Winning over Walmart
Three learnings from working with the World’s Largest Retailer
In the late 1990s, a few rogue Dutch greenhouse growers were taking the U.S. produce aisle by storm. After mastering the art of greenhouse growing in the gray Dutch climate over generations, they were now ready to break into the American market. They found the sunny climate they had long dreamt of in the high desert of Arizona, and in the dusty town of Willcox, they built the largest greenhouse growing complex in North America.
Not only was their greenhouse massive, but if done correctly, it would net ten times more produce per acre than conventional growing techniques. So by the time I graduated from my undergrad at Cal Poly SLO and entered the job market, the Dutch growers had a lot of produce to sell.
They hired me with a very clear mission: Figure out how to successfully work with Walmart.
Half of my job with the Dutch growers was straightforward: I arrived at the company’s Monterey, California office at 5:30 a.m. and spent the first two hours of the morning doing my best stockbroker impression. Every morning, I would call through my list of produce retailers in the western United States to negotiate a daily price for perishable commodities (this half of my job also included one of the scariest jobs in sales — cold calling. But that’s a story for another day). In our case, those commodities were tomatoes, cucumbers, and peppers, which fluctuated in price depending on seasonal supply. During these morning calls, the retailers and I talked about two things: price and quantity. Like I said: straightforward.
The other half of my job was anything but straightforward.
At the time, Walmart had recently expanded its traditional stores into supercenters, which basically meant adding a grocery store to the current format. This afforded an incredibly lucrative opportunity for companies like ours. If we worked well with Walmart, we could be contracted to supply up to 20% of their 2300 stores. But working well with Walmart was nothing like working well with a traditional grocer.
With a client like Safeway, the only thing expected of us was a good price, a good product, and reliable delivery. Once my company had delivered our products, Safeway’s marketing team would decide how to merchandize on the storeroom floor. Walmart, on the other hand, expected full collaboration with suppliers in the marketing and selling of products store wide, including the produce department. If your product sales were off, it was your responsibility to dive into the data to figure out which stores were underperforming and why.
This was a break from the traditional grocery buyer/seller relationship and a big request to make of the seller given the amount of resources it required. But Walmart could make this request, not only because of how much revenue a partnership could offer, but also because of the information they shared.
In the early 2000s, Walmart was an early adopter in developing and implementing integrated supply chain software called “Retail Link.” The program was designed to provide detailed product sales information with up-to-the-minute tracking, 24/7. While most companies would see top-of-the-line software as a strategic advantage and keep it a closely guarded secret, Walmart reversed that idea, allowing the supplier full access to all sales information for its stores — including competitor information.
This is where Walmart discovered a remarkable competitive advantage: collaborative use of supply chain data.
With access to the vast amount of data in Retail Link, our company could see how our products were performing, but we could also see the sales and price info for competitors. This kind of transparency builds trust, while facilitating a different kind of discussion between supplier and retailer. With Walmart, I didn’t have daily conversations about price, like I did with the traditional grocers — those negotiations took place only once or twice a year. When I talked to Walmart, our conversations were collaborative efforts to understand how to sell our products from their stores as effectively as possible.
But supply chain transparency also meant a high level of accountability on the seller’s part.
About four months into our partnership, I got a call from their category manager in Bentonville who had a problem.
Data from Retail Link told them that our spoilage rate — the percentage of produce that spoils before it’s sold — was around 10%.
“That’s too much,” he said. He directed me to look at the spoilage rates of Walmart’s other tomato vendors. “Your rate needs to be 6%.”
At the time, our company was only supplying about 70–80 Walmart stores. But if we did well, almost 400 more stores could be added. So when Walmart called with a problem, you listened.
“No problem,” I said. Then I hung up the phone, looked out my office window at the Monterey Bay, and whispered, “I have no clue how to fix this.”
As I wrote in last month’s post, I already had experience with building information systems from the ground up in the Marine Corps. But now I was faced with the opposite problem: instead of not enough data, I had too much data. Tracking hourly sales information from our then 70–80 stores produced a lot of information that needed to be deciphered into something useful.
The key was working the raw data at the distribution center/store level into something I called “actionable intelligence.” This is the concept of mining data, building macros/pivot tables and scripts, in the hopes of finding discernable information points that allow you to take meaningful action.
