TRANSCRIPT
Peter: Welcome to Unpacking the Digital Shelf where we explore brand manufacturing in the digital age. Hey everyone, Peter Crosby coming to you from the digital shelf institute studios in Boston with our weekly episode of quick takes on the industry news that you might just want to pay attention to. Rob is here in the studio with me.
Rob: Hello.
Peter: So breaking news from, from CNN. I want to share that it's by Jordan Volinski at CNN business. The Jif versus GIF internet meme has been solved forever by Smuckers who put out a special edition, a limited edition jar of their Jif peanut butter spelled GIF to settle once and for all that this thing is pronounced with the soft G.
Rob: This is the nerdiest thing we've ever done in this podcast. We're bringing literally the how to pronounce a file format argument to, to podcasting form.
Peter: Yes. But this A) it's if, you should go to CNN business, Jordan Wolinsky, we'll get the link to you, but it has the two pictures of the Jiff jars side by side with the, with the two images. But the smartest thing about it is that the limited edition jars are for sale on Amazon for $10.
Rob: There are overpaid graphic designers all over the Bay area paying for the limited edition Jif GIF peanut butter.
Peter: And it's just in time to celebrate national peanut butter lovers day on March 1st. Oh my God, let's get it for the nerd in your life. Anyway, I thought this was very important to share, you know, before any other news of the day came out cause I think this is groundbreaking. But moving on to more mundane news, although this really was the week of Walmart part of it had to do with earnings announcements and so a lot of news came out around that. But the thing that caught our eye the most and was certainly the talk of the WPP stream conference that I was at was their announcement about combining the merchandising teams of online and offline into one team, which I think is a, a huge and necessary shift. Rob, do you want just sort of give your top level response around that?
Rob: Yeah, I, I, I wish I had a better inside understanding as to why now exactly. But this, this feels just like a natural shift in the course of business, right? So you go back years and e-commerce was a relatively experimental thing at Walmart. It was small. It required a different mode of operation and it required different talent that they didn't have internally and they acquired a lot of it through the jet acquisition. And since then, a lot of the e-commerce operations have been working independently. And I think that's by design, right? When, when you're doing something new and totally different and you're not really quite sure what to do, you don't necessarily want to muck with your primary core business. And especially if you're Walmart and you're the global leader in retail, you know, you've got something that's working, you've got something that's good. You know, Walmart even in the great recession did well compared to its peers. And so it made sense to keep it aside. Now, at some point, that business has grown so substantially. I mean, it's in the tens of billions now. What is it going to be? $50 billion, people are guessing next year. I mean, it's a, it's a big business and it's also with the integration of online and store pickup, which is relatively new in the last couple of years in Walmart, it's increasingly difficult to disconnect those operations with the central theme of the whole company. So, I mean, I think this is just a sign of maturation. I don't think it's anything more than that.
Peter: Well, Sarah Nassauer broke this story in the wall street journal, it's a great article and, and the subhead of it I think is also indicative of what's, of what's driving it. So the, the headline was Walmart to combine online and store product buying teams and then the subhead was move is partly aimed at easing conflict between units over pricing and other issues. So I think they were, there was some undercutting, you know, some concerns. And I think there also is the conflict at Walmart between how much money has been poured into eCommerce. And so I think there's, there is a certain degree of, of, I think trying to streamline some, maybe some of these conflicts.
Rob: Yeah, I sure you could point to whatever the straw is that broke the camel's back. But I think the reality is that the online has just become big. It's more intertwined with irregular operations.
Peter: It's what consumers want. Right.
Rob: And it's, it's, yeah. I mean, even if the consumers are shopping in store, they're there, they're using walmart.com and, and so it just makes sense to compare it to, to combine these things on, on some level. And the bigger online gets, the more there's going to be tension between the, between the online and the offline teams if they're, if they're not, we're moving in lockstep.
Peter: They aren't sort of yeah. And, and this makes it, I think, simpler for brand manufacturers. They don't need to present to two teams to figure out what's happening with their products. I think that's going to make those relationships easier.
