BATAVIA, Ohio (AdAge.com) -- Walmart has launched an aggressive push to have marketers divert their consumer media and marketing budgets into the giant retailer's growing ad budget and in-store marketing programs, using a simultaneous push to clear underperforming brands off its shelves as extra leverage.
In recent months, the country's largest retailer has been quietly rolling out a system -- the cost-supplement initiative -- that marketers and industry consultants say directs marketers to divert money proportionate to their share of sales to Walmart marketing programs. Walmart is looking for a share not just of trade-promotion funds but also consumer-ad dollars. The vehicles Walmart wants funded include co-branded TV and other media ads, in-store TV and banner ads on Walmart.com.
It's probably the boldest retailer grab for suppliers' consumer-marketing funds ever, if only because the amounts involved are so huge. Some package-goods companies do more than 30% of their U.S. business at the retailer. Complying with Walmart's guidelines would, in theory, mean a company the size of Procter & Gamble Co. diverting around $1 billion in U.S. media dollars into Walmart's media budget or marketing and merchandising vehicles -- a sum roughly equivalent to what Walmart spent on all of its own measured media last year, according to TNS Media Intelligence.
To be sure, there's no evidence any major marketers have come close to meeting that demand. If they did, they would either have to make proportionate concessions to other retailers -- essentially turning their entire marketing budgets over to the retail trade -- or risk violating the Robinson-Patman Act, which requires manufacturers to treat retailers proportionately in trade deals.
Walmart isn't the first retailer to dream aloud of grabbing suppliers' consumer-marketing budgets. It's just the one bringing the biggest clout to bear, particularly as the push for marketing dollars coincides with other elements of its "Project Impact," through which it's culling product assortments around 15% on average and as much as 80% in some low-priority categories.
The implied threat for marketers that don't go along with demands for more marketing funds is an increased risk of delisting, or conversely that ponying up more marketing dollars can help save their space on Walmart's shelves.
The case of Arm & Hammer
One case increasingly talked about in industry circles is Walmart's recent reversal of its decision to delist Arm & Hammer liquid laundry detergent from close to 90% of its U.S. stores.
Walmart eliminated most of the brand's distribution this spring despite Church & Dwight Co. hiking its marketing support for the brand to record levels last year. But people familiar with the matter say Walmart determined it didn't need both Arm & Hammer and Henkel's Purex in most of its stores. Both are value brands with similar consumer propositions and prices, and Purex had a higher market share at Walmart.
In recent weeks, however, Arm & Hammer liquid detergent began reappearing at all the stores it disappeared from a few months earlier. That coincided with the brand making appearances in Walmart's circular and TV ads earlier this month -- appearances that suppliers say are included in a catalog of options with price tags attached.
As Walmart knew, Church & Dwight was nearing completion of a new million-square-foot liquid-laundry-detergent plant, much of it having been planned to serve Walmart when construction began last year, said Burt Flickinger, consultant with the consulting firm Strategic Resource Group. "Financially, Walmart had Church & Dwight over the proverbial barrel," he said.
Walmart and Church & Dwight have repeatedly declined to comment on the Arm & Hammer merchandising decisions, and a Walmart spokeswoman declined to comment for this story, citing "competitive reasons."
Leon Nicholas, director of retail insights at WPP consulting firm Management Ventures, said Walmart's aggressive demands for marketing funds, combined with its program to cull item assortments, is roiling the package-goods industry like no other matter.
Walmart as ad agency
He declined to comment on specifics of the Arm & Hammer matter because Church & Dwight is a client, but he called Walmart's cost-separation initiative a "way for suppliers to pony up marketing dollars in order to get more favorable treatment and placement in any number of Walmart promotional vehicles, so that they're advertising through Walmart, almost as if Walmart were an ad agency now. And as that happens, yes, decisions have been reversed [about product assortment.]"
Walmart, Mr. Nichols said, likewise is preparing to restore some products cut in the cereal aisle earlier this year, primarily for General Mills, though he declined to comment further on the particulars or whether that involved marketing funds, as General Mills is also a client.
Though Walmart is clearly playing hardball, he said, it's not going as far as many retailers in establishing a "pay-to-play" environment.
"The non-cynical way to put it is that [Walmart] is amenable to listening to supplier arguments that they may have cut too far in their [product] mix," Mr. Nichols said. "Because they've opened up so many marketing opportunities in-store and out-of-store, they've opened up the possibility of pitting vendors against each other."
Walmart long has had an "open-door" policy to appeal merchandising decisions, and Church & Dwight has used it liberally, one industry executive said. It probably didn't hurt, the executive added, that the company entered the open door with an open wallet.
Walmart still bases buying decisions primarily on consumer appeal and price, Mr. Nicholas said, but it's increasingly willing to use marketing funds at least as a tie-breaker, and in lower-priority categories as part of a bidding process on what national brand gets to compete alongside private labels.
'Win, play and show'
Walmart's new strategic system rates categories as "win, play and show" based on their priority to Walmart's marketing strategy, he said. Likewise, vendors also are being rated as "win, play and show."
"If you get categorized as a play vendor, you come back, use the CSI tool, use a half million dollars for this, a half million for that, and bang, you're back in good graces," Mr. Nicholas said.
But much of what Walmart is asking for falls well outside the realm of traditional trade marketing, he said. "You've got social media [like the ElevenMoms blogging community]. You've got smart TVs in the store. You've got magazines, TV and radio advertising."
It's a substantial departure from the model Sam Walton created, where merchandising decisions were based on price and consumer appeal. And it's a departure from Walmart's "House of Brands" philosophy, too, as the marketer funds are being diverted largely to help build the Walmart brand, not manufacturer brands.
That's one reason Walmart's message is being received dimly when conveyed from the Walmart sales team to the marketing team at the home office, Mr. Nicholas said.
"The biggest challenge right now for a lot of our clients is the internal battle," he said. "I'm not saying any client has committed to that percentage notion, but I do know a fair number are filling out that CSI tool and making substantial commitments to Walmart."
In making the shift, Walmart Chief Merchandising Officer and former Chief Marketing Officer John Fleming have torn several pages out of the book of his old employer, Target, said Mr. Nicholas and industry executives.
"The spark [Walmart logo] is the new bull's-eye," Mr. Nicholas said. "And 'Save money. Live better.' is the new 'Expect more. Pay less.'"
But even Target hasn't gone so far as to require all in-store merchandising material to bear the chain's logo and trade dress, as Walmart has. That means marketers doing in-store promotions now help pay for the in-store component of Walmart's campaign.
The campaign from Interpublic's Martin Agency, Richmond, Va., is clearly the best in the business right now, Mr. Flickinger said. And Walmart is looking to substantially boost weight behind it without actually using its own media dollars.
Many of the changes help manufacturers, too, said one supplier executive, such as the ability to dovetail ads on Walmart's new Smart Network with end-cap displays. But it's also at odds with the retailer's former merchandising meritocracy.
"Sam would be spinning in his grave," the supplier said.
Walmart isn't really doing anything other retailers haven't, and its aggressive push is just one indication of the growing importance of shopper marketing, said Chip Hoyt, VP-marketing of brokerage firm Crossmark.
The degree to which manufacturers comply with Walmart's requests will have much to do with the strength of their brands, he said. A P&G, with a stable of leading brands that consumers likely would leave a store to buy, has considerably more power to fend off raids on its consumer-marketing budget, he said, than marketers of second- and third-tier brands.