What Happened to the Idea That WalMart was Going to Dominate the World?


The Economist has a story about how well private grocery chain Publix is doing against WalMart. Mrs. Businesspundit and I shopped there a lot in Florida, and my favorite thing about it was one old man who worked part-time as a bagger and narrated things as they came down the belt for bagging. He would say things slow and loud, almost as if he was a sports announcer. "Got some bananas for your potassium today. v8 – it's good to see you young folks drinking this stuff…" It always made the grocery fun, although, if I bought beer I usually tried to get in another line.

Anyway, here's what the article says about WalMart vs. Publix.

WITH the rise of Wal-Mart, smaller supermarkets across America have struggled to compete. But not Publix Super Markets, which recently opened its 900th store, in Murfreesboro, Tennessee, and is defying Wal-Mart's market-share success in food sales. Publix is America's largest privately owned grocery chain, with revenues in 2006 of $21.7 billion, up 5% from 2005, and net profits of $1.1 billion, up 11%. Publix has a market share of more than 40% in Florida, its home state, and it is taking business from Wal-Mart and others as it expands into Alabama, Georgia, Tennessee and South Carolina. It has a competitive edge over Wal-Mart because it is strong in precisely the areas where Wal-Mart is vulnerable.

Take customer satisfaction, for example. Publix has ranked number one out of supermarkets on the American Consumer Satisfaction Index, published by the University of Michigan, since it began 14 years ago, whereas Wal-Mart ranks last. Publix employees have a reputation for going out of their way to please customers-testimony to the motivational power of employee ownership, perhaps. Publix employees put your shopping into bags, take it to the car and refuse tips-unless you offer more than once. They own 31% of the firm through an employee share-ownership plan, making Publix the largest employee-owned company in America. (The rest of Publix, established in 1930 by George W. Jenkins, is largely owned by the Jenkins family, which still runs the firm.)

Isn't it odd how quickly the media has turned? Just a few years ago, WalMart was going to be the downfall of America. Everyone was afraid of this giant retailer that was going to takeover the world. Meanwhile, anybody who knew anything about business new it wouldn't last. We discussed it here back in March of 2004.

I've said it before, and I will say it again – size is only a competitive advantage to a point. Despite the claims some make about the economy, this is a wealthy (or, at least an indebted) nation. People don't care as much about price. Design, quality, aesthetics, etc. is all becoming more and more important. Wal-Mart is starting to embrace that in a few places, but I think in ten years, it will be obvious that they are losing their dominant status. The trend has already begun, with people who refuse to shop there because the stores are messy and crowded and the clerks aren't helpful. Low price was a good strategy, but the economy has changed. Wal-Mart must too, or else face eroding market share.

Craig Henry pointed out even earlier, in November of 2003, that "business empires have a way of crashing." Contrast that with Businessweek who, at the time, was discussing WalMart as unstoppable and theorizing about anti-trust action against the company.

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Unfortunately for businesses, there is a fact of life called "regression to the mean." No company can outperform the economy forever, or else it would become the economy. The next company that this will effect is Google. You can already see negative signs, like Aaron Schwartz, founder of Reddit, who turned down a job offer because Google work didn't seem that interesting. Within the next year or two, profits will flatten out and we will start to see articles like "Where Did Google Go Wrong?" and "How Google Lost Their Mojo." It will happen sooner than you think.

  • As a cautionary tale for Wal-Mart, I give you the Great Atlantic and Pacific Tea Company. In the early fifties, A & P was the Wal-Mart of its day. It was huge compared to the competition, it drove out mom and pop groceries, and it put incredible pressure on suppliers, so much that Congress passed laws to stop predatory pricing. Where it once had some 16,000 stores, today it has 410. As I learned in my very first investing course, decades ago, “what goes up must come down.:

  • Bob

    The Google love fest will wane at some time. When, I’m not sure though I’m hard pressed to understand how a an electronic billboard business model can maintain its’ CAGR into perpetuity.

  • Paul

    Your comments are almost prescient–it was not more than two years ago when JetBlue was being held up as the new gold standard of airlines and a potentially fatal competitor for Southwest. Today their CEO is fired and the “experts” are…well, to put it nicely, they’re saying he was rightfully fired for doing everything they praised him for two years ago (such as his obsession with customer satisfaction).

    And on CNBC just today, I listened to pundits dictating that Google should focus strictly on its search/ad model instead of trying to branch off into different things. How long until GOOG is relabeled by the same people as a “one trick pony” that should have diversified its interests and was late to the table on too many innovations?

  • Journalists are faced with a daily choice; to write what comes easiest or to painstakingly research the facts and uncover the untold story. Their dilemma? Both approaches pay the same. (from a quip originally penned by Scott Adams)