A need to alleviate pressure on economically strapped consumers remains at the heart of Wal-Mart’s efforts to grow its business, said Duncan Mac Naughton, executive vice-president, chief merchandising and marketing officer, Wal-Mart Stores, Inc. Speaking June 12 at the William Blair Growth Stock Conference, Mr. Mac Naughton said consumer desire for relief is undiminished and that lower food prices are central to the company’s strategy.
“Our customers continue to look for lower prices, particularly in challenging times, and they’re also looking to eat at home more than going out,” he said.
While a focus on low prices is anything but new at Wal-Mart, what may be a heightened emphasis could be viewed as ominous for food manufacturing companies struggling to restore profit margins, which have been under pressure in recent years due to higher input costs.
Mr. Mac Naughton added context to his point about price when he reviewed the “five p’s” of merchandising at Wal-Mart.
“Price obviously, is really the foundation of Wal-Mart,” he said. “Second is product. Third is place, which is really where it comes to life for our customers in our store. Promotion, this is really about how we communicate and talk to our customer about our offer, as well as engage with them in different sites. And then finally, our commitment to our people and how we’re making progress there.
“In price, we continue to execute our strategy that you’ve heard us talk about, about investing in retail price, particularly in our food, our consumable business, so that we can drive traffic to our stores. And we continue to be on pace with that and are happy with our progress there.”
Indicative of the point that Wal-Mart does not view the current environment as one to allow profit margins to drift upward to levels prevailing before the 2007 economic crisis was Mr. Mac Naughton’s analysis of relative prices between the retail giant and the rest of the industry.
“We continue to deliver on price leadership in the marketplace,” he said. “What you’ll see is we’ve actually widened our price gap over the last 13 months, against our competition by 100 basis points. So we tracked our price gap, our average unit retail, versus the marketplace, in food, consumables and over-the-counter products, and over the last 13 months, week ending (April 27), we showed a 100 basis point improvement in our price separation.”
More than demonstrating a widening price spread beneath other retailers, Mr. Mac Naughton’s remarks had implications for suppliers, including food and beverage companies.
“Our E.D.L.P. commitment is obviously enabled by E.D.L.C. (every day low costs), because, as a merchant, you (can’t) have E.D.L.P. without E.D.L.C.”
Mr. Mac Naughton also discussed steps Wal-Mart is taking to raise the amount of the products it is buying domestically, even locally. He noted an announcement made by the company in January to increase by $50 billion the amount of domestically produced goods it will purchase over the next 10 years.
“With that, we then met with approximately 25 governors of states, and we’ve had very good engagement,” he said. “We’ve addressed over 3,500 suppliers. We did that back in March as we really formally engaged our supplier partners.”
Looking at Wal-Mart’s in-store “modular” effort to offer regional and locally-produced products, Mr. Mac Naughton described food as “a real opportunity.”
“You might think, ‘Well you guys have been in food a long time, you’re the largest food retailer, this should be a no brainer,’” he said. In ice cream, for example, he said Nielsen analysis showed 110 regional brands Wal-Mart was not selling.
Turning more deeply to food and opportunities for Wal-Mart to build stronger connections with customers, Mr. Mac Naughton described efforts the company has made both in the areas of produce and meat.
“If you talk to customers, there’s two areas that they think about food, they want great meat and they want great produce,” he said. “Absent to that, you’re likely to miss some of the rest of the food shop.
“So from the farm perspective, we are basically working with local growers. We’ve placed our buyers and our sourcing agents in the field so they can work closely with our local farmers, and we’re also buying directly from them. We’re consolidating it from a supply chain so we can add more freshness and more deliveries to our store, so we give more time in the customer’s refrigerator for better value and better freshness and better quality.”
At the store level, Mr. Mac Naughton said considerable effort is being made to assure that each store associate “understands what good produce looks like” to help ensure customers see what they expect. He said this kind of quality assurance is an area of genuine investment for the company.
“We conduct weekly audits with a third-party audit firm that looks at every store, every week across the fruit and vegetable commodities,” he said. “And then if they pass, they pass, if not, they fail, and they get a scorecard, and our operators get store by store specifics. So we’re making a difference for our customer.”
Wal-Mart is using the acronym “WIBI” to help associates understand the objective when it comes to offering quality produce, Mr. Mac Naughton said.
“WIBI is just ‘Would I buy it?’” he said. “If you’re an associate, if you’d buy it, leave it there, if you wouldn’t, take it off the sales floor.”
In its efforts to gain customer confidence in the area of produce, Mr. Mac Naughton said Wal-Mart is offering satisfaction guarantee aimed at further enhancing the customer experience.
“We offer 100% guarantee freshness for our customer and satisfaction,” he said. “You don’t need to bring the product back. Bring your receipt in, we’ll give you your money.”
Coming at merchandising from another perspective described by Mr. Mac Naughton is an initiative aimed at suppliers dubbed SPARC — Supplier Portal Allowing Retail Coverage.
“It basically takes your iPhone or your Android device and allows you then to use it as a Telxon (scanner device) if you’ve been trained and certified as a supplier. That allows them to check if there’s an empty spot on the shelf, to say is there product in the backroom. If so, they can scan it, they can see it, and they can bring it to an associate or they can fill the shelf themselves.”
Asked by an analyst about the relative importance of private label at Wal-Mart, Mr. Mac Naughton responded by emphasizing the degree to which the category is secondary at the retailer.
“I will tell you that we’re really about a house for brands first,” he said. “So we’re all about selling national brands because we can demonstrate price leadership on branded product. We have a great offering in our private brands across the store that we’re quite proud of. We have not seen a dramatic change in that behavior between branded and private branded product today.”