Wal-Mart Stores has been the primary catalyst for change in the retail food industry for much of its 50-year history — impacting virtually everything supermarkets do from pricing to distribution to labor negotiations — and there are no signs that distinction is anywhere close to being over.
“What we’ve seen is an evolution that’s been fairly unforgiving,” John Rand, director of retail insights for Kantar Research, Cambridge, Mass., told SN. “The industry has learned to deal with it by becoming more local, more accurate and more efficient — things it had ceased to be before Bentonville, Ark.-based Wal-Mart came along.
“Now the industry is more analytical, carrying inventories only of items that sell, with a more local focus and a more efficient approach to warehousing and distribution. None of that would have happened if not for Wal-Mart.
“Wal-Mart forced supermarket operators to stop simply copying each other and competing only with each other, and that’s likely to continue as Wal-Mart continues learning and changing.”
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According to Rand, Wal-Mart was able to make its impact felt so powerfully “because it exposed parts of the industry that had gotten complacent in areas like shelf pricing and particularly in the back of the house, where Wal-Mart has excelled at being efficient.
“So the first stage of the industry’s evolution involved a new willingness to invest at the price level and to work on improving back-of-the-house profits.
“I’m not sure the industry supply chain would be as impressive as it is if Wal-Mart had not transferred the efficiencies it developed to shelf prices, which put the industry back on its heels.
“Wal-Mart also inspired other efforts by supermarket companies to make themselves better retailers, which included closing or selling unprofitable stores and creating new formats.
“Once supermarkets got past the issue of competing with Wal-Mart on price, they shifted their attention to figuring out how to use their inherent advantages in presentation and service, and that became the rock on which they have built their business, more so than trying to build it on the price of a can of peas.
“Unfortunately, Wal-Mart set the bar low for quality, and it’s been able to operate that way by passing lower costs to customers and operating with less service and fewer people in the stores.
“So by concentrating on service departments, customer service, store design and fresh offerings, the grocery industry has gone back to its roots, and it is better for that.”