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Thursday, January 05, 2006
Stuck in a pickle
But not the perfect business plan 
Since everyone else is linking to the Wal-Mart/Snapper story today, I thought I would remind everyone of the Great Wal-Mart Vlasic Debacle:
A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.
Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."
Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a service for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.
Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.
By way of disclosure, I used to sell product to Wal-Mart on the so-called "grey market". There were (and still are) lots of companies who don't want their product in Wal-Mart because of the damage they can do to the brand and because of the pricing that cannibalizes their regular full price accounts. Back in the eighties when LA Gear shoes were all the rage with women, Wal-Mart came to the company I worked for and asked us to get them the shoes. I bought three containers worth (approximately 60,000 pairs) and we charged them $1.25 per pair over cost. The containers showed up and we didn't even open them. Wal-Mart sent their own trucks to haul them away, and we made a little over $75,000 for about a half-hour of my time.
The interesting point was that the people at LA Gear knew exactly what we were going to do, but they pulled the trigger anyway. They just wanted the ability to tell their big accounts like Footlocker and Gart Sports that they hadn't opened up an account for Wal-Mart and they didn't know who was selling them the shoes. This way the then-President of LA Gear could hit his numbers for the shareholders while not pissing off his bigger accounts.
Clever, eh?
I should point out that buying grey market product is how Price Club (which eventually became a part of Costco) got started also.
I used to sell to them too.
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