Meanwhile, retail concentration continues
One of WPP’s media partners sells 10% of its cover sales through Wal-Mart. To the media owner, this is life or death. To Wal-Mart it is a rounding error and the province of the third or fourth level of procurement, making the publisher’s life a misery. More people visit Wal-Mart in the US in a week than go to church on a Sunday. Indeed, some have suggested that the supermarket chain is the new religion. Wal-Mart, with $401 billion of sales, is the seventh largest ‘country’ by retail sales. It accounts for 8% of US retail sales, Tesco for 13% of UK retail sales. Both enjoy 30% of grocery sales in their domestic markets. At last year’s Microsoft CEO conference, Lee Scott, then boss of Wal-Mart, targeted a doubling of its US market share to almost 20% of retail sales.
Some 15% of Procter & Gamble’s worldwide sales already go through Wal-Mart. If this was a business unit on its own, it would rank among the world’s top 50 FMCG companies. Other examples include Kellogg’s at 20%, Kraft at 16% and PepsiCo at 12%.
Influence over and control of distribution is not a new issue. After all, advertising was developed in the 19th century by manufacturers to appeal over the heads of wholesalers or retailers direct to consumers. Increasing retail concentration – not only in the US but also in Europe and Latin America – will emphasise the importance of focusing on product innovation and branding, along with better understanding of point-of-purchase consumer behaviour and emphasis on packaging, display and retail design. After all, as a senior Asia Pacific Procter & Gamble executive said recently, depending on which P&G brand you are talking about, something between 30% and 80% of purchasing decisions are made at the point of sale. Procter calls it ‘the first moment of truth’. Pepsi chief executive Indra Nooyi calls for concentration on ‘retail theatre’, rather than lavish, costly TV commercials. Other FMCG leaders call for agencies to start with the shelf and not a 60-second TV commercial.
WPP believes an understanding of distribution and retail is essential and it is one of our core practice development areas. The Store, our global retail practice, links more than 900 professionals working on retail business and issues around the world, updating them on the latest developments and trends – subject to client confidentiality. Management Ventures – with more than 50 global retail analysts – along with Cannondale and Glendinning Associates, both experts in channel management, supplement and consolidate our knowledge of global retailing. TNS Retail & Shopper adds to our armoury.
In addition, OgilvyAction gives WPP an even broader distribution offer with its focus on product categories that have been denied access to traditional media. Our new acquisition, Smollan, has over 15,000 people focused on retail brand management in South Africa, China, India and, next, Brazil.