When asked to comment on their relationship, representatives from Procter & Gamble (P&G) and Walmart have similarly polite responses, citing their long and well-established history of working together for the benefit of consumers. But once we get past the polite talk, the relationship looks a lot more rocky—and yet, still unlikely to come to an end any time soon.
The history of their connection is well known, especially because the close collaboration between the consumer goods company and the retail giant was virtually unprecedented when they first started working together. Rather than battle over slotting fees and contract negotiations, Walmart and P&G shared inventory data and promotional allowances. Both parties benefitted. Walmart got to stock popular products and in some cases was the first or only source for new innovations. For P&G, the alliance meant that its products received prime positions on shelves and support from in-store promotional materials.
But even the best partnership hits rough patches, and when the two sides depend on mutual understanding instead of specific contracts, it’s easy for some opportunism to creep in. For example, when given a chance to sell its Febreze air fresheners through Aldi stores, P&G saw no reason to limit itself, but Walmart cried foul, because Aldi was selling the products for much less than Walmart could afford to do. It thus insisted that P&G lower the wholesale price of the products, a move that P&G strongly resisted.
At the same time, Walmart has expanded its stock of private-label options that compete directly with P&G’s offerings. Next to the Swiffer display for example, Walmart stocks its Great Value brand floor cleaning cloths, a move that P&G asserts undercuts its sales in the short term. It also complains that the move harms the brand reputation in the long run, because people grab the lower quality, private-label cloths to refill their Swiffer supplies, then stop using the device altogether when the cloths don’t work very well.
Some of these moves are simply new developments in a close, dedicated relationship that has spanned more than 30 years. But some of them also reflect the parties’ responses to the modern retail environment. For example, because Walmart faces increasing competition from Amazon, it needs to find ways to lower the prices it charges customers, so it is putting more pressure on suppliers, including P&G, to provide their products at a lower cost. At P&G, which has not introduced a new blockbuster product (defined as one that accounts for at least $1 billion in annual sales) in more than a decade, the goal is to expand the presence of its products on Walmart’s shelves, not be forced to compete with an ever growing list of private labels and new suppliers who lack the same history with Walmart.
With these contrasting motivations, the negotiations between Walmart and P&G reportedly are heated and difficult. Each side has admitted to working to toughen its own stance and hired new executives with reputations for being tough negotiators—even as each side also continues to express respect for its partner.
- Why are Walmart and P&G long-time strategic partners?
- What is straining their relationship?
Source: Sarah Nassauer and Sharon Terlep, The Wall Street Journal, June 14, 2016