The negative publicity that a former Wal-Mart Stores Inc. executive cast on the chain’s out of stock problems don’t speak to the chain’s actual performance, one key Wal-Mart produce executive said in mid-April.
Jerry Murray, a vice president of finance and logistics, had called Wal-Mart’s February sales a “disaster” in an e-mail obtained and reported by Bloomberg. Murray left the company April 5 amid speculation that out-of-stock issues complicated by thin staffing were contributing to recent unimpressive sales growth.
Saying that he believes Wal-Mart’s produce quality and in-stock performance is “better than it has ever been,” Dorn Wenninger, vice president of produce at Wal-Mart, Bentonville, Ark., provided e-mail responses April 16 to questions about out-of-stock perceptions at Wal-Mart.
The chain is making gains in the produce side of its business by focusing on getting better prices, better quality and better availability to customers, he said.
“Wal-Mart’s on-shelf availability across the store is at historically high levels, with 97% of our stores having an On-Shelf Availability score of more than 90%,” Wenninger said.
Bruce Peterson, president of Peterson Insights Inc., Fayetteville, Ark., said there’s a number of stories surfacing about Wal-Mart’s stocking problems in recent months. However, he said that may not be an accurate reflection of reality. Peterson, former senior vice president of perishables for Wal-Mart, left the chain in 2007 after 15 years with the company.
“What I find interesting about all this is that at least from a numerical standpoint, Wal-Mart is feeling pretty good about their in-stock, yet these articles are surfacing say their in-stock isn’t as good,” he said. “Where is the disconnect? Why would that be?”
Victim of scale
One reason, Peterson said, that may contribute to the disconnect is that Wal-Mart is the victim of scale, with 25% of their stores outstanding, 25% not so good and 50% of the stores average. With thousands of stores instead of dozens of stores, the chain’s weak links are exposed over a greater geographic area that is more likely to attract attention, Peterson said.
“If you have 4,000 stores, there are 1,000 stores that may be having some issues,” he said.
Now Wal-Mart is in almost every city, not just small town America, Peterson said.
“If you are having an in-stock problem in New York or Chicago, somebody is going to write about that,” he said.
Another contributing factor could be the change in how stores are managed and supervised, Peterson said, with less experienced workers in the department.
Store-level attention to produce merchandising is changed from what it used to be, Peterson said.
“They used to have produce merchandisers that went into stores to teach, train and supervise, and they don’t have those anymore,” he said.
Standardized containers — RPCs — are being used more as a fixture than an operation scheme, Peterson said.
“They are moving toward conventional merchandising schemes more than RPC-oriented execution.”
There are many analysts who believe Wal-Mart sales increases are not as robust as they once were is because of strains on their labor force, said Dick Spezzano, California-based retail consultant.
While the chain has a system of automatic replenishment with reorders after a certain level of sales, there can be breakdowns in the system.
“What we hear is the product is in the back room but not getting on the shelves,” he said.
If that is the case, the problem of store-level execution is the critical issue, Spezzano said.
“Sam Walton used to say they have ordinary people doing extraordinary work,” Spezzano said.
“When you have ordinary people doing ordinary work, it doesn’t quite cut it,” he said.
Wenninger said Wal-Mart is investing in its staff and efficiencies in the supply chain.
“We’re investing in sourcing, replenishment and our store associates to bring this to life,” he said.
Wenninger said the chain surveys 500,000 customers per month, and Wenninger said customer satisfaction numbers have trended upward over the past two years.
During the past three years, Wenninger said Wal-Mart has established produce buying offices in all the major growing regions of the U.S., Mexico, Central America and Chile.
“We’ve also invested in improved replenishment systems and are undertaking significant associate training and monitoring initiatives focused on in-store execution,” Wenninger said.
Specifically, Wenninger said Wal-Mart has introduced what it calls the Global Replenishment System across produce to help ensure the chain has the right amount of produce in the right place at the right time.
Desmond O’Rourke, president of Belrose Inc., Pullman, Wash., said that when Peterson managed the Wal-Mart produce business — the key thing wasn’t price but rather keeping produce in stock.
O’Rourke said Peterson was known for having solid contracts with suppliers to make sure that the produce was in stock. Since Peterson has left, O’Rourke said Wal-Mart has experimented with various sourcing systems that may have caused some problems.
As the years go by, Peterson said it may be tempting to think that vendor co-managed replenishment performed better than it actually did.
“People will tell you that back in the day that when Bruce was running (the program), you were never out-of-stock and everything was great,” he said. “That wasn’t true.”
There were many of the same problems then as there are today.
However, Peterson said suppliers in the vendor-managed system may have had more of a vested interest in keeping things in stock.
“The better the in-stock, the better their sales were,” he said.
Asked if the difficulty of local sourcing adds to the incidence of out-of-stock issues in produce, Wenninger said the local sourcing ensures product is as fresh as possible while also having sustainability benefits such as reducing food miles, the distance food travels from farm to fork.
“Our Global Replenishment System addresses the complexities that any grocer faces around fruits and vegetables by allowing us to see the life of the product so that we can replenish the right amount of product in the right place at the right time,” he said.
Peterson still marvels at the things Wal-Mart does well, and the scale they do it in. When Peterson left, the chain had 2,400 stores. Now it has 4,000 stores.
“When you start talking half a trillion dollars in sales, nobody has seen anything like it,” he said.