Walmart Shifts Private Label Strategy

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September 21, 2010

Since Walmart’s leadership team shake-up mid-summer, many industry players questioned the future of the company’s Great Value brand, which went unmentioned in the restructuring after more than a year of hype around the private label relaunch.

Bill Simon

But at a recent Goldman Sachs conference in New York, Bill Simon, U.S. president and CEO, made the company’s position about its private label brands quite clear.

“There has also been a lot of discussion over the last couple years about our private label program, and I will say it again here. We are a house of brands. We prefer to sell national brands,” Simon said during his presentation. “They show our product better -- excuse me -- they show our value better. When the price of Oreos in my store is less than the price of Oreos in a competitor's store, there is no doubt who the price leader is and where the basket win is. And we would prefer to show that as value. Private brands are still important to us. They play an important role in our business, different by category. They will fill holes or gaps in our offering.”

He admitted that on the food side, Walmart uses its store brands to ensure national brand manufacturers “remain committed to everyday low cost.” In the home and apparel categories, however, Walmart will continue to lead with strong store brands because “we don't have the national brand penetration that we wish we did.”

When asked by Adrianne Shapira, analyst with Goldman Sachs, about the right mix of private label and national brands, Simon said: “It's hard to give a number because it would vary by category. In apparel, it is certainly much higher than it is in dry grocery. And we will always have to manage it that way.”

There were also “some unintended consequences” of the Great Value repackaging, repositioning and relaunch, Simon said, including customer confusion about the size, scope and objective of the brand.

“When you take a presentation that was over the years designed to deliver an item presentation against a national brand or to complement a national brand, you take it and you try to brand it nationally, brand it across the box,” Simon said. “…you have created a relationship between those products and a brand presentation that can look like it is bigger than we intended it to be. And so it appeared to our customers –– along with the assortment reduction in many of these same categories –– that we were trying to drive them into private label and not sell national brands.”

The customer perception was that the stores featured Great Value first and national brands second “and that was not the intent,” Simon said.

Asked about how Great Value will be affected as national brand SKUs are added back into the assortment, Simon said the future focus will be on national brands with Great Value as an alternative, not the central focus. In the recent past, customers saw so much Great Value in the grocery aisles that it looked like “this big Great Value billboard,” which often obscured national brands and customers assumed those items were either discontinued or “we were trying to sell [them] Great Value. That wasn't the intent, and we are correcting that.”

SBD Views: Bill Simon’s presentation could be viewed as a case study on how learning organizations get back on track when a new strategy takes them astray. Walmart’s lessons learned in the last year as interpreted by the current changes reviewed in Simon’s presentation are too numerous to review here. One lesson that comes through loud and clear is how the combined effect of SKU rationalization on CPG brands and the  “brand block” merchandising of Great Value’s new packaging resulted in the “unintended consequences” of alienating both Walmart shoppers and CPG suppliers.

Walmart’s course corrections to get back on track are clear -- a renewed appeal for partnership with CPGs, Walmart’s position as a “house of brands”, and private brands role in fast moving consumer goods categories being clarified to fill in holes and keep CPG’s focused on delivering everyday low cost where needed. While not explicitly stated by Simon, I suspect the days of brand block merchandising for Great Value are numbered.

With that said, it’s a safe bet that Walmart will remain the world’s largest store brand retailer and they will continue to evolve and refine their current store brands and test new ones. The growth of their store brand business will continue in a more measured and modest manner driven by their customers and their merchants, rather than a conscious effort to drive store brands for the sake of driving store brands.

Having followed Walmart for 25 years, I can say that Sam Walton would be very proud of Simon’s presentation last week and the company’s ability to get back on track. -- John Failla for Store Brands Decisions

Read These Related Articles:

• Rite Aid Tests Co-Branded Stores with Private Label Retailer Save-A-Lot
• Walmart Replaces Cut SKUs, Recommits to Price Rollbacks
• Wal-Mart Melds Merchandising and Operations to Sharpen Customer Focus
• Store Brand Growth Tougher in a More Competitive Environment
• Low Retailer Confidence Undermines Store Brand Growth

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