Exit one gigantic door (Walmart) and enter another (Amazon). This could happen more. CPG has a welcoming suitor if the nation’s #1 grocer pushes them too far.
Walmart is pulling its welcome mat from the stoop.
With its latest pricing pressures on brands, Walmart - rarely thought of as the Martha Stewart of hosts to the CPG suppliers lining its shelves with products - is playing a tough hand.
The Lempert Report believes this pricing push could push brands into the arms of alternate channels more than ever. With each passing year and new innovation such as Prime and Dash, Amazon may look more attractive as a distribution alternative.
In our view, several trends will drive CPG to rely less on traditional retailers – particularly ones like Walmart that aim to treat them like commodities, devalue their distinctiveness on the sales floor, and disrespect their need to engage consumers throughout the path to purchase, including in-store.
First, many brands want to sell directly to consumers to own the ongoing dialogue, mine the data from those transactions, reap higher margins, and be their own boss.
Past skirmishes with Walmart – where the nation’s largest grocer forced brands from the shelves or had brands help manage the chain’s directly competing private label – put an early sour taste in their mouths. Think Procter & Gamble is thrilled today with the placement of controlled-label Persil detergent next to Tide?
Second, CPG sees consumers increasingly use mobile, tablets and computers to plan shopping trips and order online. Retailers that aren’t seamless in omnichannel and aim to stifle brands’ voice may become less relevant to their business objectives.
Third, to sell brands to consumers through Amazon or other online marketplaces might be simpler than developing their own infrastructure.
Therefore, brands may come knocking on Walmart’s door less.
Like many chains, Walmart thinks and hopes consumers will spend more due to lower gasoline prices. It also wants its share of CPG savings from lower fuel expenses. Walmart wants it both ways – to lower its costs to acquire products, so it could lower its retail prices and potentially recapture traffic and sales growth largely absent from its U.S. stores in most recent fiscal quarters.
The chain isn’t picking their pockets exactly. According to a Wall Street Journal account, Walmart says “to forgo investments in joint marketing with the retailer and plow the savings into lower prices instead.” Fewer product displays and online ads, for example.
What Walmart doesn’t get or care about, in our view, is how that would silence brands on the sales floor. And how it would diminish the shopping experience in its stores, which already rank last in a recent Consumer Reports survey. Low prices alone don’t translate into sales if people don’t like the store.
Keep this up, Walmart, and the market may see relatively Silent Nights at Christmastime in its stores.