How to drive down prices - Macleans.ca
 

How to drive down prices

Wal-Mart saved US$200 million just by tweaking its delivery routes.


 

Wal-Mart isn’t just the world’s biggest retailer, it also operates one of the largest fleets of trucks on the planet. Last year alone the company saved US$200 million just by tweaking its delivery routes.

Now Wal-Mart is using its transport heft to take over deliveries from suppliers in situations where it thinks it can do the job cheaper. As it stands, between 60 and 80 per cent of deliveries to Wal-Mart distribution centres are handled by suppliers. In exchange for moving the goods itself, Wal-Mart is demanding manufacturers cut prices for their products accordingly.

Those savings, in turn, will get passed on to customers. But the best part of Wal-Mart’s plan: it could drive up costs for its competitors in the process. With Wal-Mart’s heft gone, it will cost some suppliers more to deliver to remaining retailers. Analysts expect manufacturers to pass the increased freight costs on to Wal-Mart’s rivals.


 

How to drive down prices

  1. Hate to break it to you: Wal-Mart is hardly alone in this strategy. Many large retailers manage their own fleets, and can transport goods cheaper than their vendors can manage, since they can combine store deliveries with pick-ups from vendors on their way back to the warehouse, reducing empty miles. Beyond that, there are economies of scale when you own hundreds of trailers and buy diesel by the hundreds of millions of litres.

  2. Best part of Wal-Mart's plan if you like monopolies, that is.

    • Wal-Mart doesn't have monopolies. It may be more effective than other discount general merchants, but in most markets they have either decent or pretty good competition. Think Target in the US, and perhaps not so much for Zellers or Canadian Tire here in Canada, but in each area of their business, they face pretty strong competition. For groceries, for instance, many of the discount chains here in Canada can beat Wal-Mart on price. The US doesn't have as well-developed a discount grocery market as in Canada. And if you look at Germany, Wal-Mart pulled out because the market was too competitive for them and their model didn't work well.

      • Your totally right. In the grocery business, Sobey's and Metro have been doing this at a low level, but Loblaw already control over 70% of their orders. Wal-Mart is far from Loblaw.

    • Wal-Mart has a monopoly? In what?

      A century ago, Sears was the big boogieman, and various general stores and outposts across the country were complaining about the Sears catalogue because it was undercutting their prices and putting them out of business. Sound familiar? You can read about that in The Long Tail.

      Today it's Wal-Mart. Tomorrow, someone will figure out how to do retail even better than Wal-Mart, and Wal-Mart will become just another store, like Sears is today.