Rob: Yeah. Yeah. Absolutely, and maybe you'll see more of the reasoned conversations about why something should be online only or why something should be hybrid or, and so and so on and so forth. It's going to be easier to have those types of strategic conversations if you're talking to one buyer instead of two separate buyers that have different goals and agendas.
Peter: And there's no question that Walmart wants to continue to grow their online assortment. So that's that will continue to be a focus.
Rob: This is just a smart move.
Peter: Yeah, I think it's, they say it's starting with the consumable and food groups. They're beginning joint buying immediately. So that to me says this is already sort of been started to be tested in those two groups, particularly as you said, because of the grocery aspect. They've already been trying to make that be, you know, buy, buy online, pickup in store stuff. And then the other merchandising teams will be apparel, entertainment, toys, seasonal hardlines and home. So part of the news that did come out was that, you know, they've been growing a, a reported Walmart reported online sales growth at 35% during the fourth quarter and 37% for the year. And they are in their latest earnings call, they predicted that e-commerce growth will slow to about 30% in fiscal 2021. So I think part of this is also maybe seeing some of that growth is beginning to slow, which makes, which is probably natural given the scale they starting to get at and wanting to make sure that these are truly truly aligned.
Rob: Yeah. Again, I mean I think, sure, maybe the growth is slowing or, or whatever, but it's, I don't think it's any one thing, you know, I think Doug McMillan is looking at the organization and saying it doesn't make sense for these to be separate anymore. Right. There's, it's causing more problems than it. Then the…
Peter: Online is working better for their customers and they have more power. Because Walmart just has such stronger relationships and stronger footprints across the, particularly in North America, stronger footprint because one of the other things that was announced this week and Jason Del Ray at Recode broke this story that Walmart is kind of going prime or as they call it, Walmart plus plus. So they Jason reported that as soon as next month, Walmart plans to start publicly testing a new membership program that over time would include perks that Amazon can't replicate. And go ahead.
Rob: So first of all, I want to give props to Nike because I believe Nike was the first of the membership groups to use the plus symbol. Nike plus they started that years ago and now it's everybody. You don't, Disney Plus, Walmart Plus, Plus Apple. This is like e-commerce back in 1996. Just throw that E onto the start of anything that you're doing. You know, like either that year is finally over. E-Trade was just acquired by Merrill Lynch, right? So the last E companies off the market, but it's instead of E whatever. Now they're doing plus at the end of everything. So I just, anyway, hats off to Nike for starting that trend.
Peter: Well, they're saying that Walmart essentially starting out as a, you know, in a sort of a, as a rebrand of their delivery unlimited service, which was $98 a year for unlimited same day grocery delivery. But then over time they, they are talking about expanding it to include discounts on prescription drugs at pharmacies, fuel at Walmart gas stations. They had tested scan and go services about two years ago, but it killed it. But they're talking about bringing that back in. So I, I think they're clearly trying to take advantage of their, of their own advantage and footprint and the different services they offer in physical locations to create perhaps a more interesting set of benefits for the particular Walmart customer.
Rob: Yeah. If I think this is also a good move I like a lot of what Walmart is doing, if they're able to get people to buy into the bundle that they're offering. So Amazon's bundle is video and you know, prime shipping and so forth. Walmart is bundles a little bit differently. They have video via the voodoo brand, but I think they were looking to unload that. What they do have that Amazon doesn't have at the scale that Walmart does is the, the fresh grocery and the prescription and, and primary care services at the Walmart locations and things like that. If they can make that bundle attractive enough to consumers to pay for the Walmart membership, there's a lot of consumers that are not going to pay both.
Rob: And this'll create a moat around a particular type of consumer for Walmart that's going to give preference to Walmart on shopping habits and shopping behaviors and possibly stall Amazon's penetration into certain segments of the economy. So I think this is a smart move. I know it's kind of a rebrand, but they, they, I think they're being more thoughtful about the bundling of all of Walmart services here instead of just using it as delivery as a shorthand. It shouldn't be delivery. It should be a bundle of other things to really get people engaged. So I mean, time will tell whether or not this really takes off and is the moat that that it could be. But I see, I see great possibility here.
