EXECUTIVE: WAL-MART NEEDS NEW VENDOR RELATIONSHIPS

PALM DESERT, Calif. -- A senior Wal-Mart Stores' executive told a supplier-heavy audience here last week that the discounter hopes to shore up its vendor relationships in advance of plans to open 40 supercenters in California during the next few years."We don't have all the suppliers we need," said Bruce Peterson, senior vice president and general merchandise manager, perishables, in a presentation

PALM DESERT, Calif. -- A senior Wal-Mart Stores' executive told a supplier-heavy audience here last week that the discounter hopes to shore up its vendor relationships in advance of plans to open 40 supercenters in California during the next few years.

"We don't have all the suppliers we need," said Bruce Peterson, senior vice president and general merchandise manager, perishables, in a presentation at the 35th National Deli Seminar of the Dairy Deli Bakery Council of Southern California. Later, he added, "We look forward to doing business in the future with you."

Peterson said the Bentonville, Ark., discounter is entering a new stage with suppliers as the company's growth passes through levels unprecedented in the history of retailing. Wal-Mart has become so large that it faces more challenges than ever to ensure a consistent flow of products to its stores, particularly for fresh categories such as produce.

"Our CEO Lee Scott said recently that Wal-Mart now needs our suppliers more than our suppliers need Wal-Mart," Peterson said, underlining that Wal-Mart wants to keep its vendors healthy.

"It's critical that our suppliers have sustainability and are profitable. Without that, Wal-Mart cannot continue to grow."

Peterson graphically described how Wal-Mart's California supercenter plans have shaken the regional retailing landscape. "The gauntlet has been dropped," he said. "There's a lot of interest from both the supplier and retailer sides. The battle lines have clearly been drawn. Competition will intensify as we come into California."

He said competing retailers will change their strategies to prepare for Wal-Mart.

"The cost of products in the market will go down even before we open a store," he said. "Consumers must ask themselves why Wal-Mart lowers the retail cost of goods in a market. You'll see a lot of remodels of competing stores. Their ads will get gimmicky with coupons and buy-one, get-one-free offers."

Peterson told suppliers that their best opportunity for working with Wal-Mart is to understand the retailer's needs and offer unique products. In the past 18 to 24 months, the retailer has focused on building its base of women and minority suppliers.

"We want to help those companies grow," Peterson said. "The more diversity we have in suppliers, the more we learn about consumers."

Peterson stressed that Wal-Mart tries to make business relationships transparent for suppliers by avoiding slotting fees and some other supermarket business practices. An important goal is to make relationships predictable by setting price and quantity terms in advance, he said.

In return, Wal-Mart expects its suppliers to bring new ideas and insights to the table. "We want to know how you will differentiate yourself from other suppliers in the marketplace and what is your knowledge of consumers," he said.

Underscoring Wal-Mart's interest in product differentiation, Peterson said Wal-Mart is about to introduce a produce item that "didn't exist on the planet before." He indicated that Wal-Mart has overseen the development of this item from the seed but did not provide any specifics.

Peterson said Wal-Mart wants to work with suppliers who have an understanding of logistics and who want to use the retailer's point-of-sale data to understand consumers of their products.

Asked about Wal-Mart's progress with organic products, Peterson said the retailer is "closely watching" the category.

"Organic is about 2% of our business," he said. "We're not in that business in a big way. It's growing quickly on a percentage basis. It means more on the coasts. It's showing up more in dairy than produce."