A Case Study of Wal-Mart and Vlasic Pickles
A Case Study of Wal-Mart and Vlasic Pickles
I. Executive Summary
Vlasic Food International offers the best pickle brand in America in the late
1970s. However, in the year 2000, this food brand faced a problem in their profitability
since the formation of agreement with Wal-Mart which offers their main product in the
lowest price possible leaving a cent or two as their profit per gallon. The main problem
seen in this case is that, the marketing logistics as well as the financial capability is not
seen and not properly evaluated before closing an agreement with Wal-Mart. Herewith,
this problem has rooted into a lot more problems faced by Vlasic, more specifically, with
Steve Young, vice president of Grocery Marketing, about the profitability as well as the
production capacity that Wal-Mart is trying to push through limits with the sudden
expansion and increase of demand made by a single supplier which gains only a little,
given the volume that Vlasic is selling. Though this happened, Vlasic cannot include
eliminating Wal-Mart from its suppliers given that they hold the 30% of the total sales of
Vlasic Food International. However, Young focused more on terminating the deal and
blaming the deal itself as the primary root of the problem which is answered by Hunn,
profitability without terminating the deal. The first one is to improve costing. In order to
reduce the cost of the product, Vlasic Foods must look for new potential suppliers who
could offer raw materials with the same quality but in lower price. This technique
reduces the cost of the product itself leaving room for more profit and expecting for a
25% decrease in operating cost. The next alternative solution is intended to improve the
profitability. In this area, Vlasic Foods may search for possible distributors and retailers
of their products, not only the pickles but the other Vlasic products as well, that can
leverage the offerings and sales that are higher than the current distributors. This is
since, even before the deal happened between Vlasic and Wal-Mart, Vlasic has already
occupied a great market share making it not too hard to look for potential distributors.
The last one is the development in the production capacity of Vlasic. The company is
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suggested to acquire additional machineries that they could use in producing Vlasic
pickles than the additional manpower. This could also reduce the cost since instead of
even produce more and faster. The return from the acquisition of machineries gives a
This study has revealed that the problem is not the deal itself but the lack of
analysis and further investigation before entering the deal caused by too much
dependence with Wal-Mart. And since, leaving the deal is not a good choice, the only
solution is to reduce cost and make it more profitable by doing the adjustments in
production.
The incremental increase of Vlasic pickles under the promotional strategy made
by Wal-Mart can be commonly seen as a positive and highly beneficial in the view of
other organizations. However, this positive trend in sales of Vlasic pickles is seen as an
Vlasic’s deal with Wal-Mart seemed that it would be a good promotional strategy
for both the company, given that Wal-Mart is the world’s largest retailer and the world’s
largest company. It has boosted the sales volume of Vlasic pickles and also covers the
30% of the Vlasic Food International overall sales. However, the deal that happened as
continuously made and some marketing designment happens, it has been discovered
that there is a problem with the establishment of the deal itself as some marketing
logistics and financial factors were not considered before making this deal.
From a marketing standpoint, the deal that happened is not properly evaluated
thus, resulting to the insufficiency of supply and shortage of the production in which it is
unable to aim on the planning, delivering and controlling the flow of physical goods,
marketing materials and information from the producer to the market as well as to meet
customer demands while still making a satisfactory profit. The planning of the
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production process and the supply chain management is not properly forecasted before
developed to see just how many of the discounted gallon pickle jars they could sell, this
also would have been a good way to review the cost that would incur in the production
and distribution of these jars. The forecasting and the accurate estimation of is not
properly made in order to know if their agreement on the new selling price of $2.97 is
still profitable and could sustain future expenditures. The cost allocation on the supplier
are not projected appropriately that leaves no more room for profit.
The problem given above branches another problem with the production of other
products offered by Vlasic Food International since Vlasic pickles is not the only product
that they offer. The production for these products slowed down and the constant
increase in demands for Vlasic pickles gives a tighter space for the organization to
Vlasic Food International depends on its major distributor which is the Wal-Mart
to generate sales that lead to strong economic ties between their activities. There are a
lot of benefits associated having Vlasic reliance to Wal-Mart because there will be fewer
people to talk to, accounting transactions are simplified and better service are provided
since Vlasic can focus and invest time in what is expected by the Wal-Mart.
Vlasic was willing to do that deal with Wal-Mart to access the 100 million
consumers who visit a Wal-Mart once a week and spend more than 5 cents of every
dollar with them when they do. For Vlasic, Wal-Mart accounted for 30 percent of their
sales and was thus a very important channel of the business to the customer. Wal-Mart,
The contract with Wal-Mart was very important to Vlasic’s growth and success.
