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Coke caves under Wal-Mart pressure

There seems to be no limit to the power of Wal Mart Stores Inc (WMT).  CNN had a good article recently about how Coca Cola (KO) had to change their supply system in order to please Wal-Mart.  Not even a company as old and as big as Coke can say no to Wal-Mart.  That tells me Wal-Mart is a force not to be reckoned with.

For this reason - and MANY others - I opened a position today in Wal-Mart's stock.  I will blog more about that soon.



Coca-Cola, fearing Wal-Mart would launch its own sports drink to rival the beverage giant's Powerade if it didn't agree to the retailer's new distribution terms, caved under the pressure and altered its own century-old supply system, a published report said Thursday.

Wal-Mart, the world's largest retailer, asked Coke last year to switch to the straight-to-warehouse delivery method, and Coke's largest bottler, Coca-Cola Enterprises (Research) (CCE), began doing so across much of the U.S. in April, the Wall Street Journal said.

But according to June 1 court filing by Coke, the company stated that it faced a "serious risk" of a Wal-Mart-branded rival to Powerade unless it abided by Wal-Mart's demands of direct distribution instead of having Coke (Research) bottlers deliver drinks to individual stores within their exclusive territories and stack those drinks on store shelves.


By Theo at 2006-06-28 12:42 | Stocks | WMT | Theo's blog


WMT

WMT 10 year summary

Looks like WMT fundamentals improved about 3.5X over the past decade. WMT is so big they are almost a commodity. Rps grew at 10% and they pay a 1.5% dividend. Virtually every new housing tract seems to contain a Walmart and a BestBuy. They have never had a bad year. The only problem is health care and unions. This is Walmart without those. If Walmart is forced to add those, profits will drop. That is the risk. But Walmart is so big they can squash threats as anti-capitalism. Debt is rising quite fast in the last 1-2 years. For the low 10% growth and 15 p/e ratio, I think there might be better prospects in shld, low, or cc.

By buybackking at Wed, 2006-06-28 14:28 | login or register to post comments

RE: WMT

Numbers-wise, true there are better companies. Business-wise, I don't think so. Wal-Mart's numbers have been getting better and better every year yet the stock has not caught up with their business performance. You may find better numbers, but Wal-Mart has minimal risk. They own their industry.

By Theo at Wed, 2006-06-28 17:10 | login or register to post comments

Re: WMT

Wal-Mart is yet another example of an above-average company selling for an average market multiple.  I agree with Bill Nygren, Mark Sellers and Jeremy Grantham that these high-quality companies are the safest bets now.

Some thoughts on why the future may not be as bright as it seems:

- I read that the income of the average Wal-Mart customer is ~$35k, versus $50k for Target and $74k for CostCo.  Lower income people are probably the most affected by higher gas prices, higher interest rates.
- Wal-Mart is expanding their groceries areas.  Will probably compress margins in the future.
- The median distance to a Wal-Mart in the U.S. is 4.2 miles, more than that in rural less populated areas.  It makes you wonder how fast they can keep opening new stores, and if new stores are not canibalizing existing ones.

All that considered, WMT still looks cheap.

By Bruno at Wed, 2006-06-28 18:41 | login or register to post comments

Is WMT's negative SSS from canibalization?

>  The median distance to a Wal-Mart in the U.S. is 4.2 miles, more than
>  that in rural less populated areas.  It makes you wonder how fast they
>  can keep opening new stores, and if new stores are not canibalizing existing ones.

I was just thinking this same thing earlier today.  Perhaps the reason for recent Same Store Sales (SSS) weakness is because of canibalization.

Negative SSS could be a Value Trap.

- Vooch

P.S.  I'm thinking about buying more WMT.

By Vooch at Tue, 2006-12-19 17:53 | login or register to post comments

RE: Bruno's WMT concerns

1) Average income at Walmart -- The average income statistic is somewhat irrelevant here. I don't care if you're making 74k or 30k.. you're going to buy shampoo... it's not like a Louis Vuitton buyer deciding whether to buy a samsonite luggage versus an LV suitcase. There's no snob factor in necessities like shampoo that Costco sells versus Walmart... Jergens is Jergens.. Dove is Dove.. As a more affluent consumer.... You might buy a little bit more.. but, you'll probably buy the same products.. Kelloggs or Post cereal... maybe, you buy in bulk.. but, it's all the same.

Again, high gas prices will affect low income people.. but, they'll buy private label Walmart stuff at the very least.. but, they won't stop buying cleaning detergent, shampoo and cheap clothes.. I would think the middle market would nickel and dime and start going to Walmart to pinch pennies.. I won't worry about the low-end consumer going away.. where are they going to go.. where else are they going to buy.. maybe, they buy less.. but, it'll be more than compensated by middle market consumers moving down.

