Wal-Mart, the world’s largest retailer, just surpassed a quarter of a trillion dollars in sales. If that number doesn’t impress you, consider this: Wal-Mart will likely double in size in about five years.

What will Wal-Mart and retailing in the United States look like in five years or so? A recent study, “Wal-Mart is Transforming Your Customer – Project OK2010,” by Foote, Cone & Belding, Chicago, offers a glimpse of this retailing giant in 2010.

The study, conducted by Leo J. Shapiro & Assoc., Chicago, examined Wal-Mart’s growth in metropolitan Oklahoma City, Okla., over three and a half years, from 2000 to mid-2003. Why Oklahoma City?

“Oklahoma City is a crystal ball in the Wal-Mart ’world’ of 2010,” says Paula Ausick, Senior Vice President of Brand Equities at Foote, Cone & Belding. “The retailer has been testing new versions of all their formats in Oklahoma City.”

The area boasts 10 Supercenters, six discount stores, seven Neighborhood Markets and four Sam’s Clubs.

Oklahoma City’s population is representative of the U.S. population. The area’s median age, education, racial and ethnic profile, household size, employment profile and income correspond to national statistics.

The study involved several research methods: qualitative focus groups, quantitative telephone surveys, marketplace and store visits, interviews with Oklahoma City (OKC) retailers and secondary research.

“Wal-Mart is not discount; it’s mainstream retail,” Ausick says. “Dollar stores are the new discount. In Oklahoma City, Wal-Mart Supercenters are becoming the routine shopping destination.”

Wal-Mart champions low prices. But more importantly, the retailer is a champion for the average consumer. Its low prices and quality merchandise translate into “looking out for me—the shopper.”

“Your consumer is a Wal-Mart customer in 2010,” Ausick explains. In the past year, 93 percent of OKC consumers shopped at a Wal-Mart store. The national average is only 64 percent.

Over a four-week period, OKC consumers took 3.5 trips to a Supercenter, 0.7 visits to a Wal-Mart discount store, 0.6 trips to a Sam’s Club, 0.4 visits to a Target store and 0.6 trips to a Super Target.

“Wal-Mart has everything you need,” Ausick says. More than 60 percent of OKC shoppers cite Wal-Mart’s family of stores as the overall source of key merchandise. About 27 percent noted food stores, and only 6 percent cited other discounters.

Foote, Cone and Belding identified four attitudinal segments of Wal-Mart shoppers. They are “champions,” “enthusiasts,” “rejecters” and “conflicted.”

As the largest segment, champions account for 29 percent of Wal-Mart shoppers. They’re young consumers and young families. They have a positive association with Wal-Mart and like its one-stop shopping.

Champions spend the most money at a Supercenter—about $402 over a four-week period. They also make the most visits to the store—7.3 trips during this timeframe.

Who spends the second most dollars? Ironically, it’s the conflicted. This group, which accounts for about 15 percent of Wal-Mart shoppers—includes upscale families. They don’t like Wal-Mart due to social and political reasons.
But they make the second most trips to a Supercenter—5.6—over a four-week period and spend about $289.

“Price plus well-known brand names equals draw at Wal-Mart,” Ausick says. About three-fourths of OKC consumers agree, “I have confidence in shopping Wal-Mart because it offers me the choice of quality name brands.”

Wal-Mart needs national brands to serve its U.S. growth strategy. In 2004, the retailer plans to open 220 to 230 Supercenters, 50 to 55 discount stores, 25 to 30 neighborhood markets and 35 to 40 Sam’s Clubs.

“Wal-Mart needs national brands to make consumers ’feel good’ about shopping its stores,” Ausick says. Consumer packaged goods companies need Wal-Mart to grow their volumes.

“Wal-Mart delivers ’shock & awe’ brand theater,” Ausick says. “The store’s the stage with ’power aisles’ of the best brands in America. Plus, there’s a supporting cast of Wal-Mart’s private label. Price and selection are the main messages.”

“The Wal-Mart brand is the store and shopping experience,” says Patrick Sbarra, President of New Creature. “Shoppers know that they will find quality goods at ’Always Low Prices.’ That price via the ubiquitous 12-inch number on goal-post signs represents about half of the merchandising (store as brand) message.”

