Wal-Mart and produce vendors

From the various times I have interviewed shippers about being a vendor/partner for Wal-Mart, the discussion inevitably runs to this theme; Wal-Mart makes you take a look at your own operation and makes you better.

In the long term, is there more good than bad in being a Wal-Mart vendor? One article published in December 2003 that looked at that issue in the general sense is "The Wal-Mart You Don't Know," published here by Fast Company.com and written by Charles Fishman.

The subhead read: The giant retailer's low prices often come with a high cost. Wal-Mart's relentless pressure can crush the companies it does business with and force them to send jobs overseas. Are we shopping our way straight to the unemployment line?"



Of course, not a lot of current suppliers wanted to be quoted, but here are some pithy sum-up statements from the article.

For many suppliers, though, the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart.

Many companies and their executives frankly admit that supplying Wal-Mart is like getting into the company version of basic training with an implacable Army drill sergeant. The process may be unpleasant. But there can be some positive results.


Here is more of the substance offered by Fishman...


There is no question that Wal-Mart's relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a McKinsey & Co. study concluded that about 12% of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.

By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster. Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.

What does Wal-Mart care about? Here is coverage from The Packer from November 2004:

Describing Wal-Mart's produce operations as "young" and "having a lot of room to grow," Scott Clubine, soft fruit buyer for Wal-Mart Stores Inc, Bentonville, Ark., spoke to the Houston Fresh Fruit & Vegetable Association at its November meeting.
Clubine emphasized the culture at Wal-Mart remains firmly focused on serving the customer and less on trying to work the art of the deal.
"We try to spend less time haggling over prices or packaging and a lot more time worrying whether we're satisfying the customer," he said.
In the end, Clubine said, if the price is great but the customer doesn't want the product, Wal-Mart loses.
Software tools: Clubine reviewed three Wal-Mart software tools that measure customer behavior and offered them to anyone who becomes a vendor.
The effort, Clubine said, is to help vendors understand where their product is selling and where it is not.
"At Wal-Mart, it's all about turns, and we're constantly measuring how well our inventory turns on each customer's visit," he said.
Clubine described the tools as the following: M-CAPS, which reports sales density by commodity; Market Basket, a system that tracks what customers combine in their shopping cart; and Customer Insights, a demographic profiling system for Wal-Mart sales areas.
The software supports Wal-Mart's cluster store concept for managing inventory levels, Clubine said.
And better inventory management adds immediate benefit by reducing the number of distribution centers needed to maintain inventories.
"We used to plan on one (distribution center) for every 50 stores. Now, with better inventory management, we see the ratio growing to 100 stores for every DC."
"But if you want to do business with us, you have to come to us with a marketing plan that speaks to our customers," he said. "As a buyer, I spend more time working on succeeding at produce sales, and at Wal-Mart, it's all about turns."

In the issue of May 28, The Packer's David Mitchell has reported on changes to Wal-Mart's procurement policies.

Wal-Mart Stores Inc. has altered its procurement procedures during the past two years, but recent criticisms that the Bentonville, Ark.-based retailer has violated terms of its supplier agreements are unwarranted, the company's vice president and divisional merchandise manager for produce and floral said.
"Wal-Mart honors (its) contracts and offers the suppliers the right to talk to Lee Scott, our CEO, or Rob Walton, our chairman, through the open-door process if we do not," said Ron McCormick, vice president and divisional merchandise manager for produce and floral.

Later in the story:

McCormick said a number of factors led to the demise of distribution center assignments, including the growth of the company's consolidation facilities that allow the company to send full truckloads to its 38 food distribution centers.
"Our local purchase program also means that we have many more small growers we are doing direct business with, often combining them to meet the demand of a single (distribution center)," he said. "That single supplier per DC consistency no longer adds value, and actually impedes better customer service."


TK: Wal-Mart's utilization of consolidation facilities, opportunity buys and its growing business with local suppliers may explain changes in procurement policy. But why are more suppliers apparently more apprehensive about their vendor relationship with Wal-Mart? With 17% of the perishables market (Business Week stat) and growing, Wal-Mart's influence won't wane anytime soon. Again I ask, is being a Wal-Mart supplier good for a produce shipper, or, as Fishman so smartly wrote about Vlasic pickles, is the experience "a devastating success?"