
Recognizing a particularly stagnant potato category, Wal-Mart spiced things up with the introduction of a Great Value Southwest boxed potato item, in just the past few months. The potatoes have a spicier profile and offer a welcomed addition to the shelf’s more traditional Au Gratin, Four Cheese and Herb varieties currently in the lineup.
And in the freezer case, Great Value now boasts single-serve ice cream – offering portion control for the consumer – and a half-gallon Root Beer Float Ice Cream, carrying vibrant graphics and indulgent flavor, Anderson says.
Offering convenience and value, a new pouch gravy in turkey flavor is microwaveable and a larger portion to help accommodate holiday meals.
Picking the right package
Comparatively, Wal-Mart stores carry less SKUs than typical stores of similar size resulting in buyers paying particularly close attention to SKU rationalization processes. Focus is put on evaluation of package sizes, thanks to the retailer’s complete control over how many variations are on the shelf in the private label program. National brands, Anderson says, often work toward creating a presence on the shelf with broad lines and multiple package sizes creating a billboard effect. Private label’s role, he says, is to pinpoint the appropriate size, or two, for a consumer group and stick with those.
“The key is to look at a category, look at the national brands, and do your homework about whether or not you should get into an item,” he says “And once you get into that item, a key part is to figure out what size does the majority of the business. That’s what you need to hone in on… The idea is to rationalize and show a good return on investment with each size. We do not want to just come out with a size on every level.”
A packaging evolution has been underway, with most Great Value products on store shelves now carrying new graphics or photography. Some items still have more change on the horizon, as the private label team learns of more technologies and consumer demands to incorporate into the program. An on-going process, of course, packaging design needs to stay on pace with trends.
Great Value’s Fruit Smiles fruit snacks hit it big with consumers in the past year and there were consumer requests for a larger size, for example. The Great Value team delivered an additional package, and additionally addressed the on-the-go trend by putting the fruit snacks in a resealable pouch. Consumer feedback also spurred the introduction of sour flavored Fruit Smiles, extending the already successful item.
Store of the Community
The one initiative that can potentially bend the packaging and disciplined product assortment rules is the Store of Community program – a focused approach to make sure that Wal-Mart stores have “the right items in the right stores at the right time for the right customer base.” Whether a retirement community, a highly ethnic community, a college town or resort town, Sam Walton’s legacy lives on in buying habits focused on community demographics.
For example, in a highly Hispanic-populated area, Anderson says, a 20-pound bag of pinto beans may be an appropriate addition to a product mix. Similarly, a highly Asian-populated area may carry large packages of rice, as it is a staple in the traditional Asian diet.
“Our CEO [H. Lee Scott Jr.] has told everyone that the goal is not to be the biggest, it’s to be the best,” Anderson asserts.
“There’s a huge emphasis on merchandising and operations to focus on one store at a time, a community at a time… Are we the largest? Yes, it’s a fact that we’re the largest retailer in the world. But with that comes a lot of responsibilities, and we have to stay focused on a store at a time, an item at a time. We’re item merchants, like Sam Walton taught us.”
With Walton’s ways still very much driving the company, most would agree that Wal-Mart’s remarkable growth is not scheduled to level out real soon. New stores open near daily and more and more consumers are exposed to the ever-appealing low price-driven philosophy. For private label, the future is bright, as well.
Anderson says, “We’ll have continued growth. This year, again, the numbers show we’re continuing to track above the brands. With the continued commitment from the industry’s retailers and manufacturers to quality and innovation, it’s going to be a strong future for private label. All the paradigms have been broken – consumers are well educated about private label. We’re breaking demographic and ethnic barriers. True store brands are becoming what they’re meant to be – a destination, a value to the customer and a value to the retailer.”
Seems the private label industry may join Wal-Mart in the years to come – another modern wonder of retail.
Sam Walton’s Rules
As Wal-Mart leaves an indelible mark on the retail landscape, there’s no question its founder Sam Walton has left an equally permanent mark on the Wal-Mart culture. Much of Walton’s original mission remains in tact today, as Wal-Mart becomes bigger than he could have likely ever imagined.
Walton’s initiative to make Wal-Mart associates “merchants in the stores” is evident by the flexibility they are given with certain merchandising space, says Wal-Mart’s Bob Anderson, vice president/GMM proprietary brands.
“In certain items or packaging, associates see trends way before anyone else,” he says. “Sam Walton wanted to build merchants in the stores, and if we lose that, we’re missing out on a lot.”
Anderson credits store associates with spreading the word on the quality of Wal-Mart’s private label, national-brand-equivalent Great Value, in particular. And he says associates have made an impact on packaging and efficient stocking with suggestions of display-ready cases on certain products. PDQs, as they’re called in recognition of their “pretty darn quick” execution, have really helped hone in on efficiencies. Efficiencies, of course, are a critical element of Wal-Mart’s success as it strives to leverage volume in all business transactions.
“Associates have been instrumental in helping us build the Great Value brand,” Anderson says. “I don’t have a sales force, so they are my eyes and ears coming back with results.”
Walton’s focus on customer service prevails today, with two significant rules ever-present in the Wal-Mart culture. The Ten Foot Rule describes the expectations of a store associate who comes within 10 feet of a customer. Walton’s pledge says, “… whenever you come within 10 feet of a customer, you will look him in the eye, greet him and ask him if you can help him.”
A sibling to the Ten Foot Rule, the Sundown Rule stresses the importance of same-day response on any request, whether it’s in a rural Wal-Mart Supercenter or amidst the ranks at the Bentonville, Ark., Wal-Mart headquarters. The Sundown Rule, Wal-Mart says, is Walton’s twist on the old adage, “why put off until tomorrow what you can do today.”
At a glance
Wal-Mart
Headquarters: Bentonville, Ark.
2004 Fiscal Year Results: $256.3 billion
Store Counts: (as of Sept. 2004)
•Wal-Mart operates in all 50 states and internationally in Argentina, Brazil, Canada, China, Germany, Mexico, Puerto Rico, South Korea and the United Kingdom.
•Wal-Mart discount stores —1,387
•Wal-Mart Supercenters – 1,615
•Sam’s Club – 542
•Wal-Mart Neighborhood Markets – 75
•Wal-Mart International – 1,520
Expansion Plans for 2005:
•40 to 45 Wal-Mart discount stores
•240 to 250 Supercenter stores, 160 of which will be relocations or expansions of existing stores
•25 to 30 Neighborhood Market stores
•30 to 40 domestic Sam’s Club warehouses, 20 of which will be relocations or expansions of existing clubs
•155 to 165 Wal-Mart International units, 30 of which will be relocations or expansions 
•Currently, there are 103 distribution centers serving food, non-food and general merchandise. The company will construct three new regional general merchandise distribution centers and three new food DCs next year, adding more than 5 million square feet of distribution space.
Total associates: More than 1.5 million worldwide
Private Labels:
• More than 1,300 Great Value food items
• Sam’s Choice premium lineup
• Equate non-food, health and beauty items
• Plus more than 50 other private labels throughout the store.  
Web site: Walmart.com
A Strong Set of Suppliers
Certainly manufacturers would agree that working with Wal-Mart offers up a spectrum of issues and opportunity all at the same time. The national chain spans from coast to coast, most stores are open 24/7 so service is expected with precise punctuality and overall expectations are high when Wal-Mart comes calling.
From the Wal-Mart side of the desk, Wal-Mart’s Bob Anderson, vice president/GMM proprietary brands, says the organization is clear on its mission and works to maintain a strong supplier base. Currently, Wal-Mart works with a little more than 200 private label suppliers. But can new manufacturers break into the Wal-Mart business? And can current suppliers rest on their laurels? Anderson answers some of these questions and offers PL Buyer some insight on how to successfully do business with Wal-Mart.

