The CEO of Walmart’s U.S. operations, Bill Simon, got a lot of press (see, for example, Walmart’s midnight baby formula bread line, Sept 22, Salon) a few weeks ago when he spoke at a retailing conference sponsored by Goldman Sachs. This is quite possibly the most depressing business quote of the year:
And you need not go further than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items, baby formula, milk, bread, eggs, and continue to shop and mill about the store until midnight, when … government electronic benefits cards get activated and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.
And if you really think about it, the only reason somebody gets out in the middle of the night and buys baby formula is that they need it, and they’ve been waiting for it. Otherwise, we are open 24 hours — come at 5 a.m., come at 7 a.m., come at 10 a.m. But if you are there at midnight, you are there for a reason.
Ignore the irony of talking to Goldman Sachs about government assistance and think of this as an operational problem. This suggests that you are seeing a surge in demand at a time that you wouldn’t otherwise expect. That is, you don’t need to be a retailing professional to guess that Saturday morning is likely to be busier than late on Tuesday night, but this is something that requires knowing your customers and collecting some data to manage.
Since we just came to the first start of a new month since Mr. Simon made his statement, we now have follow-up articles written by reporters who have visited Walmarts at midnight on the first of the month (These Families Shop When Aid Arrives, Oct 2, Wall Street Journal and Midnight Shopping On The Brink Of Poverty, Oct 2, NPR). A couple of points are worth noting. First, Walmart is not the only retailer who has noted this phenomenon. Kroger, the supermarket giant, also reports that this happens. Second, one has to be careful not over blow the size of this spike. A Walmart spokesperson emphasized to the WSJ “that the number of shoppers involved at midnight is relatively minor compared with peak periods such as weekends.” But it is still enough that they make adjustments (from the NPR story).
And so Wal-Mart has changed its stocking pattern. It brings out larger packs of items in the beginning of the month, and smaller sizes toward the end. It makes sure shelves have plenty of diapers and formula.
Kroger similarly tweaks its assortments and stocking at the very start of the month.
There is, of course, the question of why these retailers do this. Part of this may simply be compassion. As a parent, I can’t imagine waking up and not being able to feed my kids. It also may be the case that the overall cost of re-balancing between small and big canisters of baby formula just isn’t that much with the volume of business these big stores do. But I also expect that there is just a solid business case behind this. For people getting by on part-time jobs and government assistance, food and basic supplies have to make up a huge portion of their spending. Walmart must have a “share of wallet” among these customers that they can only dream of getting from more affluent customers. That’s something any retailing executive can value.