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Results of “The BIG IDEA Beat” Contest from Glen Terbeek and


Wal-Mart’s supply chain has been envied by the supermarket industry as being both efficient and effective; many in the industry say it is the key to their success. It was the motive for the ten-year ECR movement, in which the industry tried to emulate it. It includes a significant technology investment including Retail Link that shares complete sales and inventory visibility at store level with their suppliers. It operates on the policy of “net, net” costing to the store.

And now, as reported on MNB, it is rumored that Wal-Mart may offer wholesaling services to independent supermarket operators, leveraging this supply chain.


Tell us if you think independent supermarket retailers should use Wal-Mart’s wholesaling services. What are the pros and cons of doing so? What would be the impact on the shopper, the manufacturer, and the retailer of such a decision? Consider this question from the shoppers’ and manufacturers’ view as well as the retailers'. And finally, if Wal-Mart decides to go into the business of supplying independent grocers, what should the current wholesaler class do in response?


We received many good entries to Challenge #4. I have included excerpts from several that support the conclusion best summarized by Jim Swoboda’s entry at the end of this article. All entries below will receive a copy of Agentry Agenda: Selling Food in a Frictionless Marketplace.

Richard Lowe writes: What is Wal-Mart doing to our….ability to create and get new and different products into distribution …creation and growth of new small companies supplying creative products, etc, etc.?

This question is not only true about Wal-Mart; it is true of the industry in general. How many good new items don’t make it into any system because the manufacturer does not have the financial or distribution clout to get it into the store? The problem is that marketing funds are intertwined with logistics, creating inefficiencies in both logistics and marketing productivity. In addition to the trade dollars “corruption”, redundant logistics systems carrying the same national brands does not make economic sense, and limits variety as well.

J. Boonton adds to the theme: Being an independent retailer and hearing that Wal-Mart is going to start selling first impression is I hit the lottery, and then I start to think just a little. While Wal-Mart no doubt would have the best prices, I believe there will be too many things missing that go into making a successful retailer.

I am a firm believer that if you don't buy it right you can't sell it right, and we have heard many times especially lately that price does matter; but an independent also needs other services and resources to be successful. I believe that the wholesalers should just do what independent retailers should do and that is taking care of your customer.

Finally, I am not sure that independents being serviced by Wal-Mart will have any effect on their customers. How is the customer to know that you are serviced by Wal-Mart?

This entry again talks about the need to separate logistics from marketing to be effective in the future. Wal-Mart does a great job of doing this by “net, net” costing to the store so that they can measure true performance at store level (remember, each store does not perform equally) and share it with their suppliers.

This entry is right in that it is what happens in the store that makes the difference. Wouldn’t it be nice that any store could get any item the manufacturer wants to market at a “net, net” cost through an independent logistics system so that the store and the supplier can jointly market the item according to the market objects of the store?

After all, the manufacturer has complete responsibility for an item’s market performance until it reaches the store; at that point, it becomes a joint responsibility. Yet, we have an industry business process that is built around the responsibility transferring when the physical product enters a warehouse. Remember, the finished cost of an item is often 20% or less of the retail price; I would argue that the marketing value is much higher.

Gene Coleman chimes in: I have never believed in supporting my competition. If I, the private supermarket retailer were to buy my groceries from Wal-Mart, I would be buying from them at their price. I know Wal-Mart made their suppliers “Go Home and sharpen their pencils" and come back with their absolute lowest price, which in fact left no room for the profit they needed. Sure, they had the prestige of having Wal-Mart as their #1 customer, but they had to pass on the "savings" to their smaller customers in the form of higher prices, thus making the little guy even less able to compete with Wal-Mart. So, what makes the small retailer think they're getting the very lowest "wholesale price"? Certainly not from Wal-Mart.

This argument again demonstrates the barriers and inequities in the current system, regardless if Wal-Mart is involved or not. Wholesalers have always had the conflict between big customers vs. small customers as far as who creates the buying power and who gets the benefit.

Doesn’t this again argue for the separation of logistics from the ownership of product? If the retailer doesn’t change the product until it reaches the store, shouldn’t each store have the same cost (assuming the same handling) at that point? After all, promotional monies could be paid on true store performance, i.e. based on POS data.

Ken Robb suggests: The relationship between retailer and wholesaler should involve more than who can provide the lowest cost of goods and highest service levels. This is particularly important for the independent retailer with one to twenty stores, for whom self-distribution is not a realistic option, and whose operations can be the beneficiary of the wholesaler's expertise in store format development, site selection, advertising, and marketing, which the most progressive wholesalers and distributors are providing... To propose that Wal-Mart would attempt to or would even want to replicate this role model is unimaginable.

This entry supports the truism that in saturated markets, demand activities skills are needed to differentiate and thus sustain a retailer’s success. Can a wholesaler or any retailer have the skills to provide effective demand services to their stores, and still operate a “buying” biased logistics system?

Albert Furst asks: How can the largest food retailer in the country supply small independent chains that they either are or will soon compete against? With the success WM is having in the food business and the generally higher margins in retail, why would WM want to sacrifice the retail end of the transaction anyway?

Again, a great argument for the separation of logistics services from marketing; or the “Frictionless” connection of retailers to the products they want to market. The Wal-Mart wholesaler proposition may be an extreme example, but don’t many wholesalers also have retail stores?

Jim Swoboda (formally co-chair of ECR) sums the debate up very well: Wal-Mart's possible move into the wholesaling arena is such a logical move. The pros of such a move focus primarily on most retailer's stated mission, the old cliché, "the right product at the right cost at the right time"...clearly Wal-Mart can deliver on two of these fronts immediately, the right cost and the right time.

