Wes Woolbright, MBA has over a decade of experience in pricing strategies, pricing operations, and revenue management across a variety of retailers, including Walmart (Director, Pricing Operations), Sam’s Club (Director, Pricing), BevMo! (Director, Pricing), and Safeway (National Category Director). Wes received his M.B.A. as well as dual degrees in Economics and History from Willamette University. Wes holds certifications with the Professional Pricing Society.
Part 1: This is an excerpt from a long-form discussion between Wes Woolbright & Edris Bemanian. Keep an eye out for the rest of the interview.
Edris Bemanian: It’s interesting to see how things are coming full circle. Over the last few years, many of the e-commerce giants or fast-growing pure-play upstarts were either partnering with or buying brick-and-mortar stores. Some of the pure-play e-commerce companies that opened physical locations are seeing success, though some may have moved too fast on that and have scaled back. Then there’s the blended experience with BOPIS (Buy Online, Pick Up In Store) and other similar models that have continued to evolve over the years. Since we started here, what’s your latest thinking on where the omnichannel trend is heading?
Wes Woolbright: I think it will continue to go that route because of the convenience factor. About 10 or 12 years ago, the assumption was that the main benefit of e-commerce was savings, even though, in reality, it wasn’t always cheaper. For example, Amazon wasn’t a price leader from a quantified standpoint. There were smaller companies with much lower prices on books, CDs, and DVDs. However, Amazon was still perceived as a low-price leader, and the internet, in general, had this notion of being inexpensive, especially if free shipping was involved. But if you had to pay the actual cost of shipping, that perception changed.
Now, I believe convenience, especially when it comes to shipping, has become as important, if not more so, than price. It’s not that people don’t want value when they shop online—they do, and that’s expected as a baseline. But the real winners in the value proposition are those who can deliver a better customer experience by getting products to customers quickly and conveniently.
EB: I was intrigued to see one large UK retailer’s announcement this week that they were stopping their click and collect service. They also don’t offer a home delivery service. They said the service had met its purpose when it was needed, and now they’re sunsetting it.
I haven’t seen many announcements where a grocer’s service is being shut down in a BOPIS context. That particular retailer manages their margins and bottom line very aggressively, so if anyone was going to scale back, I suppose they would be a prime candidate. Were you surprised by that, or does it make sense to you?
WW: I’m going to reference an announcement made yesterday about Walmart exiting its position in JD.com. I think it’s an analogous context in that it served its purpose.
These are large companies with the resources to make the necessary investments to learn something or gain access to new technology. When the value from an acquisition diminishes, the smart move is to convert that investment into something else or return dividends to shareholders.
So, I wouldn’t be surprised to see them make these kinds of changes. For example, there was an announcement this week about other retailers expanding their partnership with Instacart in Europe. This shows that e-commerce still has a role in their strategy, though it might not be a primary focus.
In contrast, companies like Costco or Trader Joe’s may be highly committed to their existing models. They aren’t doing e-commerce but aren’t emphasizing it as a major driver of their business.
EB: The JD and Instacart examples are a great point. If you look at it from a total portfolio perspective rather than isolated announcements, you could argue that companies are still moving in the direction of e-commerce. They might be doubling down on it, but in a more targeted or selective way. It’s a good point.
WW: Large companies have the assets to make a number of plays. They can figure out which ones work and which don’t, and then pivot away from the ones that don’t.
EB: Well said. As you went through the JD example, I thought of Jet.com, which is another reasonable metaphor. Many people were expecting to see Walmart implement some of the exact features that Jet was known for and gaining market traction with, such as: “Hey, if you buy with a debit card instead of a credit card, you get to share in the savings.” Jet.com had all these different features that seemed to resonate with a certain segment of customers at a point in time. I’m sure Walmart looked at it, tested it, and at the end of the day, they have that EDLP (Everyday Low Price) philosophy and a price trust philosophy too.
They aim not to confuse customers with pricing—basically, “We’re the low-price retailer, and you can trust that it’s a great value.” Do you think that’s the right way to think about why they incorporated some features and capabilities but not others?”
