business news in context, analysis with attitude

As we mentioned above, there was a lot of reaction to Friday’s story about Wal-Mart considering a move into the wholesale business, which would opt it in the position of serving the very independent retailers that its threatens to put out of business every day.

MNB user Art Turock wrote:

“If Wal-Mart were to get involved as a wholesaler, we'd be witnessing a classic move by the market leader to solidify its control on the total supply channel. Kevin, you did an excellent job covering most of the implications but let's look at two more groups-- consumers and chains. The large chains will face even stiffer price wars than they've known before.... that's a no-brainer. But will the consumer end up better off... on price on national brands-yes. On broad assortment in a large range of product categories--maybe not.

“One other implication, Wal-Mart's commitment to continued growth could someday become an issue for the Federal Government around monopoly criteria. Becoming a wholesaler wielding significant control of pricing in the supply channel could be viewed in an unfavorable light to the folks in Bentonville.

“Nevertheless, this is a fascinating scenario to contemplate!”

(Incidentally, Art has written an excellent book that has a title appropriate to this discussion: Invent Business Opportunities No One Else Can Imagine, available on It is a must-read for people looking to reinvent their approach to business.)

MNB user Eric Peabody wrote:

“…The thought of Wal-Mart controlling yet another level of the North American food marketplace is a little frightening. It is natural that they consider this opportunity though. It's only a matter of time before they have some sort of retail establishment in every viable location in the world. Where to go after that?”

Another member of the MNB community added:

“Your comments today about Wal-Mart possibly going into the grocery wholesale business is already happening. I think it is just a matter of when they begin to further develop the infrastructure already in place. Check out the McLane web site. Following is an excerpt:

    ‘McLane was an independent company for nearly a century before Wal-Mart bought it in 1990. It controls about one-third of the distribution to U.S. convenience stores and also supplies fast-food restaurants, theaters and Wal-Mart stores. It has annual sales of $8.76 billion and about 11,000 employees.’

“Perhaps it is the small retailers who are selling superior service and/or different services from the retailer Wal-Mart who will add to their profit margin by buying from the wholesaler Wal-Mart that welcome this move by Wal-Mart into wholesaling.

“Hasn't it been said here by many that it's making a difference in your presentation, your attractiveness to your customer that makes a successful merchant rise above their competition?

“Lower costs should help a retailer continue to find new and better ways to be a better merchant and attract more customers who are getting fed up with a lack of service at many "big box" merchants who have, mainly, only a wider selection of products to offer at a lower cost to the public.”

MNB user Larkin Toler added:

“’To be or not YET to be, that is the question.’ I thought the question was more of where Wal-Mart was or to 'Where' they will soon be. After reading your Friday's Essay, we now need to also worry about 'WHAT' all Wal-Mart is or will soon be. I did not know they ARE McLane Corp and that they "OWN" 10% of Kraft and 17% of Procter & Gamble's sales. Wal-Mart's want to achieve "a 30 percent market share in every category it sells or occupies" means Wal-Mart has their crosshairs on us quicker than I realized. It may not be a question of "IF," but "WHEN." "WHO" is easy, All those standing still in the crossroad.

“Remember the futuristic movie ‘Judge Dredd' ("I am duh law") with Sylvester Stallone where it evolved into having only one restaurant, Taco Bell. It seems quite clear who the one Mega-Merchant is becoming. The crush of the Wal-Mart locomotive is definitely here. I think they make all the laws and rules, and its number one law is, "No Riders." Do not be fooled, and sell your soul to the devil by embracing cheaper Oreos.”

And MNB user Rob Rice makes an excellent point:

“I don't get why an Independent would chose a lower-cost supplier that would then have all his ordering/inventory data? Wouldn't this help Wal-Mart be more competitive against them? I must be missing something here(?).”