In a business where the bottom line is measured in single (low single) digits, it is hard to imagine a retailer not wanting to drive their costs down.

Imagine if today a retailer is getting 2, maybe 3 deliveries per week and because of Wal-Marts current stores and soon to be neighborhood markets, they would be in the area daily. DAILY deliveries to an independent? Their inventories would go down, freshness would go up, in stock conditions would be better. Again, major gains.

Can Wal-Mart deliver the right product...? In this area, selection has not been a strength of Wal-Mart, although they are getting better in their Supercenters. Time would likely cure this shortcoming.

What are the downsides? Not many.

Promotional dollar tracking could become a nightmare for those who build their budgets on shipments since all shipments would be going to Wal-Mart. However, this might force a long needed move to measure and pay promotional dollars bases on consumption. Would that not be a novel idea?

Additionally, if a manufacturer’s volume began to move through the control on a single distributor, would that cause a significant shift in power that might not be acceptable? One could argue that the retailer would still have the control and that the distributor is just a mechanism by which the product is moved from manufacturer dock to retail dock.

If this model were to evolve into reality, it is important to begin to think about the fixed costs that would come out of the supply chain by the reduction in duplicative buildings, pools of inventory, back office functions, etc. that would no longer be needed to move goods to retail. The possibilities are amazing to think about.

Of course, the most difficult challenge of all may simply be that the "gray" matter that would make such decision would simply not embrace the thought of doing business with the competition. Unfortunately, as has been all to often the case in the industry, such thoughts can keep potential great opportunities from happening. Have a large, national distributor controlling the activities in the supply chain could result in the industry realizing things that have only been the topic of conversations for many years. The trick will be for all to realize that logistics do not provide the differentiation that is needed to compete. Lowering costs simply would put more tricks into the bag that would allow creativity and consumer satisfaction to become the true way retail is differentiated.

Jim is right on except for one point: it shouldn’t be Wal-Mart that provides the logistics; it should be an independent logistics provider open to every one.

And independent retailer Marv Imus provides another perspective: Should Independent Retailers use Wal-Mart as a wholesaler ? Of COURSE ! I worked on the ECR issue for years trying to get in-line as a supply channel that is efficient, effective, and profitable. One of the issues was on the flow of fast moving products and slow moving products through the supply chain. Fast movers can be maximized very profitably, and efficiently, with little inventory cost. This is the place Wal-Mart excels. They examine what are the top movers in a category and they process the information and flow of those products to minimize cost. Most slow moving products are very costly, inefficient, and have much higher inventory cost. Wal-Mart does NOT handle these products. So, if I am to create a more cost efficient retail outlet, I MUST use the most cost effective supplier.

What we worked on in ECR with our wholesaler was to make ourselves work as a single unit. Good idea but hard to implement. In recent years, wholesalers have gone into retail in an attempt to get to that single unit look by controlling the retail aspect (believing that the Independent retailer was not “on the team” enough). As we have seen recently, most wholesalers have abandoned this attempt. So as a retailer, I MUST buy from the lowest cost provider I can. BUT I cannot find a single wholesaler that can provide the products at the cost a Wal-Mart could. Of course, Wal-Mart will NOT be able to provide the line extensions that I feel our consumers look for in our store. So, I have to use many different suppliers instead of one. By buying from the lowest cost provider on fast movers, Wal-Mart, and then the specialty/organic/even local products from a variety of other suppliers, I can round out my offering based upon my market.

Does that mean Wal-Mart knows what I am selling ? Sure . Does it matter ? Not if it’s the blend of products that Wal-Mart doesn’t carry that makes our business.

If they open a market in our town because of the volume we do, their impact will be minimal if our cost on the products that we carry are within the 10% range of their retails. We cannot do that in today’s environment with our current suppliers.

What are the negative effects ? Wal-Mart will not work with, or if they do, will surcharge an inefficient operation. So if we buy from Wal-Mart our in-store technology must be at a level that we can provide the information flow required to reduce the cost of buying. Most Independents have not invested anywhere near that level. Also what do we do about private label ? We cannot carry Sam’s Choice (though I doubt Wal-Mart would even let a non-Wal-Mart operation carry such a product) and would not because I do not want our consumer to feel that we are no different than a Wal-Mart ! Private label is a brand of identity for a retailer, not just a “cheaper” offering to the national brands.

Also we will have to find other types of support that we currently have with a wholesaler. Financial, logistical, and operational support are key support elements a wholesaler provides the Independent retailer. We would have to do it ourselves or pay a third party source, costly either way in our current way of doing business.

Summary & Conclusions:

The entries above point out the following key questions that need to be answered by retailers, by Wal-Mart, and by the industry at large:

  • Isn’t store differentiation to match local markets needs the key business process in the saturated future -- even for Wal-Mart?

  • Isn’t the logical point for the transfer of product ownership at the store door at a “standard market” price plus true logistics costs, since that is when marketing responsibility transfers?

  • Doesn’t it make sense to pay for promotional performance at POS?

  • Because of the above points, doesn’t it make sense for networks of independent logistics providers to connect retailers with the items they want in the future? Doesn’t the current redundant buying biased logistics system limit item availability and merchandising flexibility and reduce logistics productivity?

  • Can the industry adjust before it is too late?

The open, frank discussion of these kinds of issues is key to creating the kind of “frictionless marketplace” that we believe is necessary for many in the industry to survive long-term. It has been our goal over the past month to stimulate this discussion through the “BIG IDEA” Beat Contest, and we’ll return in future weeks and months to reconsider them and provoke new ideas and debate.

These are, as always, “Big Ideas For Thought Leaders.” We appreciate your ongoing contributions, and hope you’ll continue to do so every morning here on
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