Walmart, the legendary supply chain and e-commerce capabilities helped make it a shutdown star.
Just a few short months ago, targeted offers, curated assortments and unique positioning were some of the biggest trends in food retail. The thinking was that without differentiation, customers had no incentive other than price to choose one store over another since the same national brands were available everywhere. Until they weren’t.
When the coronavirus hit, suddenly no one cared about long checkout lines, lackluster customer service or generic assortments. Shoppers just wanted some toilet paper and frozen meat – no matter the brand, the store or the channel. (There’s nothing like a global pandemic to show what’s really important to people!) Clearly, big chains with strong distribution networks that allowed them to keep shelves stocked had a leg up. Also at an advantage: those with well-developed e-commerce programs that gave consumers the option to avoid stores altogether and buy groceries online. So although it may not have been our choice a few months ago, Frozen & Refrigerated Buyer’s 2020 Retailer of the Year is Walmart.
DISTRIBUTION SYSTEM DELIVERS
Sure, it just reported 22 consecutive quarters of positive comp-store growth, but that’s not what won the day for Walmart. “The chain’s distribution system has always been its strength,” explains Erik Rosenstrauch, president and CEO of Boca Raton, Fla.-based FUEL Partnerships. But in a pandemic, “Walmart’s ability to gear up quickly and move inventory to retail outlets across the country really sets it apart”.
Of course, it’s experienced the same shortages other chains have. “But Walmart recovered better and has been much more consistent on stock levels than some other retailers,” says Neil Saunders, managing director for retail at New York-based GlobalData. “It’s seen as a reliable retailer, and because it has so many stores, it’s often a local option for consumers.” Being one of only a handful of brick-and- mortar outlets where consumers can also buy a variety of non-foods gives Walmart another significant edge over traditional supermarkets. And some of those shoppers, many of whom wouldn’t have considered buying clothes or electronics at the chain before, are likely to continue shopping for those items at Walmart even after the crisis is over.
The company’s size – which really does matter in this case – also serves it well. When suppliers are faced with demand they simply can’t meet, it’s no surprise that they’re going to take care of their biggest, most important customers first. So in almost every case, Walmart moves to the front of the line. “Honestly, I’d hate to be a retailer buying through a wholesaler right now,” says former Walmart buyer Greg Mertes of Bentonville, Ark.-based Five16 Marketing. “Any retailer that buys direct – but especially Walmart – is in a much better position because they already have working relationships with suppliers. So they have a lot more control.”
But that control stems more from the creation of true win-win partnerships than many might expect. “Walmart sees its suppliers as an extension of itself and constantly collaborates with them on product development,” says Jim Barnes, CEO of Brea, Calif.-based EnVista. Yes, the company asks a lot of its vendors, but it gives as good as it gets, sharing scan data, forecasts and other valuable info. “The relationships are cohesive and strategic, not based on the lowest price,” says Barnes. That’s not to say Walmart isn’t “relentless” around improvements to drive costs out of the system (it is), he adds. “But the company also wants to ensure that its supplier base is successful.”
Barnes also gives Walmart high marks for its continued investment in technology, particularly in the areas of RFID and inventory visibility in close-to-real time, both of which are consistent with its focus on always moving forward.
“The most impressive thing about Walmart is that despite being the biggest retailer in the world, it acts like a nimble start-up,” explains Saunders. “The organization never becomes complacent, which allows it to invest and explore new areas.” In recent years, of course, much of the company’s focus has been on e-commerce where Walmart’s early work has positioned it well ahead of other grocers, including Amazon. In fact, shortly before COVID-19 hit, the company announced it would begin testing a new Amazon Prime-style subscription plan called Walmart+ that would offer members an unlimited number of same-day deliveries from stores around the country.
STORES KEY TO E-COMMERCE SUCCESS
Almost overnight, says Don Stuart, managing partner of Wilton, Conn.-based Cadent Consulting Group, “The coronavirus pandemic transitioned pickup and delivery from a perk to a public health necessity.” And although Walmart (like other grocers) struggled to handle the massive spike in online orders, he continues, it was better-positioned than most to meet the demand, thanks in no small part to its 3,100 online grocery pickup locations – more than any other retailer (and way more than Amazon’s 150). It also offers free next-day delivery from 1,600 stores that serve 75% of the U.S. population. No membership required.
“Walmart may not have the selling community of marketplaces (although that’s expanding with the new Walmart Fulfillment Services for third-party sellers),” says Barnes. “But it has a massive rural and urban brick-and-mortar footprint that offers inventory positioned around the country in a short period of time,” notes Barnes. “That huge item assortment and the ability to get the product to the masses in different ways, shapes and forms is a game-changer.”
Beyond the sheer number of stores that can operate as micro fulfillment centers, Walmart also has other advantages over Amazon. Free shipping aside, says Saunders, “It has a fuller assortment, better own-label, more buying power and more significant economies of scale.” Plus, the chain made timely enhancements to its website and app to make the online shopping experience easier and more pleasant, which boosted conversion and sales.
