April 5, 2013 at 6:59 AM ET
As it intensifies its push into groceries and perishable foods, Wal-Mart Stores Inc. is betting it can take on these labor-intensive categories by adding efficiency, not bodies.
The company is throwing its supply-chain and inventory management expertise behind the delicate logistics of stocking and selling products that can wilt or sour, but if a data-driven solution to what historically has been perceived as a people problem fails, it won’t just be the groceries that spoil.
“It’s one of the top issues they face,” said Gary Giblen, an independent retail industry consultant. “You only get one time at bat with perishables,” he said.
Groceries are a big opportunity for Wal-Mart. “About half of meals eaten in this country include one fresh item,” said Harry Balzer, chief industry analyst for the NPD Group.
“The general megatrend is that people are eating more fresh food ...it’s growing faster than the packaged food sector,” Giblen said.
“Our grocery business continues to be a key traffic driver,” executive vice president and president of Wal-Mart U.S. William Simon told investors when the company reported its quarterly earnings in February. That month, the company’s grocery business got a high-profile boost when Michelle Obama visited a Walmart store in Missouri and touted its healthy eating initiatives, part of the First Lady’s Let’s Move! anti-obesity campaign.
But this attention comes as the retail giant comes under media scrutiny for what critics say are chronically understaffed stores.
“Don’t have items they are looking for — can’t find it,” was one complaint detailed in an internal memo obtained by the New York Times that addressed the issue of staffing, noting that customers “lose trust” when this happens.
Gaining this trust is still a work in progress, if comments on Wal-Mart’s Facebook page are any indication. Shoppers complained about how a shrinking staff was leading to subpar service, saying they couldn’t find items they wanted or encountered perishable ingredients that were past their prime and unappetizing.
“There’s clearly always room for improvement,” said company spokeswoman Deisha Barnett, but she disputed the notion that the shoppers voicing their complaints on Facebook were representative of most customers. “Based on the surveying we’re doing.... we believe the large majority of them are having a positive shopping experience,” she said.
The crux of Wal-Mart’s strategy for managing its grocery business involves giving more training and more data to the people the company already has working in its grocery departments. “We wouldn’t argue that it’s a higher touch category,” Barnett said, but the company is aiming to provide that touch without increasing the number of hands on deck.
“We haven’t talked about ramping up staffing,” she said. “We’re really investing in training and stepping up the information and education… insuring that the associates we have in the produce aisles become subject matter experts.”
Retail expert Zeynep Ton, a faculty member at MIT’s Sloan School of Management, wrote in an article published in the Harvard Business Review that companies like Wal-Mart would be better off spending more, not less, on labor costs.
“The pressure to reduce payroll expenses is so high that store managers at several large chains, including Walmart, have been widely reported to have forced employees to work off-the-clock, paying them for fewer hours than they put in,” she wrote.
Ton said labor is a significant expense, one that can account for more than 10 percent of a retailer’s revenue. She said this makes it an easy target for cuts, but running too lean can boost a store’s short-term numbers at the expense of long-term gains. “For every $1 increase in payroll, a store could see a $4 to $28 increase in monthly sales.”
“A typical supermarket is a complex operating environment.... it takes a lot of operational expertise to get the right product on the right shelf at the right time,” she wrote.
Barnett acknowledged that the grocery business has unique demands. “Certain products require more care,” she said. When it comes to fragile food like berries and bell peppers, “[Employees] almost need to know by the hour how long they’ve been in the system.”
Wal-Mart’s size — around 4,000 stores and 42 distribution centers in the U.S. — makes it harder for it to keep track of this minutiae, said Joseph Feldman, senior research analyst Telsey Advisory Group. “I could see how it makes it more of a challenge for them,” he said, because a longer supply chain can mean perishable items have a shorter window of time before they expire.
Barnett said Wal-Mart is trying to source more produce locally to address this.
“We’re looking for the freshest foods,” Balzer said. “That becomes a calling card in the supermarket industry.”
And shoppers have a growing choice of options. When it comes to fresh food, Balzer said Wal-Mart is facing competition from restaurants, where many Americans consume made to order sandwiches and the like.
The retail behemoth is also up against other supermarkets and a growing number of other types of stores. Last month, convenience-store chain 7-Eleven debuted two sandwiches it said were part of a strategy shift “toward a more fresh-foods-focused product mix, and in January, drugstore chain Walgreens told shareholders it planned to offer “expanded grocery items and fresh food in stores.”
Feldman is optimistic the retail giant can master groceries. “Wal-Mart has made a lot of strides in the past year and a half in terms of restocking the stores,” he said. “I think they’ve made quite a few strides on the productivity side… and leveraging systems to help with stocking,” he said.
Although the battle against spoilage is one all grocery stores wage, Giblen said most supermarkets “do a considerably better job than Walmart is doing now.”
Besides the speed at which items get restocked, having too few employees on a shift could also hurt Wal-Mart’s grocery aspirations if customers worry about items spoiling before they get home, especially because Supercenters tend to be located further afield than grocery stores. “Even if it’s not a matter of freshness, it’s a matter of melted ice cream or things like that,” Giblen said. “That’s not an issue if it’s a shelf-stable food item or a T-shirt... but in perishables, it certainly is.”
Like getting a carton of ice cream home before it turns into a puddle, Wal-Mart has to act fast getting its worker-light, information-heavy strategy to work.
Empty shelves and lag time between restocking can ding a company’s reputation when the items are shelf-stable, but analysts say Wal-Mart is taking a much bigger risk when milk or salad greens don’t reach their display cases in a timely manner.
“If you have rotten produce or out-of-date milk... then you don’t get forgiven,” Giblen said.