Will Wal-Mart Tie Its New Cost Cutting Strategy to Green? And Will Consumers Care?

Last week, Wal-Mart announced it was cutting prices on "thousands of products" in what Spend Matters believes is attempt to grow market-share and customer trust during a slow recovery. According to the Wall Street Journal, "Wal-Mart is publicizing its price cuts with a barrage of placards in the aisles of its 3,700 U.S. stores and a media campaign describing how the company's cost-cutting moves, such as combining shipments so its trucks carry full loads, translate into savings for consumers." Has there ever been a campaign in the retail sector more directly tied to cost cutting and being green? Probably not. Yet the big question is: do US consumers really care what's driving price cuts at the cash register, provided they're sustainable from one trip to the next?

Compared with those who shop at Whole Foods or customers who frequent the organic bulk items at Costco, the reputation of the average Wal-Mart customer is that they're primarily concerned with price. Indeed, among the largest Big Box formats, Wal-Mart has long earned a reputation for appealing to lower and middle wage earners that put cost over a broader value definition. Given this, it feels to me that this cost cutting campaign is little more than a green afterthought, placing the burden on those who Wal-Mart has traditionally taken out the hammer on in the past -- their suppliers. The Journal article specifically refers to the fact that there's far more than green up their cost cutting sleeve. To wit, "Wal-Mart expects to expand the number of price cuts in coming months with help from suppliers. Wal-Mart is encouraging them to reduce what they charge the chain in exchange for having it spotlight their products as part of its price 'rollback.'"

In an environment where many food and CPG suppliers are concerned with the specter of commodity price inflation and are already beginning to see a rise in transportation costs and surcharges as oil prices gradually increase -- not to mention having already cut their margins many times over as a result of Wal-Mart's cost reduction demands -- this attempt at positioning the opportunity of "premier product placement" for further cost reduction feels like a thinly veiled cost ultimatum at best. Perhaps if Wal-Mart was willing to give a little bit (e.g., trading price decreases for reduced charge-backs to suppliers if they fail to deliver their goods within a certain time window at a store) such activities might seem more genuine. Rather, the reality is that suppliers will once again end up paying for Wal-Mart's marketing and pricing experiments, even as the retail giant positions the charade as green supply chain cost reduction leading to lower prices for customers.

- Jason Busch

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