Peter: Yeah. Sucharita Kodali from Forrester who's a really brilliant retailer analyst at Forrester in a in an ad week article that actually also you appeared in talking about a topic we're going to hit next said, I hope they're not trying to replicate Amazon Prime. That doesn't make too much sense. And I think that's true. If they can't really execute on this next stage of vision on it, it doesn't make sense. It just doesn't offer enough differentiated value in particularly with Amazon's grocery delivery just coming up and up. Right?
Rob: Yeah. I mean, there's a lot of things that Walmart does that look like me too with Amazon. Right. So I think there are certain types of people that look at Walmart and say, well, they're just copying Amazon. They're doing the two day shipping, you know, following Amazon. They're doing the membership program on shipping, following Amazon and so forth. But I think that misses it. I mean, Walmart I think is intelligently copying some aspects of Amazon’s strategy, but they're also doing things the Walmart way that's right for their customer.
Peter: That's right for their customer.
Rob: They're leaning in pretty hard to click to the click and collect, which is something that Amazon isn't, isn't capable of doing right now. They're leaning into grocery quite a bit for, for online and e-commerce operations and they've got a different type of mix of trade media that they can offer their suppliers that isn't just performance digital marketing that Amazon has. And so I, I don't, I don't quite see it as Walmart copying everything Amazon is doing. They're just copying good ideas. This is like, you know, on the, in the tech world, Instagram from Facebook copied the stories concept from Snapchat and that really helped to stall Snapchat's growth and keep Snapchat at Bay. But it's not like Instagram has copied everything. Snapchat is done. Right. You know, they look at Snapchat and they look at all the services Snapchat has and they pick one or two that are the ones that would work in a context of Instagram and, and they'll copy them. And so I, I think that there's a, there's a lot to like with the way that Walmart has been doing this. I don't think it's just been a thoughtless clone. I think they've been, they've been pretty thoughtful about how they've been going about it.
Peter: Yeah and speaking of maybe thoughtful clones you were quoted in the Recode article talking about Walmart fulfillment services, which is now coming online. Do you want to sort of give your perspective on them launching essentially fulfilled by Amazon, but for Walmart?
Rob: Yeah, this is, this is, I think ultimately my read on this is it's all about assortment. While Amazon has 556 million products available or whatever the number is, no one actually knows the exact number, but a ton and ton of products. Walmart has a fraction of that. And a lot of those products, the vast majority of them are sold third party. So Amazon I think has a a hundred million first party products and then hundreds and hundreds of millions of third party products. A lot of those three piece sellers rely on Amazon fulfillment services, the FBA, fulfilled by Amazon, in order to list and sell products from Amazon. And the way that FBA's fees are structured, FBA for sales on Amazon can be a profitable affordable thing. FBA servicing sales through other platforms like Walmart's marketplace or Target's marketplace is more expensive and isn't as profitable. So if you’re listing, if you're a third party Lister and you're reliant on FBA to get that prime badge and so forth, you're just listing on Amazon, right?
Rob: And Amazon's marketplace is so much bigger than the other market places that you could sort of get it. That's the 80% solution, right? 80% of the market is right there. You can afford to be there. And if Walmart has a lot of extra work and you've got to figure out some other logistics way to listen on Walmart, you're not going to do it unless you're selling at scale. Right. So the third party merchants that are listing on Walmart marketplace tend to be some of the larger ones and they'd, they lose out on a long tail and they lose out on a significant amount of assortment that that's present on Amazon. Walmart knows this, right. And, and Walmart isn't going to be able to create the same type of fulfillment logistics network for picking and packing and shipping packages that Amazon has overnight. But by launching this and getting a lot of important, you know, the first mover innovative, aggressive third party sellers to move over to also list on Walmart. They're gonna have a new weapon here to, to combat it.
Peter: To start building those assortments from sellers that may also be listing on Amazon, but now they've made it easy for them to do it with Walmart as well.