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Doing business with Wal-Mart makes Vlasic more efficient. Wal-Mart continually
improves the procedures with which it handles its merchandise and it expects Vlasic to
be fully compatible. The only way for Vlasic to do business with Wal-Mart is to
repackage its product according to Wal-Mart specification and to adopt a hardware and
software interface, which is compatible to that of Wal-Mart’s. The reliance of Vlasic with
Wal-Mart needed them to buy acres of cucumbers, new machinery, real-estate to house
the new operation, personnel to meet the increased demands and undergo software
and hardware infrastructure changes to manage the increased production and achieve
unique design specifications, which may require Vlasic to invest heavily in relationship-
specific assets that cannot be redeployed for alternative uses. In addition, Wal-Mart with
strong bargaining power can extract significant price concessions which can
The great American pickle “Everyday Low Price” promotion at Wal-Mart was
reported to have moved 240,000 gallon jars of pickles each and every week at Wal-
Mart’s 3,000 stores. Walmart and Vlasic made the prices of pickles so insanely cheap
that if people wanted to buy pickles, Wal-Mart was the place they went to buy them.
There is also no question that doing business with Wal-Mart can give Vlasic a fast,
heady jolt of sales and market share. The volume gave Vlasic strong sales numbers,
strong growth numbers, and a powerful place in the world of pickles at Wal-Mart. But
that fix can come with long-term consequences for the health of Vlasic.
The promotion increase the volume of Vlasic pickles but the sales revenue of
Vlasic was higher than before the gallon jar promotion. Simply put, the gallon jar of
pickles at Wal-Mart became a devastating success, giving Vlasic strong sales and
growth numbers but slashing its profits by millions of dollars. The gallon jar promotion,
due to lack of proper consideration to marketing logistics and financial factors of the
Vlasic too much reliance on Wal-Mart involves more risk. They rely so much to
Wal-Mart because they have full trust with them for it accounts 30% of their sales for the
past years. Subsequently, they did not focus much with the marketing logistics and
financial factors that might happen if the promotional deal got approved and move to an
end aisle.
The deal itself was a good promotional deal for both Vlasic and Wal-Mart, and
would have been successful both in sales and revenues if marketing logistics and
financial factors were able to consider before closing the deal. The root causes of the
problem here lies with too much reliance to Wal-Mart knowing that it is the number one
retailer and distributor in America. Vlasic becomes increasingly more dependent on the
Wal-Mart. In effect, Vlasic did not given proper attention to the factors that may affect
the operations of the business to which $2.97 is the everyday low price: did not gather
the information that will have impacts to the production and marketing materials and; did
not plan and control the flow of the physical goods. A clear income statement did not
develop to see how much will be the profit in the $2.97 being the everyday low price. An
income statement is a scorecard of the financial performance of the business that will
reflect and draw information with regards to the revenues, expenses and costs of
pickles to measures whether the operation receive gain or incur losses. These factors
that have not given proper attention rooted to the devastating success of the
promotional deal. Vlasic expose to higher business risks even when they harbour
There is a problem with the establishment of the deal itself as some marketing
logistics and financial factors were not considered before making this deal, the following
without affecting the quality of products and services. The following are the
o New Supplier. Vlasic Food International can seek for other suppliers of
raw materials with lower offered price compared to their existing supplier.
o Cutting the Shipping Cost. Look for a nearer supplier who offers lower
cost and nearer in vicinity to be able to cost-cut the shipping fee. Instead
o Cutting the Shipping Time. Look for a nearer supplier who offers lower
cost and nearer in vicinity to be able to cost-cut the shipping fee. Instead
of ordering it from Michigan which will take 12 hours, the Vlasic Food
only. Cutting the time of delivery from supplier can make the production
process even more stable making it more possible to meet the customer
demands.
businesses who patronize their Vlasic products. They will give discounts to
the loyal customers who purchase pickles products in bulk, depending on the
quantity they acquire, to show their utmost appreciation to them. They can
try and buy their products. This will increase sales and make sales of slow
promoting the Vlasic products and services they provide and offer to
This advertisement will create awareness in the minds of people about the
availability of products and services and influence them to buy the same, and
supplements the company’s selling efforts. This will also motivate the dealers
to buy high volumes of products and push more of the brands that are on
promotion.
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Increase the number of manpower. Since there are 240,000 demand of gallon
adding more manpower in the production area. If there are more employees
that would act and work with making the pickles, then the productivity per day
equipment would make the production faster than relying with the existing
manpower only. These machines and equipment carry out the functions of the
will reduce the cost of operation by reducing the number of people needed for
the job.
products at much higher prices will make room to earn profit. The incentive on
the part of Vlasic to cooperate with new distributor will be strong sales
numbers and growth associated with any profit. The distributor's interests of
entering an agreement will converge with the interests of Vlasic that will
Decision Criteria
sacrificing the quality of the finished products. Vlasic Food International shall find
new supplier of cucumber in the neighbor city who offers products lower in price
and to which discounts could be claimed when purchasing in bulk. In this way,
shipping costs will be reduced by 10% and the cost of raw materials will be
Five Forces Model, suppliers to an industry are powerful if suppliers' outputs are
important inputs to the customers’ business. This attribute influence the initial
power distribution in the customer to supplier relationship. This implies that Vlasic
can make strategic decisions as well as operational decisions that alter the
power to which they are subject. Vlasic may make decisions which can alter both
the environment in which they operate, and the extent to which they must go to
reduce the power to which they are subject. Vlasic will not only examine the
simple make or buy decision, but asks to what extent Vlasic can do to reduce its
examined along with other suppliers in each product supply channel. Choosing
the right supplier involves much more than scanning a series of price lists then
select the lower one. Vlasic shall choose supplier considering wide range of
factors which are value for money, quality, reliability and service the supplier
could offer.