In fact, Walmart reported online grocery sales jumped 21% to more than $900 million from February to March – and 99% from the previous March. And a new analysis from app intelligence firm App Annie reveals the Walmart Grocery app just became the most-downloaded shopping app in the country, positioning the chain for e-commerce success long after the coronavirus crisis is over, says Rosenstrauch. He cites new research from Sense360 that finds 31% of U.S. households used online grocery pickup or delivery for the first time during the past four weeks (versus 13% in August 2019). “More important, 20% of those surveyed said they will continue buying online, picking up in store (BOPIS) even after the coronavirus threat ends, while 16% said they would continue grocery delivery from a brick and mortar retailer. That’s pretty huge.”
Stuart says that while Walmart’s overall e-commerce share has tripled in just two years to about 6% (still nowhere near Amazon’s 50%), “Its sales are expected to continue growing in the triple digits for the foreseeable future” – maybe more if a portion of those new online grocery shoppers make the shift permanent.
UNIFY DIGITAL & IN-STORE EXPERIENCES
For that to happen, however, Barnes says there’s still work to be done. “Walmart needs to really focus on unifying the digital and brick-and-mortar experiences. Item, price, promotion, etc., should all be the same regardless of how the store engages with the customer.”
In addition, says Garry Church, VP of enterprise retail at Winston-Salem, N.C.-based Inmar, “When this crisis is over, Walmart should leverage the data it’s acquired (basket size, customer order/pickup routines, demographics, etc.) to provide relevant content. For example, it could generate recipes or pre-populate the shopping basket to encourage some of those habits to continue.
Church says that the massive adoption of its app helps Walmart solve for its lack of a loyalty card. “The more app downloads, which include a unique ID via an account number, the more data the company will have about customers specific to e-commerce.” Tapping into the “unparalleled customer data” it will soon be sitting on could help Walmart bridge the gap with Amazon.
Yes, Walmart became the foremost retailer in the world without the aid of a loyalty card program. But when it comes to online shopping, “Amazon totally trumps them by predicting needs, purchase patterns and motivations even before customers. So this is a huge opportunity for Walmart,” according to Church.
On the brick-and-mortar side, the company is hoping to get the same type of information from Walmart Pay, a free feature in the Walmart app that allows quick, secure payment via a mobile device at any register. There’s no real incentive for consumers beyond convenience but Walmart still gets info it can use.
WALMART A ‘DEMANDING’ PARTNER
So what’s it like to work with the world’s largest retailer? It’s no picnic, that’s for sure. “It’s exacting,” says Saunders. “The chain is demanding and it has high standards. However, most suppliers find Walmart is a fair and reasonable partner – and one that will help them grow their brands.”
“Walmart is generally considered a straight-shooter,” says Bob Shaw, founder/ president of Charlotte, N.C.-based Concentric Marketing. Tough but fair. “There are no games or hidden costs, and the chain is much more transparent with their sales data than most other grocers, which is very helpful.”
“Walmart’s Retail Link reporting system is one of the best in the industry,” confirms one manufacturer we talked to. “It’s very comprehensive, providing scan data in nearly any format, forecasts, warehouse inventories, weekly velocities, margins, markdowns, etc. And regardless of your size, Walmart doesn’t charge you for it unlike Kroger, Ahold and others.” He adds, “We’ve found the chain to be a true partner that wants us to succeed. It’s not adversarial at all.”
In addition, says Shaw, “Walmart’s category managers are definitely more willing to take a chance on new items than in the past and are sometimes open to partial distribution of new or regional brands.” The absence of slotting fees also makes it easier for those products to get on the shelf at Walmart versus other chains. But there are other costs.
While the company seems to have eased up a bit on what many perceived as unreasonable demands around pricing (though it still expects the lowest possible), rigid requirements in areas like packaging and logistics – not to mention its extended payment terms – can be burdensome for small companies in particular. “But at least Walmart is clear and upfront about what it needs,” says one supplier.
“The question isn’t how to work with Walmart, it’s how to comply with Walmart,” says Barnes. “They set the pace.” If a supplier can’t keep up, the chain will find one that can. It’s definitely the one calling the shots.
DESPITE STUMBLES, A PANDEMIC LEADER
Walmart has also been described as a leader in the fight against coronavirus, with several sources mentioning CEO Doug McMillon’s appearance with President Trump at an early White House press conference. “He made Walmart a trusted name in every home in America,” says Fayetteville, Ark.-based consultant Bob Anderson, who spent 17 years at Walmart.
Like many other retailers, the company set aside an hour exclusively for senior citizens, limited the number of shoppers per store, instituted one-way aisle traffic and other social distancing measures, installed plexiglass partitions at registers and introduced new contactless payment options. And on March 31, it announced it would start checking employee temperatures and providing workers with masks and gloves. However, after a spate of COVID-19-related deaths among Walmart employees, lawmakers said in a letter to McMillon that many of the actions supposed to protect employee safety weren’t actually being taken. At press time, non-unionized workers at Walmart, Amazon, Whole Foods, Target, Instacart, Shipt and FedEx were expected to stage a walkout on May 1 to protest unsafe conditions, lack of hazard pay, etc.
