Take advantage of Wal-Mart's 'weaknesses'

Take advantage of Wal-Mart's 'weaknesses'

FMCG SUPPLIER NEWS

Business Live - Apr 25th 2012, 09:00

Local retailers should take advantage of Wal-Mart's weaknesses, rather than competing on price, which is one of its greatest edges, Natalie Berg, global research director of retail analyst firm Planet Retail said.  

"Build strengths in areas where Wal-Mart has traditionally struggled, such as perishables and counter service. Establish credibility in food ranges now. There's also opportunity to beat Wal-Mart in the digital chase, where it has lagged," she advised.

Berg, who is the co-author of Wal-Mart - Key Insights and Practical Lessons from the World's Largest Retailer, addressed members of the South African Council of Shopping Centres (SACSC) in Johannesburg, Durban and Cape Town.

Berg's view is shared by Absa Investment analyst Chris Gilmour, who said that given that Wal-Mart was so huge and dominating, it would be difficult for local players to compete on price.

"SA retailers are very good at what they do. They will rise to the occasion, but they may do it in different ways - it may not be through prices.

"Buying food is a grudge purchase, if retailers transform their stores and customers have a nice experience - it can be equally game changing," he said.

Gaining first-mover status, Wal-Mart acquired a 51% stake of local consumer goods distributor Massmart (MSM) last year.

The global giant's entrance into SA has local players scrambling to step up efficiencies amid the biggest competition shakeup the South African retail space has seen yet.

Wal-Mart became the biggest international retailer in the world by ruthless cost savings and back-end efficiency, which allows it to offer the lowest possible prices and a wide assortment of brands.

Fundamental to Wal-Mart is its "everyday low prices" (EDLP) model, achieved through "everyday low costs" (EDLC) and "global sourcing".

EDLP means that, when Wal-Mart's model is fully in place, it will offer shoppers a lowest price guarantee - beating out other retailers' normal, and even, promotional prices.

By driving down prices for the consumer, Wal-Mart is in a unique position to leverage its global scale in both general merchandise and food sourcing - this global sourcing is key to EDLP.

Berg proposed that retailers deliver an experience that was about "more than just price," where players could work with suppliers to create exclusive ranges, pack sizes and variants to lure consumers.

"Invest in loyalty schemes to reward and retain your most profitable shoppers. Store remodels, ancillary services and private label quality investment will help you to differentiate, while making higher margins for reinvestment in price," she said.

Pick n Pay's Smart Shopper loyalty initiative and its "Finest" premium private label are examples of this.

The change Wal-Mart will bring to the South African retail market was potentially colossal but it would not take place overnight, Berg said.

"Wal-Mart is spending the first year understanding the local consumer, the market and competition before making any major changes.

"In the long-term, it will embark on supply chain efficiencies to invest in price," she said.

This "learning period" gives local suppliers and retailers a chance to adjust, adapt and prepare for Wal-Mart's formidable retail model to kick-in.

"Wal-Mart will be a major competitive force but it will also ignite positive change, leading to a more efficient industry," Berg said.