Canada: Walmart vs. Visa food fight — bribing grocery consumers

 

Written by Sylvain Charlebois

Food politics are a game of nuances. But between Walmart and Visa, nuances are now few and far between.

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Visa’s campaign in Manitoba to offer $10 to whomever buys groceries using their Visa card certainly raised some eyebrows. Knowing that Walmart in Manitoba stopped accepting Visa cards as of Oct. 24, the credit card company is aiming at the retailing giant where it hurts most — its food retailing strategy.

Walmart has stated it intends to become the No. 1 food retailer in Canada, as it is in the U.S. But Canadian food distribution is much different in that only three companies feed most Canadians: Loblaws, Sobeys and Metro. So this may take a while.

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Walmart and Costco have made great strides, reaching a combined market share of nearly 20 per cent. Nurturing food shopping habits is at the core of Walmart’s insurgence. It wants to convert same-store sales into more food purchases to increase traffic. And it’s working.

Walmart has been successful because of its commitment to data analytics in support of its impressive logistical capacity. Walmart simply does it better than most in North America. Margins are easier to control and that is where Visa comes in.

This year Walmart made an audacious promise to stop accepting Visa at its more than 400 Canadian outlets. It said Visa’s transaction fees were too high. Some reports suggest Walmart has so far only implemented its decision in Manitoba and Thunder Bay, due to discouraging sales results. But Walmart intends to continue its march against Visa to the end, because it can.

Visa has positioned itself as the protector of consumers, encouraging them to support retailers using Visa. It never mentions Walmart in its Manitoba campaign, but we all know what it is about. That Visa picked food as the focus of its campaign is telling.

Visa is also data-driven and needs market information from sales at Walmart to get a comprehensive sense of the marketplace. Walmart’s incremental boycott is a serious threat to Visa’s business model, not just for its financial implications. Access to market data is critical to Visa.

Reward programs are there for a reason. Credit in retail is a lifeline and Walmart has power to re-channel how consumers access credit to buy almost anything. Converting consumers to other credit will take time. That’s why Walmart’s process in removing Visa from its stores is deliberately slow.

In the end, many companies want Visa and Walmart to go back to the negotiating table. Banks, which are heavily invested in the credit card business, stand to lose millions if these companies part ways. That is not a scenario Visa wants to think about.

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If Walmart gets to pay lower transaction fees, Loblaws, Sobeys and Metro are likely to be the next to seek a reduction. Smaller outfits could ask for the same. So it’s not surprising to see how Visa has responded to Walmart’s boycott. But to discourage consumers to visit a retail outlet by bribing them through food purchase incentives is likely a first in Canada.

Walmart understands the data game and it’s difficult to see how it could lose. Other grocery chains are watching to see how this will unfold. It may change how credit is used to buy food and how grocers support customers looking for more loyalty rewards.

Consumers using credit cards to buy food are looking for extra goodies beyond what the retailer can provide or, regrettably, are using credit for lack of other options. The latter is a poignant fact of life. Visa is desperately trying to use this to its advantage. It doesn’t have a choice.

No one knows who will win this battle, but most would not like to bet against Walmart.

Source: The chronicle herald

 

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