The Art of Transformation

August 17, 2009
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Walmart’s betting on a revamped Great Value lineup - and many other strategic changes - to keep the momentum going post-recession.




While many other retailers have seen sales tumble during this painful, prolonged recession, Bentonville, Ark.-based Wal-Mart Stores Inc. (Walmart) has been bucking the downtrend. The world’s largest retailer has been luring in bargain hunters - including a previously untapped ensemble of middle- and upper-middle-income shoppers - with its two-year-old “Save Money, Live Better” promise, a new logo and other strategic changes.

In prepared remarks for Walmart’s 2009 shareholder meeting on June 5, new President and CEO Mike Duke noted that the retailer’s performance during the past year (fiscal 2009, ending Jan. 21, 2009) was strong, with worldwide sales surpassing the $400 billion mark for the first time.

“These would be good results in any year,” Duke said. “But this has been far from any old year. We’re living through and working through the toughest global economy in decades.”

Although Walmart did see sales dip somewhat during the first quarter of fiscal 2010, the retailer continues to outperform the market, Duke noted. Moreover, it fully intends to keep the momentum going - and has paved the way through SKU rationalization, store remodels, an expanded emphasis on grocery in non-supercenters, improvements to store service levels, a re-emphasis on price leadership and more.

And that’s just the beginning of more changes to come, Duke suggested.

“All of us as a team must broaden and accelerate what we’re already doing well,” he emphasized. “That means having a greater sense of urgency. We can’t waste a second.”



Project Impact

Many of the changes Walmart has been making fall under the retailer’s “Project Impact,” a three-year strategic plan to grow market share and maintain it after the U.S. economy picks up - including share from the coveted higher-spending households earning more than $65,000 a year. During a presentation at the Morgan Stanley Retail Conference in November, Eduardo Castro-Wright, president and CEO of Walmart US, said Project Impact is focusing on three key areas comprising 10 key words: “Save Money, Live Better;” “Win, Play, Show;” and “Fast, Friendly, Clean.”

“I think somewhere along the way somebody concluded - and probably appropriately - that to continue growth, they needed to be better and much more appealing to a middle- and even an upper-middle-income shopper,” says Jim Hertel, managing partner with the Barrington, Ill.-based Willard Bishop grocery retail consultancy. “I think they’re doing a lot of things very, very right,” he adds.

The “Fast, Friendly, Clean” part of the project tackles some of the most visible parts of the shopping experience, Hertel says.

“It’s kind of cleaning up the stores; it’s remodeling the stores; it’s addressing service issues,” he says. “They’re trying to get people to say, ‘I want to shop here,’ not ‘I have to shop here.’”

The “Win, Play, Show” aspect, meanwhile, is an ongoing SKU rationalization process that examines the categories in which Walmart really wants to “win,” Hertel says - the areas viewed as growth categories where it can “play a credible role” and make wise investments. On the opposite side of the spectrum, the retailer is designating slower-moving categories as “show.” Although these items are still necessary to the overall assortment, Walmart is focused more on driving efficiencies than growth here.

“I always think about shoelaces in stores,” Hertel notes. “If you need them, you need them, but how often do you buy them? I’m sure that stuff is turning very, very slowly. … They may just need one brand and private label, or just private label.”

Finally, the “Save Money, Live Better” part of the equation puts a re-emphasis on Walmart’s price leadership, according to Duke. Increased efficiencies and brand communication are critical elements. But perhaps the biggest attention-grabber here has been the revamp and relaunch of Walmart’s own core Great Value grocery brand.


Project Relaunch

In a March press release detailing the Great Value expansion and enhancement, Walmart said it worked with several hundred suppliers and product testing facilities to measure more than 5,250 products up against leading national brands. The goal? To ensure Great Value quality is equal to or better than that of these brands. It also said it changed the formulas for 750 items - including breakfast cereal, cookies, yogurt, laundry detergent and paper towels - and had plans to introduce more than 80 new products ranging from thin-crust pizza to organic cage-free eggs.

Walmart said back then that the new and improved Great Value products - complete with new packaging - would begin appearing on shelves in March, with the majority of products hitting stores by the end of May.

Although not all of the revamped products made it to the shelves within that timeframe, Jack Sinclair, Walmart US’s executive vice president, grocery merchandise, told attendees to the retailer’s June 5 analyst meeting that Walmart was “still very much on track with the original plan.”

Sinclair also said the Great Value revamp is about providing the consumer with an alternative to, not a replacement for, the national brands.

