Wal-Mart puts Coke in its place
posted by John Craven at 2:44 PM
Most readers of this site have probably heard about Wal-Mart forcing Coke to go direct to its warehouses rather than direct to its stores. If they don't, Wal-Mart is going to come up with a private label sports drink and drop the brand. At least that's what Coke says.
Two thoughts on this situation:
1. The Coke (and Pepsi) distribution systems are not necessarily good systems for retailers. This is becoming especially true as new brands, specifically in functional, energy, and water, become more important to retailers. It's not easy for Coke to fix this century old system, but when Wal-Mart throws its weight around, people listen.
2. PowerAde's brand equity is not much better than private label. People who want to pay for a "premium" sports drink are going to buy Gatorade. People who want value/cheap are going to pick the other brand that Wal-Mart sells. . If Wal-Mart can make a private label sports drink and squeeze out some more margin, they might as well give it a try.
Two thoughts on this situation:
1. The Coke (and Pepsi) distribution systems are not necessarily good systems for retailers. This is becoming especially true as new brands, specifically in functional, energy, and water, become more important to retailers. It's not easy for Coke to fix this century old system, but when Wal-Mart throws its weight around, people listen.
2. PowerAde's brand equity is not much better than private label. People who want to pay for a "premium" sports drink are going to buy Gatorade. People who want value/cheap are going to pick the other brand that Wal-Mart sells. . If Wal-Mart can make a private label sports drink and squeeze out some more margin, they might as well give it a try.
3 Comments:
Wal-Mart is not necessarily Coke’s typical DSD client and it’s understandable that they are trying to distance themselves from Coke’s DSD problems.
With the volume and margins of Wal-Mart one cannot afford product shortages and empty shelves waiting for small bottlers to deliver.
But if Wal-Mart decides to go with private label, they will probably need the help of some Coke bottlers to contact bottling…
So it’s a new but small world after all.
By the way, what was PowerAid??
IMO...Wal-Mart bullies it's vendor as apposed to cultivating positive relationships with them.
I have heard stories of how Wal-Mart stores treat Coke and Pepsi route men and women. Wal-Mart should be more concerned with solving problems at the store level than playing cut throat with these companies.
Wal-Mart brain washes their sales associates to have excellent customer service skills. What's good for the front of the store should be good for the back of store. No????
2 Cent POV -
Coca-Cola cannot afford to let Wal-Mart create a private label sports drink just yet, and they'll be determined as ever to prolong the inevitable for as long as possible.
This is a pure volume driven channel (nothing more) that although is painful, is a necessary evil for a stock driven company. Volume drives share but unfortunately doesn't help drive profitability or daily cash operating profit. Coke & Pepsi need the club stores in an effort to help grow what have become saturated markets across the US.
Here's what I'd say to Coca-Cola supporters that are upset at Wal-Mart. 2 Things:
1. Coca-Cola has enjoyed a nice profit for many years with PowerAde. They've been # 2 in a weak category with not many other players. Needless to say they have enjoyed price realization and would do better with some competition.
2. If you really care about PowerAde and its longevity in the marketplace then take a look at Coca-Cola themselves and the HUGE opportunity missed. I believe they are in their 5th year of an exclusive 7 year deal with the NCAA. This is the largest platform available for their target demographic and they have failed, in my opinion, to build enough loyalty to ensure its success in the years to come. Time will reveal its lifespan - but for what it's worth, a private label sports drink will do nothing more than help Wal-Mart expand their value driven brands into yet another beverage category. All beverage companies need Wal-Mart, and Wal-Mart is here to stay...
John Remmel II
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