I logged onto the Retail Link server and pulled the data from every store we serviced. I combed through all the numbers until I could identify a handful of stores that were throwing away massive amounts of one specific product, small cherry tomatoes, which was hurting our overall spoilage rate.
Now that I had data that allowed me to take action, I booked a flight to Utah, where I would drive out to the rural stores with high spoilage rates to investigate the problem.
When I walked into to the first supercenter in Utah, it looked exactly the same as Walmart’s stores in California, Arizona, and Oregon. At first. But when I got to the produce section, I noticed something different: our tomato display looked horrible. The product was stacked in giant piles, packed way too tightly, with too much weight on the lower tomatoes. Someone had dumped the whole shipment out in the display bin, and the batch was drying out from lack of oxygen.
My first thought was that this was the work of an incompetent teenager who didn’t know how to handle produce. But when I drove to the next store in the region, I found the same problem. As it turned out, it wasn’t the employees who were incompetent: it was the regional produce manager who had not given clear instructions for how the product should be handled.
I flew back to Monterey and called my contact at Walmart to inform him of the issue. He then put out a regional memo to produce departments about how to stack our product. Within weeks, our spoilage rate in this area dropped to 6%.
While this may seem like a straightforward solution to a simple problem, it was, at the time, almost revolutionary. If we’d had the same issue with Safeway, the best their rep could have said was: “We’re throwing away a lot of your tomatoes.” Walmart, on the other hand, could tell us the exact spoilage rate and could direct us to the data to back it up. Because of the transparency of the system, when Walmart said there was a problem, we not only immediately agreed, but we also had both the tools to understand the problem and incentive to fix the problem.
And the incentive was well worth it: once we solved the spoilage issue, we were soon rewarded with the contract for almost 400 additional stores.
What I learned from working with Walmart overlaps with what I learned from working with the Marines. Both cases show the importance of getting a handle on your organization’s current relationship with the technology and how it uses data to make actionable intelligence. An enthusiastic and open relationship to new technological innovations, like Retail Link, was the difference between the sellers who got to ride the Walmart wave and the ones left gasping for air.
But I also gained unique learnings from my collaborations with Walmart that I continue to apply to all my workings:
Three key learnings from working with the world’s largest retailer:
1. Turn data into actionable information: Raw data is not useful information; actionable information is the key to success. Having nearly unlimited metrics from 2300 stores would be useless if I couldn’t implement a system to tell me where to look.
2. Turn actionable information into action: In the process of acting on the information I found in Retail Link, I would go on to visit more that 50 Walmart supercenters across the western U.S. It’s important to understand the macro supply chain, but you also need to connect with the front-line as much as possible. Walking the storeroom floor, talking with managers, and understanding the entire system from top to bottom is invaluable. The Retail Link data couldn’t always tell me what was causing the problem — but if I knew how to turn the raw data into actionable information, it could tell me where to look. It was my job to haul my ass out there to do the looking…even when it meant trips to rural Utah.
3. Apply learning to other parts of your business: When Walmart offers you a resource as valuable as 2300 stores-worth of information, it’s vital that you take what you learn and apply it to other parts of your business.
As I mentioned before, when I talked to traditional grocery buyers every morning, all we talked about was price and quantity. But the day after I solved the spoilage problem in Utah, I tried a different approach.
When I got my traditional buyer on the phone, I said, “Hey, do you happen to know the spoilage rates for our products at your stores?”
Since he didn’t have a system like Retail Link, he couldn’t answer right away. But one morning, a few weeks later, he said, “I got those numbers you were looking for.” Our spoilage rate was close to 10%.
“That’s a little high, isn’t it?” I said.
“Is it?” he said.
Keep in mind that this wasn’t just me being nice. Even if the retailer isn’t recording the data, managers notice when they’re throwing away a lot of the product, and, instead of talking to us, they simply order less.
I told the buyer that if he displayed our tomatoes in smaller quantities and gave them room to breathe, it could drastically cut down on spoilage.
And wouldn’t you know it — within a few months, that buyer was upping his tomato orders.
When supply chain management is effectively transparent and collaborative, everybody wins.