Wal-Mart needs a 'transformational change' to stop competitors from eating into the largest part of its business
|WMTSep 23 10:53|
Grocery sales, which make up 56% of all of Wal-Marts sales, have been plagued by miserable customer satisfaction ratings and slowing comparable store sales growth, says Wayne Hood at BMO Capial Markets.
"Meanwhile, as competitors like Kroger, Publix, H-E-B, Jewel-Osco and others have invested in evolving customer lifestyle trends – by broadening organic and fresh offerings – and in improving customer service, the gap between both comp-store sales growth and customer satisfaction at Walmart U.S. grocery and supermarket competitors continues to widen," Hood wrote in a note to clients Monday.
Hood said these trends indicate that Wal-Mart is beginning to lose market share in the US grocery industry, which generates $161 billion in revenue every year.
The biggest reason, in Hood's view, is simply the shopping experience. And in order to course correct, the company needs a huge change:
"Importantly, we believe customer service scores may need to exceed peers to drive meaningful growth and this may require a transformational change in the company’s culture away from focusing on store level tasking and merchandise-driven lowest landed cost strategies to one of increasing customer service through knowledgeable engaged associates (It’s rare to find a store associate asking someone if they need help, in our view)."According to the American Consumer Satisfaction Index, Wal-Mart trailed all of its supermarket competitors in customer satisfaction in 2014, Wal-Mart's score is 71, while the supermarket average is 76. Publix scored the highest with an 82, followed by Whole foods (81), Bi-Lo (79) and Kroger (78). The closest to Wal-Mart is Safeway with a 75.
Hood said that the problem with a culture change is that they take time and the replacement of employees. In the near term, Wal-Mart could continue to cede market share to its supermarket competitors.
Additionally, Hood says that a drop in grocery sales could be bad news for all its business.
"We continue to believe that Walmart must generate low-single-digit comp-store sales growth in its U.S. grocery business to drive sustainable positive traffic and low-single-digit consolidated comp-store sales," he said.
On the positive side, the note says, management has taken note of the issue and is implementing changes to mitigate the damage.
The question remains if it is enough to stop the bleeding.