The evolving world or Private Brand never ceases to amaze me and the latest move by the Bentonville giant Walmart is simultaneously brilliant and frightening. They are attempting to combine their buying clout with their suppliers to gain cost savings on raw materials. It al most sounds simple, however read a little deeper and you discover that it is the clash of titans with major CPG’s from around the world attempting to maintain their independence and margin. Currently the program only includes Private Brand suppliers and back office supplies however they are aggressively pursuing other cost saving relationships. According to an article in Bloomberg Businessweek:
Wal-Mart Stores purchasing chief Hernan Muntaner has a dream: teaming the giant retailer with soda and snack maker PepsiCo to buy potatoes jointly for a lower price than either company can get on its own. That would allow both to earn more money on the chips and spuds they sell in Wal-Mart’s supermarkets. So far, Pepsi isn’t playing along. But with sales slowing in the U.S. and the price of sugar, meat, and wheat on the rise, the world’s largest retailer is jointly purchasing a growing share of raw ingredients with manufacturers of food and household products sold in its stores. Products already being purchased with suppliers include sugar, which goes into the company’s store-brand soda and five-pound bags, and paper, used in Wal-Mart’s back-office printers. Muntaner envisions a day when his company will do it with most goods it sells.
“Around the world, we found we were buying the same raw materials” that Wal-Mart suppliers buy, says Muntaner, whose official title is vice-president for international purchase leverage. “When you put the volume together of what we bought and what [suppliers] bought, and buy from just one supplier, you can reduce the cost.”