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Walmart, Kroger Must Use Five Vs Against Amazon, Whole Foods

Stores like Walmart and Kroger have spent decades growing their physical presence through store construction and acquisitions. And, for the last 20 years, they have expanded product offerings, tracked customer behaviors and digitized services. These actions have been part of brick-and-mortar stores’ defenses against online retailers. But Amazon's purchase of Whole Foods is a huge battering ram at the gates.

With the acquisition, Amazon inherits 400-plus physical locations. And these are not bland warehouses hidden down an industrial drive. Whole Foods stores are in affluent, populated areas that coincidentally contain large portions of Amazon’s heaviest spenders. This gives Amazon highly visible points-of-distribution in the backyards of some of its most profitable customers. Amazon will leverage these locations to further reduce shipping times and improve overall convenience for its online shoppers.

If Walmart and Kroger want to keep up, they will have to respond by focusing on what I call the Five Vs – Value, Variety, Venue, Volume, and Availability. (Yes, I cheated on the alliteration for the last one.)

Walmart and Kroger tout low prices and savings for the family. They have been successful at this messaging and it reflects in customers’ perceptions. On the flipside, Whole Foods has struggled with pricing perceptions, evident through jokes like “Whole Paycheck.” Of course, some of this has been self-inflicted.

In 2015, Whole Foods was found overcharging customers on pre-packaged foods, which Whole Foods later apologized for but said the overcharges were unintentional. About four weeks after Whole Foods’ apology, social media lit up when a customer found Whole Foods selling $5.99 asparagus water. (The bottles contained three stalks of asparagus with 16 ounces of water.) Whole Foods quickly pulled the product from the only location selling the item, and claimed that the product was not marketed correctly. Regardless of their swift apologies, customers remember. When Amazon announced its intent to acquire Whole Foods, consumers took to social media to crack jokes about asparagus water and Amazon’s acquisition offer of $13.7 billion was only good enough to buy a few bags of groceries from Whole Foods.

Walmart and Kroger stores that surround Whole Foods should heavily promote low price offerings, specifically for popular, health-conscious national brands, and private-label organic products. If Kroger and Walmart can position themselves as a better value for high-quality goods, they will see less customer attrition.

The average square footage of a Whole Foods is 43,000; Kroger’s flagship locations known as a Marketplace store are usually around 120,000 square feet; and comparable to a Kroger Marketplace, a Walmart Supercenter is about 179,000 square feet. This means that the average Whole Foods is about three times smaller than Kroger and more than five times smaller than Walmart.

Walmart and Kroger must emphasize it is a one-stop shopping experience and that they can provide unmatched variety for not only product categories but also brands, sizes, flavors, etc. These benefits should be coupled with their low price, high value messaging.

Kroger and Walmart typically have double-digit locations for metropolitan areas. This makes it convenient to shop while on the way home from work or from an activity in another part of town. In contrast, Whole Foods has fewer locations and is found in upscale suburban areas. Kroger and Walmart can use their proximity to consumers to their advantage by utilizing outdoor advertising to promote their convenience (“Last Mile Advertising”).

Kroger and Walmart should also concentrate on creating comparable layouts for their respective stores to promote a universal shopping experience. This increases familiarity and reduces trepidation of not being able to quickly locate items and, in turn, gives customers flexibility.

The buying power of Walmart and Kroger must be used more. However, unfortunately for Walmart, after years of mandating low prices from its suppliers, there might be less room than before. In 2015, Walmart asked manufacturers to forgo joint marketing projects and use the savings to reduce prices. In the same year, Walmart negotiated lower pricing terms with suppliers because China devalued its currency; and began charging fees to all suppliers for warehouse usage.

The plus side for Walmart is that they produce yearly global revenues of around $480 billion and have nearly 4,700 U.S. locations. That is a tremendous amount of buying power and even minute changes can bring significant savings. Look for Walmart to maintain pressure on suppliers to cut prices or eliminate costs.

Although Kroger has around 2,000 fewer locations than Walmart, Kroger’s recent sizeable acquisitions of Harris Teeter (227 stores; 2014); Roundy’s (151 stores; 2015); and e-tailer Vitacost.com (2014), will help Kroger negotiate better terms with suppliers and provide additional outlets for Kroger’s profitable portfolio of private-label brands.

Look for Walmart and Kroger to increase in-stock rates. To do this, they must implement better and more responsive store-level forecasts to predict demand and ensure product availability. Advances in replenishment programs like vendor managed inventory (VMI) make this possible with nominal or zero change to carrying costs. And, VMI helps guarantee customers won’t find empty shelves and purchase those goods from Amazon.

Kroger and Walmart will also have to evaluate their stock areas and make them more efficient. Some of this efficiency will be in the form of better space utilization, easier access to unloading areas, automation, and more frequent on-the-floor replenishment for fast-moving items.

To compete against Amazon, Walmart and Kroger will have to simultaneously employ the Five Vs: Value, Variety, Venue, Volume, and Availability. They cannot rely on only one or two to fight Amazon’s extremely deep pockets and their willingness to spend whatever it takes to successfully integrate Whole Foods.

About the Author
Wes Clark is the Content Marketing Specialist at Datalliance and has a penchant for finding solutions to the toughest content marketing problems. He also likes to find typos, errors, and omissions. Although Wes adheres to AP style, he refuses to follow its lack of support for the Oxford comma. Contact Wes via email: wclark@datalliance.com

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