Wal-Mart, P&G discuss joint business planning

On any given day Wal-Mart Stores Inc. is doing business with between 16,000 and 20,000 suppliers, but perhaps none larger than consumer product giant Procter & Gamble.

This business relationship has had its peaks and valleys, according to Jeff Schomburger, president of the Walmart Global Consumer team at P&G.

“I have worked with Wal-Mart for the past 25 years and have the gray hair to prove it," he said.

In that time, he said P&G has grown its Wal-Mart business from $400 million to $10 billion, moving in step with the retailer along the way – and even making together a few wrong turns.

Schomburger and Duncan Mac Naughton, chief merchandising officer at Walmart U.S., recently shared how the two firms in 2011 laid down their angst and rolled up their sleeves to get their business relationship back on track. The executives spoke on the relevance of joint business planning during the retail conference in Fayetteville at the University of Arkansas on Oct. 30.

JOINT BUSINESS PLAN
“When I joined Wal-Mart (in 2009) we were a bit contentious with our supplier partners. We made some strategic decisions about five years ago to go a different way. The strategy was well founded but at the end of the day there were some severe unintended consequences, like the alienation of our supplier partnerships, and we became misaligned on our mission to deliver to our customers,” Mac Naughton said.

He explained the joint business planning process grew out of this time as the retailer looked to get back on track with shared goal alignment with its key suppliers.

“We had to try and create a model of transparency and trust with our suppliers that could help us build our businesses together,” Mac Naughton said.

In these meetings, he said the teams work on shared goals that help both businesses grow sales and marketshare. In year’s time, Mac Naughton said between 200 and 300 suppliers conduct joint business planning meetings with Walmart U.S.

“You don’t have to be big to take part in this process. It’s about strategy that allows both sides to change the game in a certain category. It’s about longer time commitments – three years out,” he said.

P&G HEADWINDS
Schomburger said in 2010 and early 2011 P&G really wasn’t getting it done, missing on goals and out of alignment.

“We, like lots of suppliers were chasing growth in other channels and with other retailers as Wal-Mart had started to slow,” he added.

In January 2011, P&G faced major headwinds with higher material costs related to a run-up in commodity prices, he said.

“Meanwhile, Wal-Mart made a trip to Cincinnati asking us to lean in, bet on them, as they were going to put $2 billion into lower prices, deliver price leadership, restore their equity in broadest assortment with plans to grow the marketshare,” Schomburger said. “The message was clear, the supplier expectations were clear, and it was good to see them back in the conversation.”

He said 2011 was a tough ride, as P&G had to raise prices in the midst of Wal-Mart’s effort’s to lower them. But in the end, the two partners found some common ground in a joint business plan for Febreze and air care products. This case study in Febreze was leveraged across the P&G business in late 2011 to help them get back on track with Wal-Mart.

FEBREZE CASE STUDY
In joint planning, Wal-Mart and P&G could see a major gap in consumer spending toward air care products for the home and auto fresheners such as spray, plug-ins and no-spill diffusers. Air care was a $7 billion industry and there was nearly $4 billion being left on the table because consumers were not purchasing these products at Wal-Mart.

In 2011, the No. 2 air care product at Wal-Mart, Febreze, was down 8.2% and total air care sales were down 2.2% at the mass retailer. There were huge gaps in the fragmented market, according to Dina Howell, CEO of Saatchi Saatchi X, who worked with Wal-Mart and P&G as the marketing partner in this joint business plan. Howell said at the high end, consumers were purchasing candles at specialty stores for their home fragrances and cheap ever-green trees fresheners for their cars at mass retailers like Wal-Mart once or twice a year.

Schomburger said the aerosol spray was a 97-cent product, but shopper insights found that consumers wanted to layer on a regiment of products that allowed for higher price points.

“This encouraged consumers to buy more forms of the same scent and place them around the home. These new product price points were $3, $5 and even higher. It was fun to create some excitement in price categories without always being the low price,” he said. 

Industry trends in fashion and home often drive fragrances. Schomburger said P&G innovation around Febreze plug-ins and later the car clips turned the category on its head by reinventing existing tasks.

“P&G had brought a lot of innovation around Febreze and we wanted to let shoppers know that they wouldn’t be giving up anything if they bought their air care products at Wal-Mart, instead of Bath and Body Works or Yankee Candle, where some products cost $10 to $12,” Howell said.

SELLING SEASONS
Another area the partners explored in this plan was to look at the impact of seasonality in air care, which was a fairly new idea. Howell said consumers spend a great deal of money getting their homes ready for certain seasons and fragrances that match those season are big sellers.

The Febreze joint business plan had an aggressive marketing campaign that included holiday shaped displays for seasonal scents, dual packages and multiple forms of the same fragrances bundled in small gift packs.

Howell said the fall displays had to be bold enough to catch the shopper’s attention while she was in Wal-Mart shopping for other things. The fall campaign was so successful P&G continued with Christmas holiday scents in tree shaped displays, that had to be filled in the store because of the short lead time.

Mac Naughton said he took plenty of grief over the Christmas tree displays, and he hated to overload the stores with the additional work but in the end the displays drew customer’s attention and the product sold well. Today these festive displays from multiple suppliers can be found throughout Wal-Mart and other retailers each and every season of the year.

Continuing to innovate, P&G then followed up with the clip-on Febreze car scents, which are selling well in dual packs at a much higher price point than the 69-cent evergreen tree.

Howell said the air care category is up 32% at Wal-Mart and doing just fine at P&G.

These executives said important takeaways from the case study include total cooperation between the Wal-Mart and P&G teams to execute as well as innovate to impact real change in a struggling category.