“We’re putting a very professional team in place who can bring products that are very clear, very well-formulated products, very well-represented products,” he said, “but we’re very much about trying to sell brands for less and providing great values and choices within that range.”

Castro-Wright added that Walmart took “a page from the consumer product company’s book,” making marketing responsible for product development and brand-building. And Stephen Quinn, Walmart U.S.’s executive vice president and chief marketing officer, clarified the retailer’s goals with respect to the revamp.

“I think what we’re doing is providing a better offering than we have in the past to that customer,” he said, “so that customer doesn’t have to supplement their national brands by going to another retailer.”

Combined, the improved product quality and the price advantage over the national brands bode well for current economic times, Hertel believes.

“I think it’s absolutely the right thing for them to be doing at this point in time,” he says, “and I think that there should be a lot of apprehension, perhaps, on the national brand side about what it’s going to take for shoppers [to come back] once good times return.”

The fundamental idea behind the Great Value relaunch makes sense, adds Swee-Lim Chia, a professor of marketing at La Salle University in Philadelphia.

“As general consumer spending remains weak and consumers focus on necessities, a push towards private store brands could be just the right strategy at the right time,” he says. “Even P&G is shifting strategy from more expensive national brands to lower-priced alternatives.”

Scott Creamer, president of The Screamer Co. advertising agency in Austin, Texas, believes the revamp will go a long way toward injecting some life into Walmart’s private label program. And the timing is perfect, he adds, giving consumers affordable, quality choices just when they need them most.

Although testing and altering formulas to improve quality and unifying the packaging were both “huge steps in the right direction,” Creamer says, a downside is the packaging’s generic feel.

“That translates into a perception of low quality,” he adds. “The all-white backgrounds and product photography have no personality, style or intrigue. The generic feel is going to have a hard time holding up in a post-recession economy.”

Kelly O’Keefe, a professor and director of executive education at Virginia Commonwealth University’s Brandcenter in Richmond, Va., also has some doubts about the new packaging.

“I think better formulations [are] a good move, and while I like the cleaner look of the packaging, I would be careful that it doesn’t get too close to the old white-packaged generic lines that grocers used to sell,” he says.

Some other industry observers are even less complimentary when it comes to the relaunch.

Doron Levy, president of Richmond Hill, Ontario-based Captus Business Consulting, maintains that Walmart is still using the old model for private label, simply mimicking the national brands, which he says just won’t cut it today. He’s also bothered by the Great Value name.

“It’s not a great name for a line of products,” Levy says. “It speaks to price only, and it doesn’t have a pop like President’s Choice or Life Brand or O Organics. You can really do a lot with the labels, the actual package, with names like that.”

And speaking of packaging, Levy’s not impressed with Great Value’s new look.

“With Great Value, it looks like a font that they pretty much found in [Microsoft] Word, sort of slapped it on in Photoshop and that’s it,” he says.

Overall, even the low-price promise might not be enough of a draw for today’s discriminating shoppers, Levy adds, especially because many supermarkets’ store brands also are very price competitive.

“If they can buy a generic ketchup that looks better and has a better brand at Kroger, the shopper’s going to do that,” he says. “I think what’s really the key to success in private label now is to come up with products that don’t even compete with the national brand.” 

An even harsher critic of the move is Rob Frankel, a branding consultant, author and speaker (www.RobFrankel.com). He says Great Value still talks about the “price of the can” instead of the quality of the can’s contents. Frankel has discussed Walmart’s lack of branding initiatives on FOX and CNBC.

Consumers already understand that store brands are priced lower than the national brands, he contends, so smart retailers focus on the quality of the products.

“Walmart is so out of touch that they don’t understand this, so their in-store brand is a rehash of their anything-to-lower-the-price tactic,” Frankel says. “Walmart is the giant retail version of ‘The Gang that Couldn’t Shoot Straight,’” he adds.

In terms of merchandising and promoting the new lineup, O’Keefe believes Walmart is doing a decent job.

“It shows up in newspaper inserts and is well-placed in stores,” he notes.

But Levy believes the retailer still doesn’t have the marketing “pop” it needs - or even a way to showcase the products on the shelf.


Project Momentum

With all the hoopla surrounding the Great Value expansion and enhancement, it would be easy to forget that Walmart has many other private brands - from its Equate OTC and Simply Basic skin care labels to its Ol’ Roy pet food and Faded Glory clothing labels - in categories throughout the store. Moreover, the retailer has made headway in bringing exclusive home goods and clothing to its shoppers. In fact, this month finds Walmart introducing a line of Miley Cyrus and Max Azria clothing.

