Wal-Mart 'Great Value' Strategy: What Went Wrong?

By Darlene Quinn

NEW YORK (TheStreet) -- Earlier this year, Wal-Mart(WMT) posted its first drop in customer traffic and revenue in the company's history, and it was all because the largest retailer on the planet got just a little greedy.

Late last year, an initiative began to promote the retailer's in-house store brand of grocery products, called Great Value. Store brands are nothing new to supermarkets, as every store makes use of them. These are typically products that are manufactured and packaged in the same facilities that make name brand products like Kraft, Arm and Hammer, Hefty and others. The retailer can price them lower than their name-brand counterparts, but they make more money on them because they own the product lines. It's a win-win for the store and the consumers who choose those generics over comparable name brand items.

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Wal-Mart's hiccup occurred when the retailer, in an effort to increase sales on their store brands, began eliminating comparable name brand items from their shelves late last year. When they wiped more than 300 familiar products off their shelves, something unexpected happened -- many shoppers began buying groceries elsewhere.

The prevailing wisdom seemed sound. With a harsh economy and high unemployment, it would seem logical that price would be the primary consideration for consumers. After the shift on the shelves took place, shoppers conversely decided that they would rather pay more for groceries in order to bring home the brands their families preferred than switch to the generic at Wal-Mart. So, they left, and in far greater numbers than Wal-Mart ever anticipated.

According to Kantar Retail-Management Ventures Inc. and Advertising Age Magazine research, Wal-Mart's sales growth fell by 2 percent, while all its key competitors -- Target(TGT), Kmart, Kroger(KR), Costco(COST), Family Dollar(FDO), Dollar Tree(DLTR)and Dollar General (DG) -- all posted gains. Kmart, which was down 5. 4 percent in 2009, gained 1.7 percent in 2010, charting a 5.3 percent swing.

As a result, Wal-Mart began restoring many previously cut name brands to their stores, with Arm and Hammer and Hefty products, among many others, reappearing on Wal-Mart shelves in April.