The Bentonville Bella Vista Chamber of Commerce has partnered with newmarketbuilders to bring comprehensive coverage of its WalStreet Champion Speaker Series to the larger retail community. The ongoing series features presentations from Walmart executives that provide powerful insight into the retailer’s initiatives. For over three years, our coverage of these events has enabled retail suppliers and partners to access this content as viewed through our retail industry lens.
“A small improvement aggregates into something pretty meaningful."
Dr. John Agwunobi
Dr. John Agwunobi is a guy who’s used to making a difference. When he answered Walmart President and CEO Bill Simon’s call to come to work for the retailer in 2007, he did so with the realization that every contribution he made would have the potential to impact the lives of the 140 million people who visit Walmart each week. Walmart knows when to make proper use of eye-popping stats, and this one helped snatch Agwunobi from his role as the assistant secretary for health in the US Department of Health and Human Services, a job that up until that point, he had thought of as his calling. As SVP and president of health & wellness for Walmart US, he now oversees a business unit which includes Walmart’s pharmacies, vision centers, and healthcare clinics.
Health & Wellness Heats Up
The hubbub surrounding Walmart’s ongoing merchandising moves and its renewed preoccupation with product price leadership can make service-driven areas seem peripheral, but just as issues of health and wellness continue to be public and political fire-starters, they have escalated into a focus area for retailers – and not just the obvious players. Kroger is growing its portfolio of wellness programs, screenings, and onsite immunizations. Safeway has continued to lead the charge in bridging the gap between food and health products through its creation of healthy alternative private brands and its in-store nutritional navigation program, SimpleNutrition. Walgreen’s bold intention to “own ‘well’” and CVS’ plans to double its 560-location MinuteClinic footprint over the next five years are just two examples of how traditional players are getting aggressive in the broadening health and wellness space.
In true Walmart fashion, Dr. Agwunobi has outlined an approach that reduces a hideously complex business to a simply-stated plan of attack, forming a game-changing differentiation strategy out of a few slivers of white space.
"Based in the Box"
According to Agwunobi, “shiny things” such as multi-channel and small formats are important in the long term, but Walmart’s ongoing strategy is “based in the box” and is all about “assortment and price.” I’ll add that the only way for Walmart to maintain the luster of outside-of-the-box shiny things will be to perfect price leadership and ace assortments. Digital-enabled price transparency is an everyday retail reality and Walmart is an interloper in the small format space. Even though Dollar stores and hard discounters such as Aldi have enjoyed a major head-start in the business of small format product and category honing, their lack of health and wellness bench strength may give Walmart's new small format Express concept a launch-time leg up for locations that include pharmacies.
Rebuilding robust assortments is big part of the new strategy, and Agwunobi noted that most of that work has been done, although “long lead time” items will continue to gradually find their ways back into stores between now and October. In the meantime, Walmart realizes that it will take more than one shopping trip for customers to realize that items are back, and at prices that they can afford.
Price leadership and more specifically, “sustainable” pricing, is Walmart’s new twist on everyday low pricing (EDLP). No high-low games will be allowed and no avenues will be pursued that risk “traumatizing” relationships with suppliers, according to Agwunobi.
EDLC Begets EDLP
How is Walmart going to change the world...again?
Walmart has gone further with sustainability than anyone ever dreamed they would, inspiring many, putting legions of others on notice, and changing the face of retail consumption forever. Walmart’s next big move involves taking on the knotty world of healthcare.
Of course healthcare costs too much; however dialogue on the topic tends to have jumped from this reality into finger-pointing over who should pay for it. According to Agwunobi, the discussion should instead swing back to how to reduce costs (you can’t have everyday low prices without everyday low costs), a principle that agrees with several points that Michael Moore made in his recent WalStreet presentation. This is Walmart’s sweet spot. Citing the irrational pricing of a single Tylenol tablet in a hospital setting vs. the price paid for a bottle at Walmart, he made the point that the healthcare system is built to hide costs. His vision (speaking of price transparency) is to "make price matter" in healthcare and, as with most Walmart initiatives, customers are the starting point. Walmart’s groundbreaking $4 generics program has expanded multiple times since its 2006 launch under Agwunobi’s watch, each time driving waves of derision followed by adoption among competitors.
Broker vs. Build (or Buy)
By partnering with hospitals as brokers and bringing healthcare into the store environment, Walmart’s in-store clinics are a "symbol" of how healthcare should come to customers rather than forcing customers to seek it out. Walmart currently operates 157 in-store clinics, and is on track to have 205 by the end of the fiscal year, edging up on Walgreen’s 350 Take Care clinics but still dwarfed by CVS’ 560 locations, which CVS plans to double over the next five years. In contrast, Target’s clinic count is slated to hit 44 by the end of July, while Kroger currently operates 77 Little Clinics, a count that reflects the recent closure of 30 units as the company streamlines operations. Kroger plans to ramp up expansion once again after 2011.
Walmart has done a good job in the “pulling” department – attracting customers with its lower prices and now, bigger assortments. The newest cost-saving frontier involves leveraging its price lures with a new layer of payers and employers, allowing them to shop for lower-cost services and products and “still make money” while encouraging them to "push" employees to Walmart stores.
Drugs Drive Droves
Walmart’s program with Caterpillar, which launched over two years ago, is also its primary case study in the incentive-based employer arena. Through it, Walmart gets the benefit of tens of thousands of Caterpillar employees hitting its stores (even more reason to get those assortments right), while Caterpillar is able to lower corporate and employee healthcare costs. Agwunobi has indicated that multiple direct programs have since been forged and that many more are “lining up” to gain access to them. He was quick to note that the programs aren’t a cram-down to employees, and are purely incentive-based.
Late last year, Walmart partnered with Humana on a co-branded prescription drug plan. At $14.80 per month, this is the lowest national plan premium for a standalone Medicare Part D drug plan that is offered in all 50 states and Washington DC. The program has plan customers coming to Walmart “in droves” according to Agwunobi. Last July, CVS announced its own mega-deal with Aetna, which will provide pharmacy benefit manager (PBM) services to roughly 9.7 million Aetna members. This is said to be the largest and longest near-term contract ever to have been negotiated in the PBM industry.
When asked about Walmart’s position on marketing unhealthy foods to children, and more generally on childhood obesity, Agwunobi stated that this will be tackled by making healthier foods more affordable and, more specifically, by reducing the price of healthy alternative products while keeping the full throttle versions at current price points, offering all of the options at a single price.
He cited customer empowerment as the most important healthcare trend in the next five years and gave props to Schering Plough for its “endcap fixture thingie,” a Dr. Scholl’s orthotics kiosk that provides orthotics that would normally cost upwards of $450 for only $49.
Pick, price, and push. Simply revolutionary?
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CVS Caremark just scored another big win, this time grabbing the $3 billion mail-order and specialty prescription drug benefit business for the Federal Employee Program away from rival Medco Health Solutions.