Walmart did extend its emergency leave policy through the end of May and it accelerated payment of a special cash bonus for both full-time and hourly employees. It also increased entry wages for workers in e-commerce fulfillment centers and warehouses. The company originally pledged to hire 150,000 new employees and is now looking to bring on an additional 50,000.
“Walmart reportedly had a million applicants for those jobs, so clearly people want to work there,” says Rosenstrauch. He says that the company was one of the first to publicly thank its employees for their work during the pandemic.
“By spending millions on a national advertising campaign just to thank associates, not push products, Walmart set an example for how a retailer can show empathy,” says Church. “For a company of Walmart’s size and scale, it has moved at the speed of light to protect consumers and associates. Its response to the pandemic has been one of the best in the industry. Its previous investments in curbside pickup put Walmart ahead of the competition and will set the company up for dramatic continued success post-COVID-19.”
Weighing Innovation vs. In-Stocks
Could the coronavirus take innovative but slower-moving items off the shelf – perhaps for good? Some industry observers think so.
Though it depends on who you ask, most industry observers think Walmart strikes a good balance between tried-and-true top sellers and innovative new items. But according to former Walmart buyer Greg Mertes of Bentonville, Ark.-based Five16 Marketing, the coronavirus crisis could change that – definitely in the short term as manufacturers focus all their efforts on keeping best sellers in stock, but maybe even after that. “I think some of those niche items won’t come back after the recovery and we’ll see a permanent reduction in SKUs,” he says. “Paring back could be a good thing for Walmart,” he argues. “It’s not a ‘we-carry-everything,’ Kroger-kind of retailer. It’s about staying in stock on the best sellers” – an objective the chain fails to achieve more often than it used to. A return to the company’s roots could also get a boost from Walmart’s new chief merchandising officer Scott McCall, who Mertes describes as “old school Walmart.”
Other observers think the chain needs to work on tailoring the assortments. “For a company with so many strengths and all of its mods, Walmart doesn’t necessarily do a great job of putting the right products in the right stores,” says Bob Shaw, founder/president of Charlotte, N.C.-based Concentric Marketing. Though he acknowledges the company can’t get too granular, “It could also do better as far as understanding the individual communities it caters to.”
Fayetteville, Ark.-based consultant Bob Anderson, who spent 17 years at Walmart, agrees. “I think Walmart needs to go back and work on the store-of-the-community assortment it had in the past. It’s drifted away from offering the right mix of CPG, private label and regional brands that helped the chain stay ‘local.'” And while he’d also like to see the company allocate more space for store brands, which continue to outperform national brands, Anderson says category managers really need to “take a hard look” at the total number of SKUs in both its national brand equivalent and premium private label lineups. “Every item should be justified,” he says. “I see too many [private label] products that look like they were cooked up in someone’s kitchen or hatched in a sales meeting just to meet a goal and not a real need.”
Mertes is a little more circumspect. “Walmart has definitely gone broader and deeper with its private-label frozen food assortment, putting store brands in roles that would have been played by national brands in the past,” he says. Did it go too far? “I think it was at risk.” But again, coronavirus-related shortages may force the company to pull back on slower movers for at least a little while.
HEALTHY LIFESTYLES SECTION A HIT
In the meantime, the chain is getting high marks for its commitment to creating a Healthy Lifestyles frozen entrées section that’s “as good as I’ve seen for such a big retailer,” according to one manufacturer. Although he still thinks it’s slow to move on new items, “Walmart understood the full breadth of this consumer and brought all of these healthy products together in one place to create a true destination.”
“This goes after a different market than the company has in the past,” says Garry Church, vp of enterprise retail at Winston-Salem, N.C.-based Inmar, who believes playing the underdog to Amazon has allowed Walmart to lean in on innovation. Another example: Sam’s Club-style new product endcaps in the refrigerated section that help drive trial of new items, many of them healthy.
For the most part, however, endcaps are still reserved for high-volume items. In the frozen department, the average store still has 12 to 18 endcap display doors, which sets it apart from nearly every other competitor, says Mertes, who applauds the chain for defending that space from dry grocery. And while there are always internal battles over how frozen endcaps should be used, Walmart has stayed pretty true to its original goal for displays. “Most doors are still one item and one price.” However, Mertes thinks the chain has strayed a bit from featuring only high-volume top sellers. “It used to be about making your best items better,” he explains. But now, displays often include higher-margin items that may not move as fast.
Anderson would also like to see best-sellers on endcaps because those are the products that pull shoppers down the frozen aisle. He also suggests Walmart work on improving adjacencies and “flow” in the department to better match up with how customers shop, though he acknowledges that’s an issue every retailer struggles with.
One area where the chain has made progress is the transition to shelf-ready packaging in categories such as cheese, resulting in significant labor savings, says Mertes.
Walmart – Retailer of the Year