New Creature recently designed a pallet display for Prestone at Wal-Mart stores. “There’s a lot of competition at Wal-Mart,” Sbarra says. “Your product and packaging has to grab the attention of the shopper in one to two seconds.”

To attract consumers, the Prestone display combines many interesting graphics and shapes. “It is an extension of the original product packaging, which should be identifiable to many consumers instantly,” Sbarra explains.

The colors of the pallet display remain consistent to the individual packages. This directs shoppers who are looking for that specific product. “But the display also delivers visual appeal to attract the consumer who might pick up the product on impulse,” Sbarra says.

Sbarra offers this advice when designing packaging for Wal-Mart. “Show me the value,” he says. “The packaging should scream the value quickly and clearly. It should also teach and educate consumers how to use the product.”

About 62 percent of OKC shoppers agree they “make a special effort to shop Wal-Mart at times when I know it will not be as busy, even though these are not always convenient times for me.”

Many young men and women view grocery stores as their parents’ Oldsmobile, Ausick notes. They don’t shop traditional supermarkets.

“Super Wal-Mart has been around more or less since I started taking care of myself,” said one young woman in her twenties.

Teens age 12 to 19 rank Wal-Mart as their favorite mass merchandiser, according to a recent study by Teenage Research Unlimited.

In two years from 2000 to 2002, Wal-Mart doubled its market share of groceries to 27.2 percent in Oklahoma City.

During that same time, Albertson lost two percentage points to 12.6 percent and Homeland’s market share dropped about 6 percent to 11.2 percent. Crest gained about one percent to 10.2 percent. Wal-Mart has a strong “share of mind” as a primary source for 19 out of 25 categories asked in the study.

If a retailer is competing head-to-head with Wal-Mart, it’s in trouble. This retailer must differentiate or die.

Wal-Mart’s private-label program carries more than 60 exclusive store brands in food and beverage, health and beauty, household cleaners, personal care and apparel.

Unlike other retailers’ store brands, Wal-Mart does not try to mimic the package design of national brands. Its private-label products are distinct brands with their own values and impressions.

Two private-label brands—Sam’s Choice and Great Value—dominate the food and beverage offerings, which number more than 1,400 SKUs.

These brands occupy two tiers. Wal-Mart positions Sam’s Choice as the premium offering. Great Value offers good quality at rock-bottom prices.

Package design for Sam’s Choice and Great Value has evolved over time. The graphics strategy for Sam’s Choice is in its third generation, while Great Value is in its second.

Sam’s Choice—known initially for its patriotic red, white and blue color scheme—has softened its rich black color palette and added a golden hue to the Sam’s name.

Great Value used to carry lots of product photography showing usage images. The focus now is on the actual food product inside the package. This creates more universal appeal and supports a global design strategy.
Standardizing its package design around the globe for its Great Value and Sam’s Choice brands will help lower costs.
Many packages carry images that wrap around the container. Cartons of Great Value Elbow Macaroni, for example, feature a colorful and detailed illustration of the Italian countryside. This adds an imported and upscale look.

With few exceptions, the Great Value name runs vertically on the packaging. It is not the focal point of the design. The product name and imagery are the “heroes.”

Retort pouches offer a number of distinct benefits over traditional retort options – like cans – because food is packed flatter, the packaging material is thinner, and heat is distributed more evenly. As a result, heat exposure is reduced, resulting in better retention of flavors. To further differentiate their products, brand owners can now add resealability for these pouches with the ZIP-PAK® RETORT™ zipper.

Why differentiate in the category of retort packaging? On grocery store shelves, brands must compete for shoppers’ limited attention. At the point-of-purchase, convenience is often a key factor in the buying decision. In focus groups, consumers repeatedly ask for packages to be more convenient. They don’t want to wash the tops of cans, deal with sharp edges or worry about children trying to open them on their own. They also say that they’d pay extra for a package that reseals on its own to serve as a storage container. Providing this feature on a retort package can give brands a significant competitive advantage in the marketplace.

“When the retort pouch was first launched, one of the biggest benefits it had over a traditional can was easier opening - but there was still no resealing involved,” says Robert Hogan, Director of Sales and Marketing at Zip-Pak. “The trick to being able to offer this option was creating a zipper that could withstand the rigors of the retort process – exposure to a temperature of 250ºF (121ºC) for 30 minutes. Zip-Pak’s engineers developed a robust zipper that withstands the temperature, holds up to repeated opening and resealing, and permanently bonds to the packaging film.”