But the retailer’s made no announcement in reference to any major enhancement or expansion of other existing private labels - nor to testing the water in unchartered categories.

“There are private label opportunities in most categories,” O’Keefe says, “but those that are the most attractive are categories where the name brand goods are higher in price. If you already have healthy discounts for brands, there may not be enough to squeeze in an attractively priced store brand.”

But Creamer says the more Walmart can do now to influence private label buying patterns, the better it will be positioned post-recession.

“They have to do more than sell items for less money that people, for the most part, can purchase [in] other places,” he stresses. “They have to offer consumers something they can’t get anywhere else.”

When it comes to the other Project Impact strategies Walmart has underway, industry observers are cautiously optimistic.

“Walmart is at its best when it is focused on its core consumer of everyday shoppers with average incomes,” O’Keefe contends. Although it still has a way to go, Walmart has “done a great job in recent years of reconnecting with these consumers and bringing them better goods and a much better store experience.”

O’Keefe says the retailer also is doing a better job with employee training and recognition.

“The store employee is the front line to the customer, and for awhile, they forgot that,” he adds. “The new spirit at Walmart is reflected in improved comp sales and higher stock valuations. If they stick with it and work to improve the quality of products and the experience, they’ll become one of the truly great retail brands.”

But Hertel notes that Walmart will have to be very careful in how they communicate price going forward. The retailer’s long-time reliance on national brands to develop cost comparisons traditionally has been a critical element to its price image, he notes. For that reason, Walmart is emphasizing some categories at the expense of others, and has gone toward a reduced national brand set - especially in the “show” categories.

“In many categories, depending on where you are geographically, they are equally priced or, in some cases, priced above the supermarket competition,” Hertel says. “So they’ve got to choose those ‘win’ categories and those ‘show’ categories carefully, and then think about the pricing models from a comparative standpoint to make sure they don’t communicate the wrong thing.”

The right marketing for both private label and national brand products also will be important to keeping the momentum post-recession, Creamer says. Unlike Target Corp., which managed to rebrand itself as a “cool, youthful place to shop,” Walmart is struggling to become a place people want to shop instead of a place they have to shop, he adds.

“There is little in its current marketing campaign that leads me to believe they’ll retain those gains once the economy improves and consumers will once again be looking for more than convenience and a good price,” Creamer says.

But Walmart’s Project Impact is still a work in progress - and comments Duke made during the June 5 shareholders meeting suggest the retailer not only knows what it needs to do, but also has the requisite tricks up its sleeve to accomplish it.

“We need to be obsessed with understanding customers in every market we operate in,” Duke said during the June 5 shareholders meeting. “And we need to serve customers however they want to shop - whether it’s on a mobile phone, a laptop or in a local store.

“We also need to see ourselves and conduct ourselves not as Goliath, but as David,” he added, “not as a giant, but as a nimble and innovative competitor in every market.” PLB


Sidebar: Focus on Sustainability

 

A decade or so ago, Bentonville, Ark.-based Wal-Mart Stores Inc. (Walmart) wasn’t exactly known for its environmentally friendly ways. But the retailer’s recent flurry of green initiatives seems to suggest a true commitment to environmental sustainability.

For example, in September 2006, Walmart announced a packaging scorecard designed to continue its “commitment of reducing packaging across its global supply chain by 5 percent by 2013” - and helping both the retailer and its suppliers conserve resources.

This year, Mississauga, Ontario-based Walmart Canada showed its packaging reduction commitment by extending an open invitation to consumers to voice concerns about specific products with “excessive or inappropriate packaging.” In conjunction with the announcement, Walmart Canada set up a product-packaging feedback section on its sustainability-minded Web site, www.forthegreenergood.ca. Like its U.S. counterpart, the retailer also is introducing a packaging scorecard to assess supplier packaging.

Through these and numerous other initiatives, Walmart says it is working toward goals that include eventually being supplied 100 percent by renewable energy, creating zero waste, and selling products that sustain valuable resources and the environment.

“Walmart recognizes that as the largest retailer on the planet, they have a huge impact on the environment,” says Kelly O’Keefe, a professor and director of executive education at Virginia Commonwealth University’s Brandcenter in Richmond, Va. “They are calling on their suppliers to reduce packaging waste, increase recycled material and cut carbon footprints in other ways. The effort has done a lot to improve the company’s image. … This is more evidence that Walmart is really listening to its consumers and responding.”

