Last week, Supermarket News reported Walmart notified its suppliers in a memo that it plans to change its sourcing structure:
Walmart late last week told its grocery suppliers of intentions to change its sourcing structure whereby Walmart merchants and sourcing managers would become more deeply involved in supplier businesses, including their cost negotiations and business relationships, and by spending more time at their farms and factories.
After hearing that the giant retailer will get even more deeply involved in influencing its suppliers’ operations, communications, pricing and other cost factors, at least a few skeptical suppliers told SN they’re receiving the announcement with “trepidation.”
Over the years, Walmart has repeatedly asked its vendors to cut costs, improve sustainability, refine operations and more. From where I sit, this looks like one more step in Walmart’s ongoing effort to get involved from start to finish in determining a brand’s cost to serve. By controlling supplier costs, Walmart maintains a retail price advantage versus their competition and an acceptable profit margin for their shareholders.
While this is certainly understandable for Walmart, it may not work out so well for brands who rely on this large retailer for a significant portion of their brand’s revenue. Their either/or proposition is to acquiesce to Walmart’s determination of an appropriate cost to-serve, boosting Walmart’s profitability, or give up the revenue Walmart offers, even if it reduces their own bottom-line profitability. Given Walmart’s leverage, suppliers are likely to do what it takes to maintain distribution of their brands. As FoodDive writer Jeff Wells put it, “when you’re the world’s largest retailer, you call the shots, and suppliers follow suit.”
What if there was another alternative? What if brand manufacturers lessened their dependence on Walmart by pursuing an alternate route to market, one that can deliver organic, profitable and sustainable growth for their brands?
I’ve talked with the leaders of top global brands for many years about the many benefits of pursuing the independent wholesaler channel, which can be as big for a brand as Walmart, without the barriers to entry that impact profit.
This often-overlooked channel distributes brands through more than 1,000 small, independently-owned businesses who sell to hundreds of thousands of foodservice outlets across the United States. Every day, millions of consumers that brands need to reach in today’s changing retail buying environment are buying products from outlets that include mom-and-pop restaurants, bodegas, food trucks and independent cafeterias.
With minimal investment, brand manufacturers can leverage the independent wholesaler channel to get their products to millions of consumers a day. No capital investment is required to ensure brand availability or growth. Brands don’t pay for advertising. They don’t pay for space. They don’t buy displays. It offers a significantly less expensive cost-to-serve than traditional channels.
With so much opportunity, why would any brand pass up on playing in a sandbox that can be as big as Walmart? Interested in learning more? Give us a shout.