business news in context, analysis with attitude

MNB took note yesterday of an op-ed piece in the East Valley Tribune that contrasted “socially responsible” Bashas’ bankruptcy with the continued growth of Walmart, which often is characterized as being greedy and ruthless. Writer Austin Hill concluded:

“It's simply not sufficient for a business enterprise to be ‘socially responsible.’ Being ‘socially responsible’ is great, but it's not enough to breed business success … And this points to another important truth: if Wal-Mart is ‘greedy’ and ‘ruthless’ in their business practices, so are most all of us in our consumer choices and habits. I actually don't think that Wal-Mart is greedy or ruthless. They are most certainly ambitious, aggressive and competitive, but that doesn't necessarily entail ‘greed’ or ‘ruthlessness’.”

MNB user Tim Heyman responded:

To state that Wal-Mart is not greedy or ruthless states in itself that you are “freaking clueless” to the subject.

Well, then, I’m glad I didn’t say it. (The op-ed writer did…I was just the messenger.)

But I think that the argument is that “greedy” and “ruthless” are value judgments that may be inappropriate…and that most good retailers are “ambitious, aggressive and competitive.” It just so happens that Walmart is bigger and better at it than most retailers.

We also had a piece yesterday about an Advertising Age report that Walmart is pressing its suppliers to allocate a greater percentage of both their consumer ad budgets and trade promotion dollars to the retailer, and is “using a simultaneous push to clear underperforming brands off its shelves as extra leverage.” Walmart is looking for suppliers to fund co-branded advertisements and commercials as well as banner ads on its website and in-store television sponsorships.

Lots of reaction to this one…

MNB user Philip Herr wrote:

This move suggests to me a change in direction for WM. Rather than being content to make their profit off margin -- based on lowest price -- could they be playing the game of making money off allowances? Kind of looks a lot like a way to go after a new income stream which probably has a far greater ROI than revenue generated from selling. Curious.

MNB user John Gauthier wrote:

Wal-Mart's insatiable appetite for vendor money bears a striking resemblance to the former Ford, Chrysler and GM policies of squeezing blood out of their suppliers' turnips. Taking cost out of a huge corporation is made less cumbersome and much faster with vendor dollars. The Big Three's practice ultimately eroded their supplier partnerships to adversarial relationships. The Big Three are now The Three.

Seems to me that Wal-Mart is speeding down the same path the automobile companies did, doing it with mandated contributions from their suppliers - seemingly oblivious to the fact that suppliers, the suppliers vendors, and their employees, friends and neighbors are customers, too.

And another MNB user chimed in:

This should not come as a surprise based on the number of associates that Walmart has now in the marketing department as well as looking at who and where their CMO came from. Also this is just one of a three prong supplier attack. The other two being Sustainability and " pay to play". They want their share and more of manufacturers’ profits, feeling that they are the one that contributes the most to suppliers’ profits and these profits are used to subsidize other retailers.

Till Mr. Quinn arrive from the PepsiCo group, marketing had little influence and staff. Now his budget and staff are huge. To maintain it they have placed a marketing person in each division making sure that manufacturers "stop by" and they get their share of the pie. Kinda defeats the Every Day Low Price concept and supports the "we’re like Target" position.

Walmart under Fleming and Quinn leadership has manage to turn Walmart from a EDLP, variety-driven company to a under SKU'd, poor in stock, marketing-driven run of the mill retailer. The obsession with profit driven by their Vice Chairman and his background is quickly shrinking the price gap they once enjoyed. They new clean store image is costing them sales, in stock and dollar per square foot advantage that they once had over the industry.

On the subject of Ukrop’s, MNB user Mike Julian wrote:

Interesting comments to the news of a possible Ukrop’s sale. First let me respond to the approach that the Ukrop family has had for their business since 1937. Joe Ukrop set a standard on how he believed he should run a grocery store; his sons keep that tradition alive. Many people including this author had other thoughts on how they would run the business, and who knows, there are probably many successful styles that would work for the chain.

However, one of the beauties of private ownership is you get to run your business as you see fit (within the law) and when the customers no longer accept your plan they vote with their feet.

As a former vendor, Richfood, and competitor, Farm Fresh, I greatly admired what Jim Ukrop did with the family business and I for one would find someone else running those stores as a great relief. As far as who could be a potential bidder, for certain Harris Teeter but don’t rule out Publix (I know they would have to jump over NC). As far as Supervalu and Ron Dennis at Farm Fresh are concerned, it would make a great move for the new Supervalu retail push and I agree Ron has done a great job at Farm Fresh.

And another MNB user wrote:

I love reading the commentary on Ukrop’s. They appear to be well written and thought out. But they really do not understand the folks at Ukrops. I have never been in one of their stores and know very little about them. In the past I did have the opportunity to work for a multi-store retailer that dominated their market and was closed on Sunday. They could have very easily opened on Sunday. The push back from
their customer base would have been minimal. It was a personal decision and a belief
on part of the family that owned the stores. They struggled off and on during their
years of operation, but chose to stand firm in their position.

In the end they sold their stores, made a ton of money off of the sale and in the sale agreement mandated that as long as their name was on the stores they must be closed on Sunday. Now, 10 years later the stores are still owned by the same buyer doing very well, and have experienced great sales growth and profit. And they are still closed on Sundays.

Sunday open/close has very little to do with profitability. Great organizations/people and great stores determine that. Could they do more business if opened on Sunday? Absolutely. It is still their choice, and from my point of view, it’s nice to see. Go Ukrop’s. Stay closed on Sunday and retain your values.

I’m not sure it is entirely fair to say that there is no impact on sales and profitability when stores are closed on a day when some retailers do between 12 and 15 percent of their business. Sure, great organizations and a terrific store offering are important…but so is accessibility.

But I agree about company values. If being closed on Sunday and not selling alcohol is a key part of a corporate culture, then a retailer should stick with it and let the chips fall where they may.

Decisions have consequences.
KC's View: