By Erin Marcotte, Dejan Knezevic and Dimitrije Jankovic
Recent research findings out of Memorial University indicate that Canada’s obesity rate has tripled in the past 30 years [1]. This is a worrisome trend with far-reaching health implications, but it also has important implications for the grocery industry. It is commonly understood that a healthy diet is an essential part of obesity prevention. With Wal-Mart being the largest grocery retailer in North America [2], the company is uniquely positioned to help make a healthy diet accessible to more people. While Wal-Mart’s website does pay lip service to commitments of providing healthier food options, these commitments have not translated into real changes in terms of the in-store buying experience. In fact, research out of University of North Carolina [3] claims that “the proliferation of Wal-Mart Supercenters explains 10.5% of the rise in obesity since the late 1980s.”
In addition to the health-related benefits to shoppers, an increased focus on marketing health food products would also likely create a large financial benefit for Wal-Mart. The primary reasons for this are that the current health food trend will increase sales of related products, private-label health food items can increase margins, and the health benefits resulting from Wal-Mart’s employees (who are often Wal-Mart shoppers) being healthier will decrease Wal-Mart’s health insurance expenditures.
Health Food Trend
Juxtaposed with the trend of increasing obesity is the rise of the health food industry. The greater interest in health food is so prevailing that it is described as a “secular shift” [4] rather than a “trend”. Over the past few years, the number of listings for “better for you” products has more than doubled, and grocery categories related to health and diet continue to see large growth [5]. The idea of “food as medicine” is also gaining traction [6]. As such, North America’s large (and growing) aging population is expected to increasingly seek foods with health benefits, as the reliance on food to improve health is strengthening [6]. Wal-Mart can capitalize on this trend to increase sales at the same time as they help decrease customers’ waistlines.
High-margin Health Food Products
Following the health food trend by carrying and marketing related grocery products will likely increase customers’ basket size. But to further capitalize on this trend, Wal-Mart should also focus on healthy private label products*. Private label products have an approximately 10% higher margin than branded products [7], provided that the retailer can achieve sufficient economies of scale. Wal-Mart has proven that it is able to achieve this with the success of its existing private labels, Great Value and Our Finest. An additional health-focused private label would be analogous to Loblaw’s President’s Choice Blue Menu. The private label market has seen large growth in recent years [6] and the US market is set to double in 5-6 years [8]. Furthermore, private labels can increase customer loyalty [8]. Because of all of these factors, if Wal-Mart can ensure that it has private label products that meet the need of the growing health-food market, the financial benefit from an increased focus on health food sales could be even greater.
Employee Health
Sales of health food products are not the only way that Wal-Mart could benefit from getting on board with the health food trend. We know that many Wal-Mart associates are also W
al-Mart customers, and that a large percentage belongs to the low-income female demographic. As such, they are susceptible to the factors driving obesity. A 2011 report on obesity by the Canadian Institute for Health Information shows a strong link between socio-economic status and diet with obesity rates [9]. In fact, these are the second and third largest contributing factors to obesity after physical activity. Furthermore, the low-income factor is far more prevalent in females [9].
High obesity rates among Wal-Mart associates could cost the company money for several reasons. Firstly, there are several serious health conditions directly associated with obesity (e.g. type 2 diabetes, types of cancer, and cardiovascular disease) [5] that have a direct economic effect in terms of insurance claims for needs such as hospital care or pharmaceuticals. There are also indirect economic effects of obesity such as lost productivity. To give a sense of the magnitude of the issue, the overall economic impacts of obesity in Canada are projected to around $7 billion and are steadily rising [9].
The leaked 2006 “Supplemental Benefits Documentation” memorandum from Wal-Mart’s Executive VP Susan Chambers highlights the growing healthcare benefit cost as one of the key challenges faced by the company [10]. While the McKinsey-produced recommendation focuses primarily on curtailing the costs through ethically-questionable human capital practices, a renewed focus on healthy eating has the potential to create a positive effect on Wal-Mart’s healthcare spending, its reputation, and its employees/customer’s well-being.
Killing the Golden Goose?
Because Wal-Mart is not currently recognized as a go-to venue for health food or related products, some might argue that a focus on health food would not jibe with the perception and positioning of Wal-Mart as a low-cost retailer. In response to this, however, Wal-Mart would not be changing its target demographic, but would rather be seeking to change the current demographics’ eating habits and cater to a widespread shift in grocery purchasing behaviour. Wal-Mart’s ability to cater to the demographic most at risk of obesity makes it the right company to target this problem. Wal-Mart reaches the largest volume of consumers who need affordable health food the most, and they would be rewarded financially for acting on this.
* Although Wal-Mart’s website indicates that they use a “Great for you” seal on qualifying private label products to indicate healthier options, we saw no such seals upon multiple visits to local Wal-Mart stores.
Chart source: Public Health Agency of Canada, “Obesity in Canada, A Joint Report From the Public Health Agency of Canada and the Canadian Institute for Health Information,” 2011.
[1] CBC/Radio-Canada, “Canada’s obesity rates triple in less than 30 years,” 4 March 2014. [Online]. Available: http://www.cbc.ca/news/health/canada-s-obesity-rates-triple-in-less-than-30-years-1.2558365.
[2] M. Lepore, “Here’s How Walmart Became The #1 Grocery Store In The Country,” 11 February 2011. [Online]. Available: http://www.businessinsider.com/walmart-biggest-supermarket-2011-2?op=1.
[3] C. Courtemanche and A. Carden, “Supersizing Supercenters? The Impact of Wal-Mart Supercenters on Body Mass Index and Obesity,” 10 September 2010. [Online]. Available: SSRN: http://ssrn.com/abstract=1263316 or http://dx.doi.org/10.2139/ssrn.1263316.
[4] S. Krashinsky, “Healthy food trend sees McDonald’s, Coca-Cola’s profits slim down,” 21 October 2014. [Online]. Available: http://www.theglobeandmail.com/report-on-business/healthy-food-trend-sees-mcdonalds-coco-colas-profits-slim-down/article21209076/.
[5] Serecon Management Consulting Inc., “Canadian Food Trends to 2020, A Long Range Consumer Outlook,” July 2005. [Online]. Available: http://www.stayactiveeathealthy.ca/files/Canadian_Food_Trends_2020_0.pdf.
[6] Agriculture and Agri-Food Canada, “Health and Welness Trends, U.S. Market,” May 2010. [Online]. Available: http://www.gov.mb.ca/agriculture/market-prices-and-statistics/trade-statistics/pubs/us_health_wellness_en.pdf.
[7] Tuck Communications, “Private-Label Products in the Manufacturer-Retailer Power Balance,” 19 August 2010. [Online]. Available: http://www.tuck.dartmouth.edu/newsroom/articles/private-label-products-in-the-manufacturer-retailer-power-balance.
[8] E. Watson, “US private label market could double in five to six years, predicts PLM boss,” 13 September 2012. [Online]. Available: http://www.foodnavigator-usa.com/Markets/US-private-label-market-could-double-in-five-to-six-years-predicts-PLM-boss.
[9] Public Health Agency of Canada, “Obesity in Canada, A Joint Report From the Public Health Agency of Canada and the Canadian Institute for Health Information,” 2011.
[10] “Supplemental Benefits Documentation” Board of Directors Retreat, FY06, Wal-Mart Stores, Inc. internal document, http://www.nytimes.com/packages/pdf/business/26walmart.pdf
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