Walmart International Revs Up Growth

By Natalie Berg*

Walmart trades through more than 9,000 stores under 60 different banners in 16 countries. Walmart’s International Division now accounts for more than one-half of total units and more than 25% of total sales.

As a standalone company, Walmart International would be the 3rd largest retailer in the world (as of 2010). The division generated sales of $109 billion last year, growing at 12.1% while Walmart’s domestic business essentially remained flat. As such, International will be a key component for Walmart’s future growth. Following on from the acquisition of a 51% stake in South Africa-based Massmart, Walmart now trades through more than 9,000 stores under 60 different banners in 15 countries outside the United States. Who said one size had to fit all?

Walmart has become far more versatile overseas, recognizing after failures in Germany and South Korea that local products, formats and brands are all critical factors to success. Today, three quarters of its stores outside the US trade under a different banner than Walmart. The retailer’s international strategy is no longer a broadcast from Bentonville; instead it is rapidly becoming a two-way conversation as Walmart looks to leverage best practices across its global estate. For example, the success of its Latin American bodega formats has inspired new small-box concepts in the U.S. (Walmart Express) and China (Smart Choice). This is also true of cash and carries where Walmart has exported learnings from Brazil to India. Compact hypermarkets - which are about half the size of Walmart Supercenters but generate similar returns on investment - have been copied and pasted from Mexico to China, and the UK team has recently shared their grocery e-commerce expertise with Walmart’s US team.

The challenge for Walmart, like many retailers, is to strike the right balance between customization and efficiency. While Walmart has made solid strides in the flexibility department, there is a contrasting need for uniformity when it comes to certain areas such as pricing and, to a certain degree, merchandising. Private label plays a key role here, and Walmart has done an excellent job generating scale in this regard – with the exception of the UK and the newly acquired Sub-Saharan African division, the Great Value line is now sold in every Walmart market. Other brands such as Equate, George, Simply Basic, Mainstays and Home Trends are found in a number of Walmart stores around the globe. At the same time, the company has recognized the need to create market-specific lines where relevant (ie. the healthy eating Sentir Bem range in Brazil) so as to better respond to local consumer demands. Walmart maintains that it is a “house of brands” but there is no denying that today, more than ever, private label is a key component to the retailer’s global merchandising strategy as it enables them to deliver on the core promise of saving people money so they can live better.

Asda in UK

Walmart’s only European market is arguably the most sophisticated private label market in the world. Its Asda division in the UK is set to deliver its largest single year of growth ever, mainly due to the acquisition of 147 Netto discount stores. The acquisition itself marks a major shift in strategy for Asda, which up until recently has been focused on driving growth with larger hypermarkets and superstores. A shift towards smaller formats is consistent with Walmart’s global format strategy and will enable Asda to broaden its consumer base, tapping into new shopping occasions.

Although private label plays an important role when it comes to delivering value in a smaller setting, CFO Judith McKenna told Planet Retail in a recent interview that focusing on the shopper will be key. “We’re learning as we go. We certainly learned a lot from Asda Essentials [the discounter format Asda piloted several years ago which featured 95% private labels] and have since realized that you’ve got to start with, ‘what does the customer want to put into a full weekly shop?’ Brands of course play a role here.” Planet Retail maintains that Asda is in a much better position to trade through small formats today versus just several years ago due to major improvements in food quality. Last year, Asda overhauled its standard line, which represents around 80% of its private label food sales, in what the retailer called the largest ever private label relaunch in UK history. The line was rebranded as Chosen By You to reflect the fact that all 6,500 products have been taste tested and endorsed by customers. “We have always been known for low prices, but recently we have made some good, solid strides in quality,” CEO Andy Clarke told Planet Retail.

Another exciting private label development in the UK was the launch of Elegant Living earlier this year. Products in the homeware range are jointly sourced (branded as Canopy in the US) which enables Asda to match department stores on quality while undercutting the competition on price by 30% due to efficiencies in sourcing. Looking ahead, we will see Walmart further leverage its scale through global sourcing initiatives in a bid to get differentiated, value-led products on its shelves not only in the UK, but also the rest of the world.