2) Groceries are lower margin than shampoos and kitchen ware.. but, Walmart makes money on those items.. and two, drives more consumers in the stores... they can pick up their bread, cookies and milk while they're getting their laundry detergent... I think Walmart has the footage to place those items without sacraficing their normal goods.. There's only so many neccessities you can stock.. what would you expand into? High end jewelry? It's a good idea to have items to drive people into the store. The ultimate will be the $4 prescriptions.. Target is also following suit.... Prescriptions that cheap will drive down margins for everyone.. but, it brings people in... pick up your prescriptions and while you're at it... see what else you need.. so, I'm not too worried about the margins.. overall, the income keeps coming in and the moat keeps expanding...

3) SSS -- They are slowing down their US expansion.. the next battle will be international growth.. that's the key to their future... There's a lot of big name players out there... I'm not too worried about the US expansion.. They won the US market... now, it's a matter if they can split the international markets.. I'll take a tie on the international front.. plenty of money will be made if they can be successful in a handful of markets... They're down -1 to Germany....At least, they cut their losses.

Everyone is so down on Walmart and other dominant brands.. On a pairwise comparison... I don't see what company around the way will unseat them? Where's the killer app? the killer product? Walmart is the lowest cost seller... There's no Google to their Microsoft.. they're in the business of having volume discounts.. and passing on the savings... It's not brain surgery... it's just driving people in the store.. give them good prices that no one can beat without driving themselve out of business with the loss they incurr....  What other company would you invest in.. which is less risky? With an earning yield, brand such as Walmart? GE? AIG? BRK? If not Walmart, whatelse?
By schin at Tue, 2006-12-19 22:59 | login or register to post comments

>  What other company would

>  What other company would you invest in.. which is less risky? With an earning
>  yield, brand such as Walmart? GE? AIG? BRK? If not Walmart, whatelse?

Agree.  That's why I said I'm thinking about buying more WMT tomorrow.  ;-)

- Vooch
By Vooch at Tue, 2006-12-19 23:13 | login or register to post comments

What about the sociocultural

What about the sociocultural evolutionary impact?  Such as citizen hatred towards such big companies as Wal-Mart and Home Depot.  We see stories all the time, in the press, about people not wanting Wal-Mart in their towns.  Same stagnation with Microsoft, but that was for anti-competitive practices.

- Vooch
By Vooch at Wed, 2006-12-20 00:23 | login or register to post comments

TESCO versus Wal-MART


I have to admit that not many people in Europe have heard about Wal-Mart.
I've heard about Wal-Mart  6 months ago .IMHO it was crazy to go to Germany .Has anyone heard about german richest man - Theo Albrecht http://en.wikipedia.org/wiki/Aldi  or Dieter Schwarz http://en.wikipedia.org/wiki/Lidl. 

That's not all, there is one company called TESCO (european Wal-Mart) .Buffett likes it  http://news.bbc.co.uk/nolpda/ukfs_news/hi/newsid_4989000/4989036.stm and me as well.

TESCO wants slowly start expanding to US : http://uk.biz.yahoo.com/07122006/214/update-tesco-details-expansion.html

IMHO what concerns Europe Wal-Mart has lost the battle.So it's just about India and China.

Expansion to China
http://www.thisismoney.co.uk/news/article.html?in_article_id=407743&in_page_id=2

Expansion to India
http://www.thisismoney.co.uk/investing-and-markets/article.html?in_article_id=415065&in_page_id=3

Now it seems that TESCO is losing,but it was in Czech republic and England at the begining as well and look at it now.British pound is 2 american dollars so .... We'll see. 

PS: I bet on TESCO.

By GordonGekko at Wed, 2006-12-20 00:24 | login or register to post comments

SocialCultural?

It's just bad headline risk... Even with all the bad press, MSFT still makes a lot of products.. and Linux (RedHat), OS/2 have all been left on by the wayside.... Please will hate winners now and into the future.. look at the Yankees... If you're from Boston, you think of them as the evil empire... the bottom line.. you can't disrespect the talent.... Look at AIG.. it had huge headline risk last year.. it's bounced back.. because their products are competitive..


WMT hasn't gotten fat from its largese... it's still lean and mean.. I haven't seen anyone undercut their prices... HD... I still see people going to their stores... I don't see a lot of people going to Lowe's instead.. it's whatever store you're near.. you go.... So, HD and WMT.. it's just headline risk..

Remember when everyone hated TYC and GE? If the products are good.. they come back... Not sure if I can say that about GM or Ford... but, that's a different story.

By schin at Wed, 2006-12-20 10:14 | login or register to post comments

TESCO

Warren Buffett bet on both... He has WMT and TESCO.. so... there's nothing wrong with handicapping the race like that... They'll be room for WMT and Tesco out there... plus, maybe, Target... Sears... Gap... etc... They just have to understand their customers and niches...
By schin at Wed, 2006-12-20 10:16 | login or register to post comments