Continuing retail concentration
Whenever we ask CEOs what keeps them awake at night or worries them when they get up in the morning, they almost always give the same answer: distribution. Fifteen percent of Procter & Gamble's worldwide sales (pre-Gillette) went through Wal-Mart. This figure is probably 25-30% of its US sales. Henkel bought Dial Corp, 30% of whose sales go through Wal-Mart. Clorox, another Henkel-connected company, sells 30% of its US products through Wal-Mart.
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 say Wal-Mart is the new religion. Wal-Mart, with $375 billion of sales, is the seventh largest 'country' by retail sales. Wal-Mart accounts for 8.9% of US retail sales, Tesco for 13.3% of UK retail sales. Both enjoy 30% of grocery sales in their domestic markets.
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 only 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. P&G calls it 'the first moment of truth.'
WPP believes an understanding of distribution and retail is essential and it is one of our core practice development areas. The Store, our virtual retail agency, 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. In addition, OgilvyAction gives the Group an even broader distribution offer with its focus on product categories that have been denied access to traditional media.