Asia

Asia is ripe for private label growth, particularly in the emerging economies of India and China. As the modern Indian retail market has only just evolved over the past couple decades, retailers have been able to scour the globe for best practice and it’s no surprise that many put private label at the top of that list. FDI laws currently limit Walmart to trading through cash and carries in partnership with local player Bharti; yet in what was a first for Walmart, it has put its private labels on the shelves of another retailer - Bharti’s Easyday branded hypermarkets and neighbourhood stores. While the stores stock international brands such as Great Value and George, Walmart also uses the Astitva brand, for example, to better connect with local consumers. Further investment is to be expected in India as partner Bharti looks to more than double its private label business to reach 40% of sales.

Private label plays a slightly different role in China, where Walmart trades through hypermarkets, supermarkets, warehouse clubs and discount stores. Food quality and safety are big concerns for the Chinese consumer, and therefore national brands – over private labels - are often in a strong position to capitalize on this customer assurance. This is beginning to change as the large multinationals work to convey the benefits of private label, and today the Great Value line is available in almost all food categories in Walmart China. Simply Basic and Mainstays also command a significant amount of shelf space in their categories.

In Japan, Walmart has made substantial improvements to the quality of its private labels, adapting them to suit local tastes and preferences. For example, the George line used to only feature size modifications in Japan, but today it is created with local product specifications and materials especially tailored for the Japanese consumer. Imported from the UK are products such as Asda-branded Scotch whiskey and Extra Special wine while Oak Leaf wine from the US is sold in Japanese stores for a mere ¥380. Another noteworthy innovation has been the launch of ecosara – functional, sweat-absorbing underwear which saw sales double in just one year.

Latin America

Stretching from Mexico to Chile, Walmart’s Latin American operations trade through a wide array of formats ranging from hypermarkets and traditional bodegas to restaurant chains and clothing stores. This is primarily due to the fact that the majority of Walmart’s growth in Latin America has been acquisitive rather than organic. Although the Walmart and Sam’s Club banners are widely used in large markets like Brazil and Mexico, Walmart has generally retained local banners so as to better connect with Latin American consumers. The same can be said for its private label strategy where the usual suspects of Great Value and Equate may be found on many shelves, but this is evaluated on a market by market basis. For example, in Brazil, Walmart has essentially phased out the Great Value line in favour of Bom Preco, which has far greater resonance with local shoppers. Again, it’s about balancing customization with efficiency. Walmart has done an excellent job targeting Latin America’s C/DE consumers with differentiated value private labels at opening price points. For example, the +eKonomico line can be found in Todo Dia stores in Brazil while the Acuenta range is used to target lower-income consumers in Chile. Best practice continues to be shared – the 100-day quality guarantee that was launched last year in the UK has been exported to Latin America where it is also used to instil confidence in private label items.

Sub-Saharan Africa

Although it’s still early days in Sub-Saharan Africa, private label is likely to be one of the first areas that Walmart tackles as it integrates Massmart’s 288-store, 13-country operation into its global network. Private label has a long way to go in the region – it has historically not been a priority for retailers given South Africa’s geographic isolation and the consequent lack of sourcing opportunities. Despite a few notable exceptions, private label is still largely positioned as the generic, poorer-quality alternative to the brand and very little is done instore by retailers to communicate the benefits of such products. Walmart will change this. Planet Retail expects the introduction of private label hardlines to be one of the first strategic moves Walmart makes in the region. The retailer is likely to improve Massmart’s apparel business in which case the introduction of George would be a quick win. George, which is currently sold as a brand in seven Walmart markets, has been so successful overseas that Walmart is now using it as a standalone retail format with which to enter an entirely new region (Middle East). In South Africa, the absence of quality private label food lines at opening price points is a void that Walmart will happily fill. Planet Retail also envisions premium private label launches in South Africa as a means of differentiating from existing players, targeting the emerging middle class and driving higher margins.

*Natalie Berg is the global research director at London-based Planet Retail. She has spent the past 8 years analyzing global retail trends and today is a frequent speaker at industry events throughout Europe and the US. Natalie's areas of expertise include private label, global retailing and format strategies. She has been cited on retail issues in publications such as the Wall Street Journal and The Economist, and regularly contributes to broadcast media with appearances on the BBC, CNBC and Bloomberg. Natalie's first book, an in-depth look at the future of Walmart, will be published in May 2012 coinciding with the company's 50th anniversary.

Prior to joining Planet Retail, Natalie served as a Retail Analyst at WPP-owned Kantar Retail, working from their Boston and London offices. Natalie has a Bachelor of Science in International Business from the University of Connecticut and has also completed studies at Ecole Supérieure de Commerce in Grenoble, France.