WW: I think there was probably more of a technology expertise play around that anyway. The kinds of concepts you just described, like leveraging debit versus credit, in the short term, are likely not going to yield a lot of benefit for the amount of effort required to make them frictionless, right?
And then there’s probably another aspect to consider. If I’m shopping, as opposed to, say, flying from Ireland to the UK on Ryanair, do I really want to go through a laundry list of options and an a la carte menu approach to determine the total price in my basket?
If you think about the speed aspect of convenience that ecommerce brings, having to make a lot of explicit choices creates friction and slows down that speed.
Having said that, I could imagine whether it’s Walmart or other retailers that are less focused on EDLP, that kind of approach could become an incremental benefit down the road, as some of the lower-hanging fruit becomes table stakes themselves.
A lot of ideas that are either new now or mainstream, or even growing old, require a portfolio pipeline from a technology standpoint. You may have the technology ready now, but there’s a benefit to rolling it out slowly, one piece at a time, to maximize the value of all of it.
EB: What I like about every topic we’ve raised so far is that you take a step back and look at it holistically. I think that’s something a lot of people outside of pricing don’t realize is necessary. It’s not just about adjusting the math and seeing what happens. You need to consider the customer experience, customer friction, and trust. I really like that you approached it that way.
WW: I appreciate the comment, but I think it’s core to what good pricing requires. We’ve talked a lot over the last three years about inflation. The reality is inflation doesn’t come out of nowhere. It may feel that way when it hits 9% like it did a little over a year ago, but the signs are always there. And if you want to be good at this particular discipline, you have to be looking ahead and seeing how those signs are playing out. You can’t necessarily solve for them and make them go away when they’re macro in nature, but you can at least figure out how you’re going to mitigate their impacts and come out the other side in better shape than your competition.
EB: And that just brings us to the price gouging context. That’s a big topic in the national news cycles today. What’s your read on that?
WW: To the extent I don’t have visibility into much data except for some limited companies and recent history, nobody is doing that. The struggle has been in environments where costs are rising exorbitantly, and due to competition, there’s a constraint on raising prices as quickly as costs increase. There’s been a lot of debate on LinkedIn about this, with some blaming suppliers. However, the real question is how suppliers survived for ten years without significant cost increases.
Specifically speaking about food, consumables, and supermarkets, there has been intense competition and relatively flat commodity costs, which kept prices and upstream costs low. It wasn’t until the impacts of Covid, and some policy decisions led to distortions in supply and demand that suppliers had no choice but to raise costs to retailers to stay in business. Retailers, in turn, had to pass those costs to customers.
I’ve dealt with customer complaints about items doubling in price quickly and seen items shift from being profitable to negative margin producers. As a retailer, you try to keep prices as low as possible, but you still have to pay bills to keep the business running.
So, in the current environment, I just don’t see price gouging, and similarly, in any place I’ve worked with competitive data, I don’t see it in competitors either. There could be some bad actors, but those are more exceptions than the rule. Additionally, most states have preexisting price gouging laws that they enforce rigorously, making new policies in that regard somewhat redundant.
EB: It’s an interesting and somewhat weird topic for those of us in the field because we have a deep empathy for consumers who are more constrained and challenged by the macro environment. We understand the difficulties they face. However, we also need to address this pragmatically and acknowledge that there isn’t clear evidence of price gouging. That doesn’t diminish the empathy for the situation, in which shoppers’ pocketbooks are tightened due to higher costs across the board, even beyond your weekly shopping needs.
WW: Like so much else, a lot of this has to do with framing because everybody knows costs went up. They may feel that painfully, and they may not like it, but they get it. But when it’s framed in juxtaposition with companies making a lot of money, record earnings and all of that, it opens the door for a policymaker to try to draw a connection that may be weak. To again make people feel better because, yeah, I’m feeling bad, and it sounds like somebody’s benefiting from my pain. And here I have somebody who’s going to solve that.