Q. How do you relay the “Wal-Mart Way” to your supplier base?
A. Having done this now for 14 years, the suppliers we’ve had on board for that long period of time really get it. A big part of the Great Value success is due to the outstanding supplier base we have. They understand that without quality, you don’t have a program. We have a tagline on our products – When Quality Counts — and I think our suppliers really understand that. They understand that if a quality issue comes up, they’re compromising our business and their business at the same time.

Q. How much turnover do you have within the supplier base?
A. We have very little turnover. We have a statement to our suppliers: ‘They lose the business, we don’t take it away.’ It’s their business to have, and they understand the rules that they have to be competitive, provide a high service level and they have to maintain quality standards.

Q. What about new product introductions, where do you go for innovation?
A. First and foremost, we try to work with our current supply base. What’s really important to Wal-Mart is to leverage its volume and work with our current suppliers. If we have a supplier that can get us into a new product, it’s quicker, faster and less expensive than anyone else because we’ve already gone through the learning curve and the expense curve.

Q. What do you think is most challenging for suppliers working with Wal-Mart?
A. Doing business with Wal-Mart is very different than doing business with other retailers. We’re a national company – there are only a few national food companies out there – and we buy centrally. And, there’s a heavy focus on Store of the Community. Store of the community is a program targeting items to particularly evident demographics, be it highly ethnic, a retirement community, college town or resort area, for example.

Q. How can suppliers successfully do business with Wal-Mart?
A. Suppliers have to recognize that we are the initial customer, and more importantly, the external customer that we both share is the one that walks through the doors everyday. They have to understand that we have a huge demographic base, huge foot traffic and all different spectrums of people that shop with us – we are a true melting pot. They have to understand the high volume of our stores, that most of them are open 24 hours a day, seven days a week, closed only for Christmas, and they have to understand the obligation they make in doing business with us. Their manufacturing facilities have to keep up with our demand and deliver products, and they have to meet our logistics needs with the ability to ship on time to the right distribution centers. They need to understand our extremely high expectations for food safety and quality, and they must be flexible. They need to understand emerging trends and not get them confused with fads, and they need to help us drive sales and control expenses… We want suppliers to be an extension of us. We want them to understand that we come to market with everyday low cost to be the Everyday Low Price retailer.

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