2. Vlasic shall not rely solely to Wal-Mart and shall find alternative retailers or
distributors who are willing to purchase products in bulk at $3.47 in price. They
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shall ensure that the financial stability and statistical information of this distributor
are good and can add value in the organization. The manufacturer – not the
distributor or retailer – must make consumers want to buy the products through
marketing materials. However, the business’ success came with the help of
distributors. These allies can pioneer the products into new geographic areas,
get into stores and provide valuable services, such as fast order fulfilment.
how the decisions which define the firm's boundaries of actions are made. It has
answering the question "should a firm make or buy?" The decision is examined
the specific decision, the decision to "make or buy?" takes place in a larger
In the manufacture of pickles, there are many activities that must take
place to get pickles into the hand of the end-user. On the output side there may
retailers. By the time Vlasic perform all of the tasks necessary to bring a product
to its end user, the decisions that define a firm's boundary of actions in
distribution, procurement and selling are very important. Vlasic should not only
rely to the biggest customer such as Wal-Mart because when they are unable to
provide the products and services according to terms and conditions, Wal-Mart
will switch the source of purchases which has an adverse impact in the Vlasic’s
channel design. There are three frameworks based upon this theory that lend
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marketing channel strategy. The distribution system structure decision and the
selection and allocation of its ensuing activities and tasks should be viewed as a
success. Further it should feel that the distribution system structure decision is
best examined as question of what form will allow all necessary functions to be
When Vlasic sells both directly and through a distributor, it has options in
against maintaining control over service quality. Vlasic may let distributors
provide service and receive the profits associated with the service in exchange
for alleviating the service requirement from the manufacturer. Such a decision
3. The enormous success in sales of the promotional deal put a strain on the
new machineries and equipment to save money and reduce time or effort
required to perform the activity. This will make the production faster than relying
to the skills of the newly hired employees. This is also a great help to reduce the
machineries and equipment will carry the functions of manpower and will do the
labor itself.
Cost Benefit Analysis outlines the procedure for estimating all costs
value it will have for the company. Basically, a cost-benefit analysis finds,
quantifies, and adds all the positive factors which are the benefits. Then it
identifies, quantifies, and subtracts all the negatives, the costs. The difference
between the two indicates whether the planned action is advisable and literally
business decision, due to the simple fact that business managers do not want to
spend money unless the benefits that derive from the expenditure are expected
to exceed the costs. As companies increasingly seek to cut costs and improve
Costs
Purchase of Machine (₱1,000,000/10 ₱8,333
years/12 months)
Machine Operator ₱8,216
Utilities Expense ₱500
Total ₱16,833
Benefits
Increased Revenue ₱6,000
Quality Increased Revenue ₱2,500
Reduced Labor Costs ₱26,648
Total ₱33,148
In evaluating opportunities, list the benefits first. The machine will produce
100 more units per hour. The machine will replace five workers currently process
pickles by hand. The units will be of higher quality because they will be more
uniform.
Then calculate the selling price of the 100 additional units per hour
multiplied by the number of production hours per month. Add another two percent
for the units that are not rejected because of the higher quality of the machine
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output. Then add the monthly salaries of the five workers. It is a pretty good total
benefit.
Then the machine costs $1 million and it will consume electricity and an
operator who will operate the machine. Calculate the monthly cost of the
machine by dividing the purchase price by 12 months per year and divide that by
10 years, the useful years of the machine. By subtracting the total cost figure
from your total benefit value, the analysis shows a healthy profit. This cost-
benefit analysis will identify the hard savings which are the money or actual and
quantitative savings from soft savings or things like management time or facility
equipment because it will eliminate the future costs like employees’ overtime or
quality and nearer to the factory. location of supplier that offers a price
the same quality than the original has raw materials for the quality must not
other materials.
Breakdown of machineries and Vlasic’s machinery and equipment
income.
External Sources
An Expert Guide to Cost Benefit Analysis. 2019. Bellevue, Washington: Smartsheet Inc.
https://www.smartsheet.com/expert-guide-cost-benefit-analysis
UserFiles/File/Books/CaseStudy2.pdf
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Freedman, Scott D. 1994. The Role of Distributors in Product Supply Channels: Theory
162085MIT.pdf?sequence=2
Freedman, Scott D. 1994. The Role of Distributors in Product Supply Channels: Theory
162085MIT.pdf?sequence=2
Reh, John F. 2019. How to Run a Cost-Benefit Analysis. Broadway, New York: The
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