SINCE TAKING OVER as chief executive of Wal-Mart Stores ' U.S. divisions a year ago, Bill Simon has made it clear where he stands in the debate between selling national brands or private brands.
“We prefer to sell national brands,” Simon said last fall at an investor conference. “They show our value better. When the price of Oreos in my store is less than the price of Oreos in a competitor's store, there's no doubt who the price leader is and where the basket win is.”
Simon's posture does more than frame Wal-Mart's pricing advantage vs. competitors. It also goes against industry trends toward emphasizing private brands both as a differentiator and as a margin builder.
Wal-Mart until Simon came along seemed also to be riding that wave. Its opening price-point Great Value brand was completely relaunched in 2009 with new packaging, a focus on better quality, including hundreds of reformulated products, and more than 80 new items — some of which could serve to fill the gaps in overall product selections reduced as part of a since-abandoned SKU-rationalization program.
Simon noted, however, that the relaunch ultimately damaged Wal-Mart's reputation as a “house of brands,” by giving the appearance that the retailer was pushing its shoppers to embrace private label over branded goods, rather than letting them decide between them. This blunted the edge on Wal-Mart's traditional price advantage on an apples-to-apples basis, Simon noted.
The same attitude brought an end to Wal-Mart's emerging “Win-Play-Show” merchandising strategy that sought to grow key categories and merely compete in others. “Our customer will decide what we carry based on what they buy,” Simon said.
With that established, today Great Value is known strictly as an opening price-point offering whose strategic value is to provide an alternative not to brands but to other private labels, sources said.
“It's a cornerstone of Wal-Mart's ability to compete against all other low-price, value-oriented retailers in the marketplace, such as dollar stores and discount grocers like Save-A-Lot,” Jon Hauptman, vice president at Willard Bishop LLC, Barrington, Ill., told SN. “It allows Wal-Mart to have an offer that's either competitive to or lower than the value offered at any other store. It's also a consistent brand that allows that customer to find the brand in any category.”
Wal-Mart can eschew the margin advantages in private label because “it doesn't care about margin [percentage] as much as margin dollars,” added Dave Marcotte, director of retail insights for Kantar Retail.
Specialty private brands at Wal-Mart include the Marketside brand, which grew out of a pilot run of fresh food stores and today serves as a marker for fresh and prepared foods exclusive to Wal-Mart, including refrigerated meals, frozen foods, and bread and rolls. Equate is a proprietary line of personal care and over-the-counter drug items. The company also has exclusive brands in apparel and sells several acquired brands exclusively, including apparel lines OP and White Stag, and the appliance brand Rival.
A different strategy is emerging at Wal-Mart's Sam's Club division, which earlier this year introduced three new private-label lines to replace its established Members Mark line in some categories: Artisan Fresh (which it describes as “made from scratch” premium foods), Daily Chef (“delicious and affordable” shelf- items like olive oil, dried fruits and crab cakes) and Simply Right, a personal care line.
These items are designed to have more appeal to the Sam's Club shopper, which tends to be more affluent than Wal-Mart's typical customer.