Walmart’s brilliant beef move could sizzle the stock

At first glance, this might look like a throwaway ad on a slow news day.

In reality, however, there is more to last week’s announcement than walmart (WMT 0.30%) makes an equity investment in a Nebraska beef processor owned by a consortium of cattle ranchers. The move is just one of many steps taken by the world’s largest retailer to ensure it has an adequate supply of the right products to sell to consumers.

And for investors, this distinguishing factor gives Walmart a serious advantage over its competitors.

Put beef on your plate

Walmart is acquiring a minority stake in Sustainable Beef, co-owned by several nearby cattle producers. Tyler Lehr, Walmart’s senior vice president of deli, meat and seafood services merchandising, said, “We are committed to providing affordable, high-quality 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 largest grocer in the world. Access to a beef processor’s output will only affect a small portion of a small number of Walmart stores.

But it’s part of a larger initiative that’s been underway since 2019, when Walmart began investing in its Angus beef supply chain. A partnership with cattle ranchers in Georgia then set the stage for supplying beef to 500 stores in the Southeast, starting in 2020.

In mid-2021, Walmart’s end-to-end supply chain enabled it to launch its own brand of private label sustainable beef called McClaren Farms. Investing in Sustainable Beef is the next step towards greater self-sufficiency in an increasingly popular product category.

Four companies together control more than 80% of the country’s beef processing capacity. Walmart cannot afford to be beholden to its leverage.

More than beef

How important is access to more beef? Walmart’s interest in (and financial support of) sustainable beef mirrors several of the retailer’s other self-sufficiency initiatives to not only secure 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 invested in vertical farming start-up Plenty, with plans to offer its leafy greens grown in stacked vertical beds in many California locales.

Beyond fresh foods, the company’s Great Value grocery brand comes directly from food processors rather than being purchased 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 alongside national brands on store shelves.

And that now matters more than in the past, following this year’s price spike and supply chain issues. Market research firm Numerator reports that four of the country’s top five food brands are owned by Walmart, with almost 73% of households purchasing a Great Value product at some point during the second quarter of this year.

It’s also more than food. The Onn electronics brand is also one of Walmart’s internal brands. Depending on the product, these items are often made by the same suppliers of more common brands. Again, however, without that more famous name, these products not only skip an extra step in the supply chain, but are also cheaper.

Pen+Gear office supplies; play day toys; and Parent’s Choice baby diapers, infant formula and accessories — most of which are made by Wyeth — are also part of Walmart’s private label products. The same goes for clothing brands Scoop, Free Assembly and Terra & Sky. The company does not invest in the suppliers of these products, but it does is by taking control of its supplies and product ranges with them.

The new normal

Walmart still relies on third-party manufacturers like Procter & GambleFruit of the loom, General Mills, and others over which he has no control. The retailer barely operates in its own silo making every product it sells.

It comes close to that scenario, though. The announcement last week of the investment in the Nebraska beef processor is just one more step in that direction. The cumulative end result of these partnerships is better control of its supply chains.

And when you represent about 10% of all retail sales in the United States (like Walmart does), that’s a big deal. Not only does sheer size make you too vulnerable to the kind of supply chain crunch we’re seeing right now, but partnerships like the one with Sustainable Beef can also ensure you have access to products at a lower cost than your competitors aren’t. can’t.

Look for other self-sufficiency partnerships in the future. Walmart’s existing reach with consumers as well as suppliers, coupled with this strategic mindset, should set the company apart from competitors when and where it really matters.