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A Guest Column, by Glen A. Terbeek

On Friday, we reported that Wal-Mart is exploring the possibility of creating a wholesale division that would compete directly with companies such as Supervalu and Fleming and sell grocery products to the very independent retailers the existence of which it threatens with every new store opening. This report, and the essay that accompanied it, generated a lot of email, a portion of which is included in “Your Views,” below. However, Glen Terbeek, author of “Agentry Agenda,” a member of the MNB community, and longtime industry observer, offered a perspective that we felt should be presented as a guest column.

    Will Wal-Mart become a wholesaler?

    Absolutely not. Not as the industry has defined wholesalers, anyway. However, supplying independents could be another step taken by Wal-Mart in defining the emerging new consumer industry model. Let me explain.

    Wal-Mart made its success by being very store/shopper focused, because Sam realized that is the only place that retailers and manufacturers really compete and make money. They built their “supporting” infrastructure and organization around this simple principle. This is demonstrated by such things as their Retail Link with shared item visibility (sales and inventory) down to each store, “net, net cost” trading practices, least cost logistics system, and treating each store as a profit/yield opportunity. These “support” practices have served them well, growing from a handful of stores in 1970 to what they are today; from a minor player to the dominant retailer.

    Wal-Mart is already what I call in my book a “Barrier-buster” for their own stores, creating a frictionless connection between the shoppers and the items they need or might want; again consistent with Sam’s simple principle. Isn’t this what all retailers, manufacturers and shoppers really (should) want? Now compare this to the logistics redundancy, buying and reselling national brands multiple times, inside margins, rewarding buying not selling, functional (or really dysfunctional) organizations, and other barriers that have developed in the current supermarket/wholesaler industry that do just the opposite.

    No wonder independent retailers don’t trust their current wholesalers; no wonder independents are potentially interested in doing business with Wal-Mart, their dreaded enemy. After all, independents know, if any retailer would know, that the only way to compete with anyone is by what happens in the store; not before the product gets to the store. Do they care if their national brands are delivered on the same truck that delivers to a Supercenter? I don’t think so. Not if it is the frictionless, least expensive, most transparent routing. After all, their current wholesaler delivers to competing independents, and their DSD suppliers also deliver to Wal-mart.

    I believe it would be very easy for Wal-Mart to extend their “Barrier-buster” infrastructure to independents (and even other self distributing chains). More scale would help their own stores as well as the independents serving markets that Wal-Mart is not able to compete in profitably, at least short term. It would also spread the operating costs of their infrastructure.

    However, I believe it would be a mistake for Wal-Mart to become the “Barrier-buster”. The “Barrier-buster” should be an open network of service providers that move product, information and funds between retailers and manufacturers. They would compete on quality of service, special product and handling skills, and price. Revenues would only be earned when true value is added. Accordingly, they should be independent of retailers or manufacturers to eliminate potential conflicts of interest and to focus their core competencies around the service that they provide.

    The new consumer model continues to emerge. It started many years ago. Wal-Mart continues to take the lead; and business as a result.

    In my opinion, there are two options; watch the model develop, complain, maybe restart ECR II, and go broke; or take a leadership role in its development and create long term wealth. Why should the wholesale community let Wal-Mart take their business just like the retailers let Wal-Mart use core grocery items to steal their traffic and business? Unfortunately, we all know why.

    The place to start is to honestly access the discontinuities of the industry’s “yesterday” business practices with the marketplace realities of today and tomorrow. There is still a short-term opportunity until Wal-Mart has over 50% market share. Then it would be tough.
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