At first blush, it might look like a throwaway announcement on a slow news day.
In reality, though, there's more to last week's announcement that Walmart (WMT 0.18%) is making an equity investment in a Nebraska beef processor owned by a consortium of cattle farmers. The move is just one of many measures the world's biggest retailer is taking to ensure it has an adequate supply of the right goods to sell to consumers.
And for investors, this distinguishing factor gives Walmart a serious edge on its competitors.
Putting beef on your plate
Walmart is acquiring a minority stake in Sustainable Beef, co-owned by several nearby cattle ranchers. Tyler Lehr, Walmart's senior vice president for merchandising for deli services, meat, and seafood, said, "We are dedicated to providing high-quality, affordable beef to our customers, and an investment in Sustainable Beef LLC will give us even more access to these products."
Image source: Getty Images.
Walmart is the world's biggest grocer. Access to one beef processor's output will only affect a small portion of a small number of Walmart stores.
But this is part of a bigger initiative that's been underway in earnest since 2019, when Walmart began investing in its Angus beef supply chain. A partnership with cattle farmers in Georgia then set the stage for sourcing beef for 500 stores in the Southeast, beginning in 2020.
By mid-2021, Walmart's end-to-end supply chain allowed it to launch its own private-label sustainable-beef brand called McClaren Farms. The investment in Sustainable Beef is the next step toward greater self-sufficiency in a product category that's increasingly in demand.
Four companies together control more than 80% of the country's beef processing capacity. Walmart can't afford to be beholden to their leverage.
More than beef
How big a deal is gaining access to more beef? Walmart's interest in (and financial support of) sustainable beef mirrors several other self-sufficiency initiatives by the retailer to not only ensure its supply of goods, but also ensure it can continue to offer low prices. In 2018, the company opened a milk bottler in Indiana that supplies about 600 stores. In January, the retailer made an investment in the vertical farming start-up Plenty, with plans to offer its leafy green vegetables grown in vertically stacked layers in many California locales.
Beyond fresh foods, the company's Great Value brand of groceries is sourced directly from food processors rather than bought from national brands, which often outsource their production anyway. This approach bypasses the markup that established brands typically charge, allowing Walmart to offer a lower-cost option next to national brands on store shelves.
And it matters now more than in the past, in the wake of this year's soaring prices and supply chain woes. Market research outfit Numerator reports that four out of the nation's top five private-label food brands belong to Walmart, with nearly 73% of households buying a Great Value product at some point during the second quarter of this year.
It's also more than food. The Onn brand of electronics is one of Walmart's in-house brands, too. Depending on the product, these items are often made by the same suppliers of more-mainstream brands. Again, though, without that more-famous name attached to it, these goods not only sidestep an extra stage of the supply chain, but are also cheaper.
Pen+Gear office supplies; Play Day toys; and Parent's Choice baby diapers, baby formula, and accessories -- much of which are made by Wyeth -- are also some of Walmart's private-label goods. So are clothing brands Scoop, Free Assembly, and Terra & Sky. The company isn't making equity investments in the suppliers of these products, but it is taking control of its supply and product lines with them.
The new normal
Walmart still counts on third-party manufacturers like Procter & Gamble, Fruit of the Loom, General Mills, and others that it has no control over. The retailer is hardly operating in its own silo by making every product it sells.
It's moving closer to that scenario, though. Last week's announcement of the investment in the Nebraska beef processor is simply another step in that direction. The cumulative end result of these partnership is greater control of its supply chains.
And when you account for roughly 10% of all United States retail sales (as Walmart does), that's a big deal. Not only does sheer size leave you overly vulnerable to the sort of supply chain squeezes we're seeing now, but partnerships like the one with Sustainable Beef can also ensure you have access to lower-cost goods your competitors may not.
Look for more of these self-sufficiency partnerships in the future. Walmart's existing reach with consumers as well as suppliers coupled with this strategic mindset should keep the company out in front of its competitors when and where it really matters.
