Walmart hits road bumps in UK and India, but e-commerce soars in the US

Nobody said it was going to be easy - and Walmart’s international ambitions have hit a couple of bumps in the road, although home-grown digital investment continues to pay off.

Bump 1

Plans to spin off Walmart’s UK-based Asda operation in a $9.5 billion merger with rival supermarket chain J Sainsbury have been questioned by regulator, the Competition and Markets Authority (CMA). Such a merger could lead to poorer customer experience and higher prices, argues the CMA:

These are two of the biggest supermarkets in the UK, with millions of people purchasing their products and services every day. We have provisionally found that, should the two merge, shoppers could face higher prices, reduced quality and choice, and a poorer overall shopping experience across the UK. These are our provisional findings, however, and the companies and others now have the opportunity to respond to the analysis we've set out today.

If the merger goes ahead unchanged, the combined entity would be the UK’s largest supermarket operation, with combined annual revenues of £51 billion and 2,800 stores around the country. It would also deal with around 47 million customer transactions a week, a hefty claim to be able to make as the online grocery shopping wars hot up in the UK.

The CMA wants the two firms to sell off a “significant number” of stores and potentially one of the brands before it will sign off on the deal. Sainsbury hit back, accusing the CMA of having “moved the goalposts”, with CEO Mike Coupe pledging to “fight right the way” to close the deal.

Walmart CEO Doug McMillon is yet to comment on the initial CMA statement, focusing instead on other UK-centric concerns:

In the UK, Brexit and the potential implications of a hard Brexit is increasingly on the mind of everyone. No matter the situation, Asda will always work to keep prices as low as possible for its customers. I visited our team in the UK a few weeks ago and I'm really impressed with their performance, their attitudes and the leadership. They're amazing.

Bump 2

The Walmart passage to India has been complicated by new rules on Foreign Direct Investment (FDI) for e-commerce firms introduced by the Indian government to protect local businesses from external competition.

Last year Walmart announced it was buying 77% of India’s largest domestic e-commerce platform, Flipkart for $16 billion. That deal closed in August. At the start of this month however, new FDI rules kicked in which ban online marketplaces from having a single vendor providing over 25% of inventory and from entering into exclusive sales deals for products.

There has been scuttlebutt in recent weeks that Walmart might exit or significantly tone down its Indian plans, but the market potential in the region is just too large to walk away and leave Amazon with a free rein. So McMillon is adamant that Walmart will find a way to work in the new regime:

In India, we remain optimistic about the e-commerce opportunity given the size of the market. The low penetration of e-commerce and the retail channel and the pace, at which it's growing. In the future, we hope to work with the government for pro-growth policies that can allow this nascent industry and the domestic manufacturers, farmers and suppliers to benefit from it develop and prosper.

In terms of the regulatory environment, we were disappointed in the recent change in law and the lack of consultation, but the team has worked to ensure that we're in compliance with the new rules. We are committed to providing sellers with a world-class platform to sell on and customers with a high quality of service. We hope for a collaborative regulatory process going forward, which results in a level playing field.

He adds:

All the reasons we cited for going into India, acquiring Flipkart, when you look at the continued e-commerce growth in India, the size of the market, the growing middle class, all those things are still as true today as they were six months ago. So the reasons we're excited about the market are still there.

But he’s clearly irritated by the actions of the Indian government so far:

I'll just say that the things that have happened have been disappointed in some way, but they haven't shaken our confidence and excitement about what this is going to mean to the company long-term…We hope to have an effective productive dialogue as it relates to future changes that happen.

US delivers

Back in the domestic US market, it’s a happier story, with e-commerce sales booming - 40% growth year-on-year - and home delivery pitched as another success story:

We strive to make every day easier for busy families as we increase convenience and save them money and time. Part of our strategy is to build on our existing strengths, such as having a broad assortment including fresh and perishable foods within 10 miles of 90% of the US population.

Our stores and clubs are becoming more digital and we're using technology to change how we work. More customers can now access our brand through multiple channels and it's important that we engage them in different ways. We've learned that those customers who shop with us, both in stores and online, spend about twice as much in total and they spend more in our stores.

Across the business, you can see examples of how we're meeting the changing needs of customers and delivering solutions that are increasing customer engagement. In the U.S. we offer grocery pick up at more than 2100 locations and grocery delivery at nearly 800 locations, which represents about 69% and 36% of the population respectively. Feedback from customers about these services continues to be very positive, which speaks of the capabilities of roughly 37,000 personal shoppers.

Online grocery services are set to expand to a further 1,000 stores this year, with more product categories being added to the Walmart app, enabling customers to buy non-food items alongside the weekly grocery shop. McMillon sees this as a response to customer demand:

We have been adding assortment over time. Some of the happiest customers that I have come across are customers that can place their back-to-school order and a grocery order together and go through pickup and knockout that list of things that you need for your kids as they go back-to-school. So that includes a lot of items that are not food items. And then, over time, we just keep adding as the stores learn how to pick categories that are different in nature than food.

And the delivery options will also continue to evolve, he adds:

I think we'll end up in a position where the customer can pick depending on the occasion, how they want to shop. There will be families that come into stores once-a-week or twice-a-month or whatever and they'll also use pick-up, they'll also use delivery, and we'll have the ability to serve them in all those ways.

There's an interesting opportunity if you could get to a point where customers pick their delivery window in the home or to the door unattended. You can de-couple speed of delivery in a way that helps manage costs as the volume goes up and density improves. We'll try to figure out how to drive a basket business that looks more like a dense route than a one-hour or a 30-minute race to deliver to somebody's house. That maybe different for restaurant delivery than it is for grocery delivery. It seems like those use cases are different enough. So we've got some tests going on and real-time learning here to try and do it in a way that customers want it to be done and create that optionality for them

Overall, bumps in the road aside, McMillon’s mood as the firm gets into 2019 is upbeat with an emphasis on what’s yet to come in omni-channel retail:

We see the future as a frictionless experience across stores and e-commerce, but we have more work to do as customers raise their expectations, competition persists, and the omni-retail story continues to evolve. We fully expect the pace of change to accelerate in the next five years versus the last five years with emerging technologies come together to transform retail even further and we're adapting. What we once could only imagine a decade ago will increasingly become reality.

We will embrace new technologies to solve problems for customers in a seamless way and equip associates with tools to make them more productive. Within our ecosystem, we will pursue to grow adjacent businesses to increase customer engagement and will leverage core capabilities to deliver services to other that can generate new revenue streams. Our commitment to the customers is clear. We'll be there when where and how they want to shop. Our distinctive set of assets, financial strength, and innovative culture are delivering the customers new experiences that are uniquely Walmart.

My take

US omni-channel progress remains impressive and a good use case in tapping into technology to build a digital retail brand.

India will work itself out somehow, but there will be further protectionist moves by the Indian authorities to be dealt with. All eyes need to remain on the jewel in the crown that is the Indian retail market.

The UK is a different matter. The sheer scale of the Asda/Sainsbury plan is such that regulators were bound to get involved. There will have to be some serious compromises made if this deal is to close in whatever form. It’s the worst possible time for all this as the latest Brexit shenanigans center around food imports, tariffs and potentially rising prices in the supermarkets.