EB: And you know what’s another interesting aspect to this? There’s this non-virtuous cycle when you look at food costs. There’s a need, desire, and expectation to keep food costs low, which is understandable—you want and need to make food accessible. But one of the challenges, one of the byproducts of doing that, is you end up making it more difficult to scale up or bring in higher quality products. Higher quality could mean supporting health objectives, sustainability needs, and so on, but it doesn’t leave much room for that. This creates a dichotomy where people expect and need lower prices, but there’s a tradeoff we’re not necessarily aware of. Sometimes, by focusing on lower prices, we’re sacrificing access to products that could be better for our health or the environment. On the flip side, we’re also seeing consumers demand more from suppliers as it relates to healthier food options and products, so I do see that evolving over time. How do you see this tradeoff?
WW: Part of the dynamic you’re describing shows an inability to have good segmentation or product tiering because, in the abstract at least, you could have products in retail options that address the fact that some people don’t have as much means to spend as others. If you think back to before the financial recession and Whole Foods being labeled “whole paycheck,” they had created this premiumization tier, or maybe a healthy tier. They created segmented products that people could opt into or out of and were willing to pay for.
But as the broader retail industry co-opted some of their products, it became more difficult to do that kind of segmentation in a single location—not to mention the shelf constraints of actually carrying every product under the sun and every tier of every product under the sun. I don’t know if you saw it this week, but Loblaws has launched a no-frills banner with 3 locations. It’s reminiscent of the white-label generic products of the late 70s and early 80s. There are no brands on this stuff; it’s priced super cheap. If it’s anything like the white-label products of that era, the quality could be lacking. You might find some unexpected stuff in your canned pears or green beans, but you have to appreciate that for consumers living on lower income levels, it’s critical to be able to get that rather than consume less at a higher price.
EB: That reminds me of one retailer’s price rewind campaign from a few years ago, just before Thanksgiving. They announced they were rolling back prices on Thanksgiving products by up to 50%. The theme was that prices were being rewound to pre-Covid levels. I think we’re in an era where consumers really appreciate such bold statements. But we’re also approaching a time where more and more consumers are skeptical about some of these claims as well.
WW: Yes, and I recently saw a graph showing the share of food consumption as a percentage of people’s incomes in this country. During the peak of inflation, this percentage spiked dramatically. It’s not just about raw prices or this year’s inflation rate, which might even show some produce items at a slight decrease. It’s about the significant increase over recent years and how it affects purchasing power. For decades, food has been a small percentage of disposable income here, unlike many countries where it accounts for 20-30% of yearly income just to feed families daily.
EB: That takes me to restaurant sales. During Covid, restaurant sales completely shifted to grocery stores, transferring massive dollars. As people became restless and wanted to go out, spending began to shift back. Now, even quick-service restaurants are noting on their earnings calls that they’re losing share to Walmart. This is even impacting quick-service restaurants like McDonald’s, which historically have been known for good price value. What’s your take on the pricing promotions that McDonald’s and Subway and other QSR and sit-down restaurants are testing right now?
WW: There are a couple of key factors to consider regarding the restaurant industry. Firstly, the wage rate component is significant. During the pandemic, there was a severe labor shortage, causing restaurants to increase wages to attract and retain staff. This led to higher operational costs, which in turn pushed up menu prices.
Additionally, the surge in tipping practices has added to the cost for consumers. Tips are now often higher than historical norms, and when combined with already elevated menu prices, it exacerbates the gap between dining out and other options like supermarkets.
This growing gap drives consumers to choose less expensive alternatives, such as Walmart, over quick-service restaurants. Despite the promotions quick-service restaurants are running to attract customers, it’s unclear how these affect profitability. While increased traffic might offset lower margins per transaction, it’s challenging to balance this against high overhead costs.
Labor costs remain sticky and hard to adjust downward, making it difficult for restaurants to lower prices significantly. Therefore, quick-service restaurants will need to optimize their operations and asset utilization to maintain profitability, especially in a fluctuating economy. If the economy strengthens, there might be more flexibility to adjust prices.
Stay tuned for Part 2, coming soon, to dive deeper into the conversation!
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