Hacker News Reader

Comment by ct520 | Hacker News Reader

“Might have more difficulty cutting them out..”

Pretty sure this is why amazon created amazon basics. To go that last mile on cutting out the high margin products they can’t source themself.

View on HN

Walmart helped to innovate the space. They did it mostly as a form of leverage, so they could apply pressure to brands that constantly seek to raise prices. Walmart will add or pull various Great Value products depending on if they want to punch a brand downward on price. So if Kraft insists on $2.50 for a box of Velveeta Shells, Walmart introduces a generic version of the same product at $1.10 and puts it right next to the Kraft product. They do the same thing throughout their store, not primarily targeting high margin products (of which they have few in their entire store), rather using it as a lid on pricing power for brands. Walmart makes very little on the Great Value brand products, however it helps them counter the exclusivity leverage that huge brands like Coke, Pepsi, Kraft, Mondelez, et al. have over them.

Amazon does seem to be using their basics system in a very different manner, from observing what products they're pushing and the prices they're charging.

Walmart does exert massive price pressure on their suppliers, but it's mostly by virtue of the leverage they gain by being so huge that their suppliers need Walmart a lot more than Walmart needs them.

Walmart didn't create or innovate store brands (aka private label) for food; they didn't even start selling food until 1988 or launch Great Value until 1992. Private labels date back to the mid-1800s. [1]

[1] https://plma.com/PRIVATELABELSSTOREBRANDSANDGENERICPRODUCTSC...

I never said Walmart invented the space. They did innovate in the space however and have used it at a scale that had not remotely been seen before.

I entirely disagree with your premise that Walmart's primary leverage against the large brands is their scale. The reason I was so specific on pressure on brands, is because that's where Walmart has the weakest position versus the core brands in cases of segment dominance. Kraft for example is an extraordinarily large and powerful supplier at what they do. Without the very cheap, near zero margin version of their Great Value competing products, Walmart has few good options for applying pressure to a supplier the size of Kraft that dominates so many spaces. There are no replacement products that can blanket fill up their thousands of stores coast to coast and always meet demand as the sole supplier. You can't get that kind of supply & guarantee from small mom & pop labels that are heavily regional.

Kraft-Heinz scale ($18B sales) is impressive, but it's still not much compared to Wal-Mart scale ($514B). That scale is what underlies the negotiation, just as Kraft-Heinz's scale typically let's them attempt to dominate their other customers. "Weakest position" for Wal-Mart, even if true, is relative and the absolute value is still quite strong.

Every regional grocery store chain has private labels from which they get roughly the same stuff; store brands are a mid-1850s innovation for exactly the same leverage over suppliers as Walmart want to get. Walmart making a decision to vertically integrate an element of their supply chain as opposed to regionally contract also isn't an innovation: it's simply an obvious and logical step at scale. Finally, dismissing regional contracting as a possibility is silly: Florida and Washington state having their generic mac-n-cheese rolling out of different factories is not a deal breaker.

Walmart historically is brutal on price and terms, but pays very quickly.

When they sourced some products locally in the 90s, they would pay the farmer I worked for immediately for his products, like within 2-3 days of receipt. The local chains were on net-30 terms and were always late.

Usually, it was better to have $0.95 for pumpkins on Halloween than $1.00 at Christmas.

It’s not just basics, Amazon has a ton of other brands.

Reply on news.ycombinator.com