Once registered, you can:

  • - Read additional free articles each month
  • - Comment on articles and featured creative work
  • - Get our curated newsletters delivered to your inbox

By registering you agree to our privacy policy, terms & conditions and to receive occasional emails from Ad Age. You may unsubscribe at any time.

Are you a print subscriber? Activate your account.


Centralized Buying, Special Treatment Lures Flocks of Marketers for Product Launches

By Published on .

NEW YORK (AdAge.com) -- Bentonville, Ark., home of uber-retailer Wal-Mart Stores, has become new-product central for food marketers looking for innovative ideas -- and higher profits.

Companies large and small, from ConAgra Foods to snack-marketer Poore Bros., are increasingly drawn to the chain's marketer-friendly centralized buying system and its lack of new-product shelving or slotting fees, making Wal-Mart highly cost-efficient for marketers to test drive new products.

But the chain's influence is also felt in other ways. In the decade since it committed to becoming a food retailer, Wal-Mart has built more than 1,100 supercenters with sizable grocery departments -- and plans at least 185 more through the first half of this year. The retailer has also begun an expansion of its grocery-store-scale Neighborhood Markets for likely national rollout by 2005.

$80 billion
With $80 billion in supermarket-product sales last year, Wal-Mart dwarfs its nearest competitor, Kroger Co., by nearly $30 billion, said retail industry consultant Burt Flickinger.

But the main reason Wal-Mart draws marketers seeking a home for new products is not scale but strategy.

"Wal-Mart is the first one to get our products because we don't have to pay slotting fees, and if the product is a home run there, other retailers may be willing to bypass slotting fees," said Tim McMahon, senior vice president of marketing and communications for ConAgra, which has partnered with Wal-Mart to introduce products such as its successful Homestyle Bakes.

Wal-Mart declined to comment

Related Stories:
Private-Label Brand Has Seen Sales Surge to $530 Million
on its practices or policies.

But Mr. Flickinger said the slotting fees charged by typical supermarket retailers to stock new products -- eschewed by Wal-Mart in favor of its "everyday low prices" for consumers -- are "so high that it takes two to three years just to break even on new items." As a result, he said, branded manufacturers can reap greater profit from Wal-Mart.

Aurora Foods revived
Aurora Foods has. Recently, Aurora announced its partnership with Wal-Mart to launch a line of Lender's Cream Cheese to more than 500 Wal-Mart supercenters, a strategy that has essentially helped Aurora "back from its death," according to Prudential Securities analyst John McMillin.

Aurora recently posted its first profit in over eight quarters, and while the company said unit sales were up in stores still tracked by Information Resources Inc. (which no longer includes Wal-Mart data), it added in a statement that "the company has an even stronger growth rate at Wal-Mart." Wal-Mart is Aurora's largest customer, accounting for 14% of its 2001 revenue.

Poore Bros.' sales are likewise hinged to new product introductions at Wal-Mart. The company, which last year had $57 million in sales, said it expects to grow this year due largely to Wal-Mart's decision to extend its T.G.I. Friday's snacks from a 250-store test in the Northeast to 700 supercenters across the country. Small Canadian upstart Krave's Candy Co. also has Wal-Mart to thank for its big break. Krave's was able to double its volume and break onto U.S. soil for the first time with its Clodhoppers chocolate-graham candies after Wal-Mart's acceptance of the product into its stores for the last two Christmas seasons. Now, its presence in Wal-Mart has attracted interest from other U.S. retailers.

"The fact that we're doing business with Wal-Mart sends a message ... about the credibility of our company," said co-founder Chris Emery.

Centralized buying
Still another reason to launch at Wal-Mart is food companies' ease in dealing with the chain because of its centralized buying. That efficiency is in part what drove meat marketer IBP (since purchased by Tyson Foods) to partner with Wal-Mart for its first-ever branded beef and pork business. After Wal-Mart pulled its butchers out of its stores roughly two years ago, IBP stepped in with its Thomas E. Wilson brand, which has since grown to $1 billion in sales -- half of that in Wal-Mart.

Only now is the fresh-meat brand beginning to expand to other retailers.

"We were testing case-ready [meat] to see if it was a viable option and we needed to limit our liability and partner with someone who would provide economies of scale, and Wal-Mart provided that," said Jeff Sandore, Tyson's vice president of marketing, refrigerated processed meats.

Private labels
But while national brands have done well partnering with Wal-Mart, industry observers note that as the chain gains an increasing share of the food business, it may become more interested in pushing its own brands. Recent private-label efforts in baby formula and vitamins have been very successful, Mr. Flickinger noted.

Most Popular
In this article: