Wal-Mart Goes Private

Wal-Mart is rewriting the rules again.

This month, the mass merch giant will stop supplying scanner data to third-party research firms such as ACNielsen and Information Resources, Inc. Wal-Mart will continue to give data directly to manufacturers as it always has, and has no plans to start charging them for data.

“It’s a tangible action that indicates the way marketers analyze and act on data has fundamentally changed.”
— Ken Harris, Cannondale Associates

“This is the first major retailer to not participate with data vendors in 30 years,” says Ken Harris, partner with Cannondale Associates, Wilton, CT. “If Wal-Mart says, ‘We believe our data or no one’s,’ that rocks the world.”

Packaged goods manufacturers could get bit twice. First, losing Wal-Mart leaves a big hole in IRI and ACNielsen reports — an average 25 percent to 30 percent of total sales for food, and about 50 percent for general merchandise and health and beauty care. That makes it tougher to track a brand’s performance, even if Wal-Mart gives out its numbers. If other retailers follow suit, marketers could end up with a patchwork quilt of sales data.

The second bite is further off: If retailers go one better and start selling data directly to manufacturers — and investing part of the income in better analysis — they could take the lead in marketing. Account-specific marketing could turn upside-down, with retailers creating their own programs and selling them to CPGs. “Retailers will want programming that differentiates their own stores, and that’s not national advertising,” warns Jon Kramer, president of J. Brown/LMC Group, Stamford, CT. Such a scenario could be three to seven years away if retailers copy Wal-Mart, Kramer says.

That shift is happening anyway, contends Andy Murray, ceo of ThompsonMurray, a Fayetteville, AR-based account-specific agency that counts Wal-Mart among its clients. “It’s being driven by retailers’ marketing sophistication, not data,” he says. “Most retailers bring their promotion calendar to manufacturers and say, ‘How can you tie in?’ We’ll see more of that as retailers strengthen their own equities and get more education from manufacturers about what makes a good promotion.”

Wal-Mart is withdrawing its data not to control manufacturers but to thwart other retailers. “Our competitors were benefiting from this information more than we were,” says spokesperson Bill Wertz. “It was a business decision.”

Repercussions

The move cuts off six research firms: IRI, ACNielsen, Audits & Surveys, Market Decisions, NPD Group, and Sportstrendinfo (which gets data through the end of the year per its contract). Contracts expired in early 2001, and Wal-Mart gave monthly extensions while mulling its options.

“This won’t change anything in our relationship to vendors,” Wertz adds. “Sharing data with them is a basic part of our business.”

Manufacturers get store-level, SKU-level data via Wal-Mart’s longstanding Retail Link program. In fact, the chain requires all suppliers to participate in Retail Link, which is accessible online and assists marketing as well as operations and distribution. All marketers get their brand’s own data, but only some get competitors’ data too. “It’s not a whole view of the universe, and it’s all at Wal-Mart’s discretion,” Harris points out.

Many CPGs already benchmark Retail Link data against IRI or ACNielsen reports. The trick will be synching up timelines so Wal-Mart data is the same time period as other scan data. A bigger chore will be dedicating staff to analyze Retail Link data separately from syndicated data. And if more retailers follow suit, manufacturers might need a data expert for each chain, which would come at considerable expense.

IRI and ACNielsen take the biggest hit. Each will use its consumer panel to track Wal-Mart purchases for its mass-merch database. (IRI’s InfoScan panel has 55,000 households, as does ACNielsen’s Home-Scan panel.) IRI also plans to recalibrate its archives from two to five years back, depending on individual contracts, so CPG clients can compare a similar universe of retailers. As of mid-May, IRI and ACNielsen were separately talking with Wal-Mart to keep the data pipeline open.

“It’s the first time a major retailer has said these data providers are irrelevant,” says Harris. “That resonates with other retailers and manufacturers. It’s a tangible action that indicates the way marketers analyze and act on data has fundamentally changed.”

Sources outside Wal-Mart say the retailer was unhappy with the way manufacturers were presenting data to Wal-Mart buyers. Wal-Mart complained of disparities between syndicated reports and its own internal data, and hesitated to participate in promotion plans based on outside data, according to sources.

Wal-Mart’s Wertz says that doesn’t make sense, because research companies’ data is aggregated, not broken out by chain. Therefore, any syndicated data in manufacturer pitches couldn’t single out Wal-Mart.

But there’s a long-standing undercurrent of discrepancy between manufacturers’ shipment data and syndicated sales numbers. Blame “The Bump,” in which retailers quietly pad sales data to get bigger payouts on volume sold. The Bump is so cushioned that, by the time it gets to brand managers, they don’t feel a thing. Wal-Mart has a reputation for not padding its sales data, and may have felt more exposed than other retailers.

“This won’t change anything in our relationship to vendors. Sharing data with them is a basic part of our business.”
— Bill Wertz, Wal-Mart

If Wal-Mart is the only retailer delivering accurate sales info, “that may have contributed to our sense that our competitors are getting more out of this than we are,” Wertz says.

Responses

Still, it’s retailer-specific — and better yet, store-level — data that drives account-specific marketing. Manufacturers need to pinpoint key accounts as retailers consolidate further. The top 10 retailers will account for 70 percent of all-commodities volume (ACV) in 10 years, up from 55 percent now. “Retailers can hold hostage 55 percent of your sales,” says Kramer. “They’re coming to grips with their power in marketing. They’re waking up, saying, ‘I can be a marketer as well as a merchandiser.’”

In that environment, manufacturers are evolving to grassroots campaigns that start with shopper profiles rather than mere overlays to a brand’s national campaign, says Murray. “Consumers act very differently in the store than they do in front of the TV. The aisle is not the best place to change their beliefs about a brand — but it is a good place to change their behavior.”

Ideally, account-specific campaigns address shoppers’ moods in the store, before they go “into buyer mode,” Murray explains. Manufacturers should look at “how they shop your aisle, and what affinities the retailer wants to build with its shoppers,” then collaborate with retailers.

It’s appropriate for Wal-Mart and other retailers to proactively take the lead on co-marketing, Murray contends. “Few manufacturers can leverage the whole store. They can drive their category, but they can’t take on Fourth of July. Retailers own their stores, and need to take more ownership of marketing, too.”

That starts with the numbers.

Note to Wal-Mart:

Since your Norwalk, CT, outlet opened last winter, my wife has spent several thousand dollars that previously would have gone to a half-dozen other local stores.

Become a sponsor of Upromise (see Consumers) and she’ll never shop at another mass merchandise or grocery store again. I promise.