CPGmatters: Diageo Reveals What Wal-Mart Really Wants from Suppliers
By John Karolefski
Through a special arrangement, what follows is an excerpt of a current article from CPGmatters, a monthly e-zine, presented here for discussion.
As category advisor for the beverage alcohol business, Diageo relies on store-by-store planograms to maximize sales in Wal-Mart. There are 35 different shelf sets ranging from four feet to 168 feet in the 18 states where its world-class brands of beer, wine and spirits are sold.
“It’s a difficult and time-consuming process,” said Francesca Hahn, Diageo’s senior category manager for Wal-Mart, recently at Nielsen’s Consumer 360 Conference. “We tailor our offerings to whatever the demographics are. If consumers want Johnny Walker Blue at $200 a bottle, we want to make sure that it’s there for them.”
But she also touted the clear benefits of being a category advisor.
“There are advantages to being a category advisor: a seat at the table to be able to hear all of the department strategies and being part of decisions,” she said. “You get to control some of your destiny. It’s nice not having my competitor controlling the shelf set.”
Ms. Hahn pulled back the curtain to reveal what Wal-Mart really wants from its CPG suppliers:
- New
Products: Wal-Mart wants to collaborate with suppliers to be part of
breakthrough products. If a new product arrives first at Target, that annoys
them. Give Wal-Mart an opportunity to look at the item first. - Exclusive Products: If you
offer exclusivity in a category, Wal-Mart appreciates it. - Shelf Sets: That is
the most time-consuming activity for suppliers positioned in Bentonville.
Everyday assortment, price points, replenishments – and more. - Profitability: Wal-Mart
prices its products, but the pricing model that goes behind the cost and
how to get it as low as possible is a supplier responsibility. It can take
as much time as a shelf set. - Targeting: If you can provide products targeting consumer
segments like Hispanics, affluent consumers, etc., Wal-Mart will help you
position a product in stores that match up well. - Consumer Insights: They want consumer
insights about what drives consumption. - Competitive Intelligence: Wal-Mart
wants to hear about new ideas in the marketplace and what is effective in
stores. - Sustainability: For every new product, Wal-Mart wants to know what’s
sustainable about it. This is not a PR policy. It is a business practice. - Joint Events: Wal-Mart wants
to create excitements in their stores. They want to do things that will
bring shoppers back. They want any kind of marketing event you can provide. - Aging
Population: Wal-Mart wants to enhance the aging experience for Baby
Boomers. Present those products and ideas that match up. - Unbeatable Prices: Everyday low
prices continues to be the key.
“If you can do all of those things, maybe you can evolve your relationship to be a category advisor,” said Ms. Hahn. “My goal is to drive category growth every day in an ethical and objective manner. My goal is Wal-Mart’s goal.”
She said that Wal-Mart buyers are the most open, receptive and honest she has worked with in the industry. They just want to know the truth, and want to know what should be done.
Getting to Bentonville enough times for face-to-face meetings with the buyer should be sufficient.
“But living in Bentonville is helpful. It’s a nice place to live and I recommend it,” she said.
Discussion Questions: Anything surprise you about the requirements listed by Diageo’s Francesca Hahn on ways to be a strong supplier to Wal-Mart? Did she miss any? Which ones do you think are hardest for suppliers to fulfill?
Francesca Hahn characterized the Wal-Mart supplier business relationship well. One addition: Wal-Mart’s folks like to forecast collaboratively with their suppliers, and their buys generally stick to the forecasts. Given Wal-Mart’s volume, the forecasting reliability is critical to its suppliers.
Wal-Mart acknowledges these days that they are annoyed by new products and brands that find their way to Target before they are presented in Bentonville. In my opinion, and also how I advise my client-companies, is that for most types of products the two retail chains should be presented in the same time period, and under most circumstances, one will make it happen sooner than the other, but I’ll let you be the judge.
These are excellent points about providing category advice to Wal-Mart, many of which would apply to all retailers.
In our experience, Wal-Mart has a bias toward action. Unlike many other retailers, they seek to take the next step and turn shopper insights and category learning into workable in-store solutions.
Manufacturers seeking to give category advice to Wal-Mart should come prepared to act upon it.
Wal-Mart’s goals for its CPG suppliers (including logistical execution, as one of the other panelists mentioned) are worthy and comprehensive but are probably not much different from what a buyer at Target might mention. So what separates the two stores in terms of their ability to offer differentiated product and (in Target’s case) a more appealing shopping experience?
Ms. Hahn’s comment is revealing: “You get to control some of your destiny. It’s nice not having my competitor controlling the shelf set.” Is it possible that the system of “category advising” is akin to “the fox watching the henhouse”? Wal-Mart’s merchants must ensure that merchandising decisions are in their own hands and represent the company’s strategic goals, instead of representing the agenda of the “category manager.”
I am continually surprised that suppliers–whether category captains or not–have so little to say about in-store implementation. With 35 different planograms in simultaneous play chainwide, Diageo’s success is in large measure dependent upon Wal-Mart’s willingness and ability to accurately manage the shelves.
Alcoholic beverages face differing regulations in each state, including strict rules on promotions in many. So I suspect category merchandising requirements may be more intricate than just 35 modulars. Insights and planning are certainly of crucial importance, but how does Diageo ensure the jobs get done in the stores?
The implementation issue is fast gaining interest among CPG manufacturers and retailers. In-store tracking, compliance and work management are the next frontier. If Wal-Mart and Diageo have compiled a record of compliance success on par with the rest of the good work outlined by Ms. Hahn, the rest of the industry needs to hear about it.
I’ve talked to some brand managers at CPG companies about working with Wal-Mart, and the answer is always the same: they’re tough but fair, and very data-driven. If you can show “proof” in the numbers, for a new product, for a tweak of the assortment, whatever–they will listen and respond. They’re up front about their expectations and as long as you meet those expectations consistently then you’ll have a good relationship.
The transparency that they have with their suppliers takes a little bit of the conflict of interest out of the category manager role–because if you don’t meet their expectations for how a category should perform, you won’t be a category manager for long.
Some excellent points were made here. My only two cent addition is that category advisers are being pushed to collaborate with replenishment teams much more. Must Arrive By Dates, Forecasting, In Stock, and Internal Demand Planning have often been left up to the corporate supply chain experts with advanced statistics degrees. Now, many of our category captain (adviser) clients are being pressured to make recommendations on these settings as a category on the whole…not just individual companies.