Rob: Yeah. And of course all this stuff is connected. You know, when we just talked about Walmart plus, if you're a Walmart member and you're paying that Walmart plus fee and your, your default behavior should be in theory, right? Your default behavior should be to the first place that you go to look for something to buy. It should be walmart.com and one way to support that is that they've got everything that you need. The more often that somebody has to go somewhere else other than walmart.com to find a thing, the less the habit works and the less the membership fee is successful. So these types, I mean this is Bezos’, and Amazon had been pursuing this for years, so they really, really understand this. But if you're Walmart and you're the everything store and you're looking to be the one stop that most of your regular consumers go to find stuff, you've got to play this game. And so I think that that's, that's what this is about. It's about assortment. It's about reducing friction for therapy sellers. It's about supporting the habit of going to walmart.com first.
Peter: Yeah. Well, the closing question in Lisa Lacey's article in Adweek came from, you know just clearly a genius who said, the big question mark is, will consumer shopping behavior follow? And that's really the question, right? How many, because a Walmart dynamic, there's the, I don't know the Venn diagram between Amazon and Walmart customers. Yeah. But I would presume, and you tell me if you feel like Walmart's differentiation, people won't want to pay both, I'm guessing. I, I, yeah, I think especially Walmart's customers won't want to pay both or some percentage of them will not want to pay both.
Rob: Yeah. This is, I mean, man, this is the billion dollar question, right? Yes. I pay Netflix, and I pay Disney plus, and I put play pay a YouTube plus or whatever, the, whatever the YouTube.
Peter: But I think you are not necessarily Walmart's target customer.
Rob: No, but I do go to Walmart and, and so I would say, you know, how many, how many people are like me. I mean, it's, it's like I, there's another interesting question. How many people that are Costco members also shop at Walmart? How many Costco members also shop at Kroger. So there's a lot of membership overlap studies that one could do to get a sense of what the overlap would look like. Where's, where's Walmart going to have strength, where is Amazon going to have strength and so on and so forth. But I mean, I, I think that Walmart's got a significant portion of the population that's going to be Walmart first. I mean, I just think of when I lived in South Boston, it was a pain to get packages delivered to me. You know, they would walk. Yeah. I lived in a neighborhood where people would steal them. And so I wouldn't have anything shipped to my house, I'd have things shipped home and I had a preference, therefore to go to a store. And from, you know, for me, target and, and Shaw's were two of the closer stores that I could go to. And I, I think there's a good percentage of the country and especially urban areas where that's true and where having a membership program like a Walmart where there's, there's click and collect, I mean, where they've got the medical services and, and all this type of stuff, there's this is really attractive. So I think, you know, in that Venn diagram that you're talking about, there's a, there's a big circle that has the potential, at least, you know, may not certainty, but at least has the potential to look at this Walmart bundle and say, yeah, that's better than Amazon.
Peter: So Jason Del Rey in his Recode article said that today, more than half of Walmart's top spending families are Amazon prime members according to sources. And so in recent moves Amazon has made moves to appeal to households with less disposable income with a monthly payment option for prime fees of 45% prime fee discount for those on government assistance, et cetera. So Amazon's trying to sort of work the entirety of Walmart's customer segment. And I, and as Jason points out, one fears that top Walmart customers could eventually turn to Amazon for groceries as they get sucked further into prime and will make a choice.
Rob: Yeah. I mean, that's the billion dollar question. Sure. I mean, Amazon grocery is still so tiny. It's just really hard to take it serious, take it seriously in the context of Walmart right now, I mean, Walmart is from when it comes to grocery, so, so, so, so much bigger that there's just a lot of ground. I mean, in the vast majority of America there is an Amazon grocery. Yeah. So, you know, I think that's, that's maybe a vision ahead. Right, exactly. In the meantime, Walmart has a chance to build a moat. Yeah. And if Walmart builds a mode, it's going to make it pretty hard for any new grocery store to launch to be successful. And as any grocer knows, there's not a lot of margin in grocery. Right. So, you know, if, if Walmart has a successful moat and grocery and every Amazon prime grocer that opens up is competing with a local Walmart that has loyal followers, I mean, that's, that's, you know, there's, there's a lot to like about Walmart's position in that situation.
Peter: Agreed. Well, with that good news for Walmart and a busy week of, of news and the peanut butter front being so critically transformed. I think that brings our show to a close for today. As always, please join us on our LinkedIn page. Tweet at us @windigitalshelf. And if you love the show, please leave a review would really be a help for us. And thanks very much for being part of our community.