“We have been creating zipper profiles for specialty applications for nearly 50 years,” Hogan says. “The retort application gave us a chance to bring all our knowledge about packaging film, zipper technology, and consumer preference together to create an exciting package that offers manufacturers as well as consumers a whole new way to experience favorite foods.”

Hogan says, “We’re no longer educating consumers on the benefits of zippered resealable packaging – that challenge is long over. They’re telling us they want resealability – in fact, they expect it and shy away from packages that don’t provide it. If you have any doubts, take a look at what ZIP-PAK® did for the cheese and sliced meat aisles at the grocery store – they have very high resealable penetration. We anticipate the same consumer acceptance for the resealable retort pouch, because it is in sync with today’s consumer lifestyles.”

Wal-Mart does not set “packaging policy” for consumer packaged goods companies. But due to its sheer size and adoption of certain packaging systems, it’s a big driver of packaging trends.

Here are two examples of how Wal-Mart is influencing the direction of packaging.

Case-ready meat. Almost single-handedly, Wal-Mart has fueled the growth of case-ready red meat. This includes ground beef and cuts of beef, pork and veal.

Through its Supercenters and Neighborhood Markets, Wal-Mart distributes about 1.5 to 2 billion packages of case-ready red meat or about half of the total units of case-ready meat in the United States.

Wal-Mart’s case-ready meats are packed in modified-atmosphere trays with a high-oxygen content (80 percent oxygen/20 percent carbon dioxide), according to a report, “How Wal-Mart is Reshaping Packaging,” from PakIntell.

“There are numerous competing technologies for case-ready. Wal-Mart’s selection of the high-oxygen environment, based largely on its experiences in Europe, recast the market—and fortunes—for numerous vendors,” says the report.

Some observers believe that Wal-Mart is pushing for a standardized tray size for all its case-ready red meat to streamline its merchandising and display.

n Unit-dose drug packaging. Wal-Mart is taking the lead role in urging pharmaceutical suppliers to switch from amber plastic vials to unit-dose, blister packaging for prescription drugs, says the PakIntell report.

The retailer believes unit-dose blisters will help consumers with dosage compliance, provide more information on the packaging and establish brand loyalty.

“As a result of Wal-Mart’s initiative, some drug companies are taking a hard look at unit-dose packaging for new products. They are focusing on new products because of regulatory hurdles to changing the packaging of an existing product,” says Bill LeMaire, Managing Director of PakIntell and author of the report.

Where to go for more information...

© How Wal-Mart is Reshaping Packaging report. At PakIntell, contact Bill LeMaire at 610.344.7340 or blemaire@pakintell.com

To improve its supply chain efficiencies, Wal-Mart is mandating that its top 100 vendors add radio frequency identification (RFID) tags to pallets and cases of products.

By January 2005, Wal-Mart’s largest suppliers—consumer packaged goods companies—will have to label pallets and cases with these tags for shipment to three Wal-Mart distribution centers in Texas.

Information encoded in these electronic product code-compliant tags will enable the retailer to automatically track and quickly expedite product through its more than 100 U.S. distribution centers.

Wal-Mart expects greater inventory accuracy, faster receiving and shipping and better quality control. But the top advantage is reducing out-of-stocks at its stores. The retailer views RFID as a growth engine to spur sales by eliminating out-of-stock items.

When RFID tags find their way onto individual packages, Wal-Mart foresees automated checkout, product tracking and theft prevention.

“Smart” appliances will also benefit from the technology. Smart refrigerators will “create” shopping lists for consumers, while smart microwaves will heat foods more uniformly and efficiently.

At this full implementation stage (probably five to 10 years down the road), Wal-Mart may save more than $8 billion annually. This savings is nearly equal to its net income of about $9 billion.

Wal-Mart is telling its CPG vendors that they will benefit, too, through efficient production planning, reduced inventory, faster demand response, improved counterfeiting and more targeted product recalls.

But many of these CPG companies are not assessing fully the benefits of the technology for their own supply chains. Instead, they’re taking a “slap-and-ship” approach to meet the January 2005 deadline.

What’s behind this shortsighted thinking? RFID technology is complex and not cheap. Each tag, for example, costs more than 25 cents. Although the cost should come down as volume increases, it may be many years before we see a “penny” tag for individual packages.