WAL-MART MAKES INROADS WITH COFFEE

RICHARD TURCSIK

MIAMI -- Supermarkets can add packaged coffee to the long list of Center Store categories in which they are losing sales to mass merchandisers, according to a Wal-Mart Stores official.

"There is a big move in the sale of coffee from the supermarket to mass merchandisers. We second that and certainly agree with that," said Nick White, executive vice president of the food team for Wal-Mart Stores, Bentonville, Ark.

White addressed an audience of coffee processors and manufacturers at the 87th Annual Convention of the New York-based National Coffee Association, which was held at the Doral Golf Resort hotel here last month.

After making the audience do a "Wal-Mart Cheer," he told them that Wal-Mart would like to work closely with the coffee industry to build coffee volume sales at Wal-Mart and make it the dominant retailer of the popular beverage -- all at the expense of the supermarket industry.

Wal-Mart will forge its dominance in the coffee category by working closely with vendors to establish locked-in prices that will eliminate the wild price fluctuations that have dogged the industry.

"We deal with lots of commodities in our stores, so we recognize that prices fluctuate. But we work with our vendors on acquiring a price that will last for an extended period of time, be it 30 days, 90 days, six months or a year," White said.

"We are looking then for an everyday low cost. Forget all of these thrills, extras and other things and get down to the bottom-line cost, and then we will pass that cost-savings along to the customer and keep that price consistent for an extended period of time," he said.

He said volatility in pricing has a "dramatic effect" on coffee sales in the store.

"The price increases of about a year ago really slowed the movement of the product down tremendously in our stores, and we have subsequently taken some lower margins and done some special things to get the movement back to where it used to be to provide us with the types of numbers that we need in that product category," White said.

White said Wal-Mart hopes to use everyday low cost to drive down the price of decaffeinated coffee, which is usually higher than the price for regular.

"We believe that the sales of decaffeinated coffee are diluted strictly because of the price disparity" between it and regular coffee, White said.

White said by teaming with Wal-Mart, coffee companies could grow their overall sales and market share.

"The growth of Wal-Mart offers you a big opportunity in the coffee industry. Right now we are estimating $250 million [in coffee sales] in our 441 Supercenters that were in operation last year, giving us about a 10% share of the market," he said.

White noted securities analysts estimate that Wal-Mart did about $15 billion in food sales last year, and $118 billion in worldwide total sales, placing it in a class by itself and accounting for a 65% share of the mass-merchandiser industry. (Wal-Mart does not break out its own sales, White said.)

By comparison, he told the coffee manufacturers, in the "highly fragmented" supermarket industry the top 10 players represent only 30% of total sales. Wal-Mart is growing by leaps and bounds, he said, opening two new food-distribution centers in Bedford, Pa., and Los Lunas, N.M., in 1998 and 1999, and 129 new Wal-Mart Supercenters this year, with 100 additional Supercenters a year for the "foreseeable future."

"I don't know how many grocery retailers are going to grow 129 stores without buying other companies -- or add two distribution centers. All of this is starting to add up to great opportunity for you in this room to grow the category," he said.

White said Wal-Mart is particularly interested in growing bag coffee, which "represents the largest growth in the category" even though it still trails canned in total sales volume.

"Bag coffee has been the largest growth piece for us during this past year," White said, noting sales have taken off since the chain began stocking Procter & Gamble's Millstone brand of bean coffee. Millstone has been so successful that Procter & Gamble has been named a Wal-Mart Vendor of the Year, a very prestigious award.

White said the coffee industry needs to work as a whole to ensure growth in the next millennium.

"New Age beverage is just going crazy. The Generation Xers are drinking a lot of cold products, and that is a very big challenge for this particular group as we move forward," White said. Consumption can be improved by educating customers about coffee, especially in some of the less-developed markets, White added.

White also asked the vendors in the audience to think of Wal-Mart when they wish to test or introduce a new product. Wal-Mart will test-market a new product for up to six months, while a line extension is usually given a 90-day trial period, he said.

"We think that Wal-Mart stores and Supercenters are a great testing ground to find out what we can do to try and get some new products and concepts to help all of us. New ideas, new concepts, new products most importantly mean new sales for you and new market share," he said.