Scott Creamer, president of The Screamer Co. advertising agency in Austin, Texas, notes that Walmart has a long history of “strong-arming its suppliers and controlling how products are manufactured and priced.” But if they can use some of that muscle to promote sustainable business practices and products, he’s all for it.

“These practices are going to be critical to Walmart’s success.”

Not everyone is impressed with Walmart’s sustainability efforts to date, however.

Jim Hertel, managing partner with the Barrington, Ill.-based Willard Bishop grocery retail consultancy, calls the retailer’s environmental initiatives a “mixed bag.” Although he believes Walmart is doing some “pretty darn good stuff” in terms of green stores and packaging initiatives, some other efforts have come up short.

“They announced a local sourcing initiative for produce out West,” he explains. “But their definition of what was locally grown was a fairly large geographical area. And I think it opened them up for people to say, ‘Oh that’s just Walmart, and they’re trying to blow smoke.’ … They get held up to more scrutiny than I think a lot of other retailers do.”

Doron Levy, president of Richmond Hill, Ontario-based Captus Business Consulting, puts it more bluntly.

“If Walmart is considered the biggest retailer in the world, then they are probably the biggest polluter in the retail world,” he says. “Walmart does have an obligation in maintaining the environment, but so far, through their PR machine, we have seen only internal initiatives.”

Levy adds that the packaging scorecard also could place a financial burden on suppliers at a time when they least can afford it.

Still, Walmart seems to understand that a real commitment to sustainability also will bring financial benefits. In prepared remarks for Walmart’s 2009 shareholder meeting on June 5, President and CEO Mike Duke noted that sustainability has helped to make the company’s operations more efficient.

“We’ve also stepped out and helped our customers, our suppliers and our communities be more socially and environmentally responsible,” he added. “Today, we’re playing a larger role in society that few of us ever thought we would play. We’re going to continue to focus and lead on sustainability.”

In July, Walmart announced plans to develop a global sustainable product index, which will serve as a single data source for evaluating the sustainability of a wide range of items. Walmart said it will introduce the initiative in three phases, the first of which calls for a survey of its more than 100,000 suppliers worldwide.

The second phase calls for the creation of a Sustainability Index Consortium of universities that will collaborate with suppliers and other parties to develop a global database of information on the lifecycle of products, while the final step will be to translate that product information into a simple sustainability rating system for customers.


Sidebar: A New Look

Wal-Mart Stores Inc.’s (Walmart) recent transformation has not focused solely on product assortment and price. Store remodels also have taken center stage.

In 2006, the Bentonville, Ark.-based retailer announced plans to remodel 1,800 of its supercenters. Older non-supercenters also have been getting makeovers - wider aisles, better lighting and expanded grocery sections.

But Walmart’s newest look is not a remodel at all; it’s a completely new concept: a smaller neighborhood market. First christened “Marketside” with the opening of four Phoenix-area test stores in late 2008, the concept recently was renamed “Marketside by Walmart.” Caren Epstein, a Walmart spokesperson, told Reuters in June that the rebranding constitutes the second phase of the rollout of its new U.S. Walmart name and logo.

At approximately 15,000 square feet, the stores focus heavily on ready-to-eat meals and produce. The staff of PL Buyer’s sister publication, Refrigerated & Frozen Foods Retailer, recently made a visit to one of the Phoenix area stores and found a heavy emphasis on national brands, and only a limited assortment of Marketside-branded private label products.

Speaking at a June 5 analyst meeting, Eduardo Castro-Wright, president and CEO of Walmart US, said the Marketside by Walmart concept seeks to capture a different kind of shopping trip than that associated with Walmart supercenters.

But the verdict’s still out when it comes to the concept’s outlook.

In a comparison of the Marketside by Walmart format to Tesco’s Fresh & Easy Neighborhood Market format, Jim Prevor wrote in his June 10 Perishable Pundit newsletter that both share four foundational attributes: a small format, a location outside high-density corridors, a design to appeal to a mass market, and a focus on ready-meal offerings.

“Small-format stores thrive in Manhattan and urban cores, plus they exist profitably across the country in specialized concepts, including Trader Joe’s, ALDI and many ethnic specialty stores,” Prevor wrote. “But there are few examples, indeed, of small-format stores geared to the mass market competing effectively in areas where consumers will shop via automobile as opposed to picking items up after getting off mass transit.”

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