COLORADO SPRINGS, Colo. -- It's not a unique strategy by any means, but Wal-Mart Stores' sheer size makes it worth noting: The period of deflation afflicting certain food categories is compelling the nation's top retailer to change its marketing blueprint for the 620 million gallons of milk it sells every year.
With margins almost erased by the ongoing general reduction in the level of dairy prices, the retailer has shifted its focus to unit sales and market share.
"Obviously, it's really difficult to make up the revenue side with the gaps that we have right now," said Scott Poole, Wal-Mart's vice president and divisional merchandise manager, dairy and frozen foods. "With the environment we're in, we're trying to drive as many units as we can and grab that market share."
Poole, speaking at the U.S. Department of Agriculture's annual Milk Market Administrators' Conference, said last year's market was high and revenue from fluid dairy was strong, allowing the retailer to reap some nice margins. That's not true of 2005, he said.
"It's been a struggle for us, fighting the deflation that's going on throughout the industry," Poole noted. "I am happy to say that we have kept up with our unit growth, even though our revenue side has suffered tremendously."
White milk represents about 90% of Wal-Mart's fluid business, and is far and away the category driver. As such, white milk takes up an average of nine doors of the retailer's typical 13- to 15-door dairy sets.
"Fluid milk is our baby," Poole said, adding the dairy displays also offer organics, refrigerated soy, creamers and flavored products.
Poole attributes Wal-Mart's success -- promoting growth in a category where consumption is mostly flat or declining -- to a set of mandates the retailer believes shoppers are giving the retail food industry. Wal-Mart executives call it the "Four Certainties of the Future:"
- Save me time
- Save me money
- Health & wellness
- Indulge me
"I know [dairy] is a flat business for consumption, with zero-sum growth nationally. But we have experienced growth in white milk and have continued to take market share year-over -year," Poole said. "I think that spins back into that 'save me money' value proposition we offer."
A number of sub-categories also pass the "Four Certainties" test, especially organic milk and soy products. Poole said the mix of stockkeeping units and merchandising plans are built on the premise that potential best sellers meet more than one of the tenets.
"We draw these 'Certainties' into four quadrants, and feel if an item can hit three of the four quadrants, we've got something the customer will buy," he said. "Every day, we're looking for values for our customers and how to drive costs out of our business and pass that value onto our customers."
Both organic milk and soy are drawing minimal dollars compared to the white milk category. However, Poole said the year-over-year growth indicates demand for the alternative milks requires retailers to add as many of these products as they can.
"It's a big deal, and the customer is looking for those new and innovative items that fit into their health and wellness platform," he said, citing statistics that project the organic industry growing an average of 20% to 25% a year to hit $20 billion by the year 2007.
"From the fluid standpoint, we're just seeing explosive growth. Our percents-to-total within the fluid business have jumped up about 1% over a year ago, so we know the customer is looking for this item," Poole said of Wal-Mart's organic milk sales, adding organic sales overall are higher in selected stores. Some of these units sell more than $500 in organic milk a week.
"As a company, we've made a conscious effort throughout the store to look at organics in greater depth than we have in the past," he said. "We've identified about 200 stores where organics are very high, and we're going back in there to expand our organic SKU count and do some things a little different. I think it will eventually hit all stores."
The soy sub-category also has enjoyed increasingly strong yearly sales.
"Right now, we're still seeing double-digit growth," Poole said. "The dollars are small, but they're growing, and growing substantially."
Wal-Mart offers a full door of assorted soy flavors, more than double what it was even a few years ago.