MNB user Dennis Barthuly chimes in:

“Wouldn’t that just be the glass slipper for Wal-Mart? What better way to control your competition than by becoming their main source of supply. And make no mistake about it, this is a direct attack on wholesale distributors and would likely have the same result as the retail blitz. Cheaper than building a store in every hamlet in the country, too.”

On to other subjects…

In response to Friday’s story about Delhaize closing 42 stores and streamlining its US operations, MNB user Robert D. Reynolds writes:

“Can you remember when Food Lion was the feared carnivorous shark threatening the very existence of the rest of the grocery business in the Southeast and mid-Atlantic?

“What goes around -- come around -- I guess.”

And MNB user Norma Gilliam adds:

“I suppose this could be the year to "pay the piper." Many retailers have reported trouble with sales & profits. As far as Food Lion goes, I wonder how this will affect the new store look they were shooting for....specifically upscale, fresher look. Even before the "unprofitable" news, I have to say that I was skeptical that they could pull that off.
After all, from the beginning their market ploy has been one of "no-frills." I have to wonder if 2003 will be the year of balancing the over-storing in the U.S. by the closings of many more unprofitable stores. If you take the total population into consideration, we have been over-built for some time.

Maybe retailers should not focus so much on "adding" the same kind of formats to their chain, but look for a more "specialized" type of store. For example, since the ethnic population will continue to change for some time in the future, they could focus on the ethnic store, and some more "specialty" kind of stores. And perhaps ten years from now, (or even less), we will all do even more of the stocking up of grocery items at a
"wholesale" house like Sam's and do our "specialty" shopping at one of the other smaller formats.”

Regarding Kroger’s opening a Food 4 less store in Chicago, one member of the MNB community writes:

“I can only hope, as a Chicago resident and member of the vendor community here, that this is Kroger's first step into the Chicago market and its second step will be acquiring Dominick's from Safeway. Kroger could use the Food 4 Less format in the old Omni Store formats Dominick's had and force Jewel to be more competitive in its core marketing areas. I admire and respect Jewel's commitment to the market and their excellent management team, but right now they can make money blindfolded given the way Dominick's is losing consumer share. Also, Kroger knows how to compete with Meijer, who has a growing presence here. All this would be good news for Chicago area grocery shoppers. Hey, I can dream, can't I?”

On the subject of the extension of employment benefits, passed by Congress and signed by President Bush last week, one MNB user writes:

“I understand there are many, many people who truly need this to occur. It bothers me though when there are those who don't need it that view it as an extension to time off. We have a friend who has been receiving unemployment (from a $120k job) for most of the past two years, and makes more than either my husband or myself, both self employed. Additionally, he's fully employable, maybe not at that old rate of $120k, and has viewed it as his paid holiday. I hope Bush placed parameters on this to insure those who truly need it are receiving it.”

Another member of the MNB community wrote:

“Obviously a good thing for those who are in danger of having their benefits run out but how does this kickstart the economy? Surely job creation and therefore improved chances of earning a living would be preferable.”

And, regarding the battle for Safeway in the UK, one MNB user wrote:

“An interesting result of the announced acquisition of Safeway by Morrisons and the speculation of a rival joint bid by Asda and Sainsburys is the effect each will have on Sainsburys market position. As you noted yesterday, Sainsburys' market share of 17.2% ranks second behind Tesco's 25.8%. However, this is only slightly above Asda's market share (not mentioned specifically, but somewhere around 16.2%-16.5% and that of the combined Morrisons/Safeway (16.1%).

“For the past few years, Sainsburys has been trying desperately to maintain its standing as the number 2 player ahead of the fast rising Asda. A combined Morrisons/Safeway might place Sainsburys in jeopardy of actually falling to fourth. On the other hand, if Asda and Sainsburys were successful in the rumored joint bid, Sainsburys would
definitely be relegated to third behind Asda, but would be fairly secure in that position as Morrisons would be a far distant fourth in market share.

“I do agree that the Competition Commission would probably not want to concentrate that much market share (around 67%) in the hands of only three companies.”
KC's View: