THE NEW WAL-MART: THE RETAIL POWERHOUSE IN TRANSITION
EXECUTIVE SUMMARY
MAY 2006

IRI's Times & Trends highlights new developments and critical events across all major CPG categories and channels, providing powerful benchmarking data to help guide your strategic decisions. This issue examines Wal-Mart’s transformation plan and implications for CPG manufacturers and retailers.

This free summary is also accessible via the GMA Web site  at http://www.gmabrands.com/publications/gmairi.cfm

INTRODUCTION

Change is underway at the world’s largest retailer, and, as history has shown, when Wal-Mart changes, the industry changes.

Wal-Mart’s growth rates, while still extraordinary, have steadily decelerated over the past five years. Supercenter expansion, the company’s primary growth engine, is no longer netting new consumers. And, core lower-income consumers have been forced to decrease discretionary spending due to rising gas and heating costs.
In true Wal-Mart fashion, the company has responded to this situation with a comprehensive transformation plan.

The insights provided in this report are intended to help CPG manufacturers and retailers identify potential new category, brand and store growth opportunities, and risks that will arise from changes underway at Wal-Mart.

KEY FINDINGS

Despite continued aggressive supercenter expansion, Wal-Mart top-line growth has decelerated. For the first time in five years, the Wal-Mart Stores Division’s revenue growth dipped below double-digit rates in fiscal year 2006. Two underlying trends in consumer shopping behavior are driving the slowdown: Wal-Mart supercenters are no longer bringing in new Wal-Mart consumers, and growth in trip frequency is tapering off.

Wal-Mart’s total CPG share gain has slowed, but the retailer achieved sizable category-level gains. After years of sizable CPG share gains at the expense of the grocery channel, Wal-Mart’s CPG share increases have slowed significantly. Grocers have regained traction through a focus on fresh foods and organics, while Wal-Mart’s core lower-income consumers have reduced discretionary spending. However, the company has significantly increased share among numerous high-growth CPG categories (e.g., sports drinks, frozen dinners and yogurt) and among several categories that have recently experienced substantial price hikes (e.g., coffee, sugar, food and trash bags).

Wal-Mart has embarked upon a major transformation effort to reduce dependence upon core shoppers. Wal-Mart’s top one-third of shoppers comprise 80 percent of the retailer’s CPG sales. These shoppers skew lower-to-middle income and under age 55. While Wal-Mart will continue to invest in protecting and growing share within this core segment, the company also has several initiatives underway to increase sales among more affluent, “selective shoppers” and 55+ consumers.

Organic products represent strong growth potential for Wal-Mart. Given Wal-Mart’s low share of organic food and beverage products currently (just 5.2 percent, versus a 16.4 percent share of total CPG spending), the retailer’s increased focus on organics is likely to yield substantial growth for Wal-Mart and create a ripple effect throughout the industry. In addition to attracting upper income consumers to its stores, Wal-Mart’s organic focus will expand the market, lower prices, challenge traditional retailers’ newfound organic success, and place increased competitive pressure on non-organic brands.

Wal-Mart is leveraging healthcare initiatives to attract and retain consumers aged 55+. Projected to grow 30 percent between 2005 – 2015, the 55+ consumer segment is critical to all mass market retailers, but IRI research shows that consumers are likely to switch share from supercenters to drug stores as they transition into their senior lifestage. Wal-Mart has invested in protecting and growing share within this segment through healthcare initiatives, including chronic disease prescription refill programs and health information as well as a comprehensive Medicare Part D educational initiative targeting seniors.

 

Source: IRI's Times & Trends Reports
Information Resources, Inc. (IRI) is the world’s leading provider of enterprise market information solutions and services to the consumer packaged goods (CPG), retail, and healthcare industries.