I find this The Wall Street Journal story fascinating for a couple of reasons.
First, from a corporate strategy perspective, Walmart is clearly challenging Trader Joe's and Target. They are also intensifying backward integration, taking on giants like Nestle, PepsiCo, and P&G.
It speaks to the power of distribution. Whether you're Netflix, Walmart, or Amazon, owning the distribution channel is powerful.
Second, how negotiation dynamics directly impact business.
Examining counterparty alternatives (or, in technical speak, the Best Alternative To A Negotiated Agreement, or BATNA) is important to do statically. It is also critical to examine dynamically: how will it change over the next 3, 5, and 10 years?
Here’s a quick and short recommendation:
1️⃣ If counterparty alternatives improve over time, secure longer agreements.
2️⃣ If counterparty alternatives worsen over time, secure shorter agreements.
The rise of Trader Joe’s normalized private labels among consumers and set the stage for Target, Wal-Mart, and Costco to expand their own.
Playing Monday morning quarterback, that would have been the moment for brand suppliers to secure long-term agreements.
Final point: Negotiation, both in sales and procurement, must connect with corporate strategy.
For Walmart, negotiating quality standards with private label suppliers is paramount. If a recall happens on a private label product, it damages the entire Walmart brand. If a recall happens on Tide detergent, it only damages P&G’s sub-brand (Tide).
For companies like Nestle, negotiating product placement, endcap usage, and co-marketing is more important than ever.
My take?
I think the transformation Walmart has undergone has been phenomenal to watch. This extension into higher-end private label builds on that momentum.
But I will wait until we bring home some Walmart oat milk ice cream before I give my final perspective.
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Managing Director at Houlihan Lokey
4wThrilled to be on board! Glad to be joining such a great team