Walmart, Inc. (WMT) Management at UBS Global Consumer and Retail Conference (Transcript)

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About: Walmart Inc. (WMT)
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Walmart, Inc. (NYSE:WMT) UBS Global Consumer and Retail Conference March 6, 2019 12:00 PM ET

Company Participants

Greg Foran - President & CEO, Walmart U.S.

Michael Dastugue - CFO, Walmart's U.S.

Conference Call Participants

Michael Lasser - UBS

Michael Lasser

Good afternoon, everybody. We can get started. Can I have your attention? Thank you. Good afternoon, everybody. [Technical difficulty] Analyst at UBS. We are beyond excited to have Walmart with us today. Walmart needs very little introduction as the world's largest retailer and what it's done over the last few years has been really remarkable, the transformation that the company has been under.

I am thrilled to be able to introduce Greg Foran, who is Walmart's U.S. CEO. Greg is widely considered to be one of the best shopkeepers on the planet and so we're really lucky to have him with us today. To his left is Michael Dastugue, who is Walmart's U.S. CFO, who has got more than 30 years of retail experience. Is that fair?

Michael Dastugue

Unfortunately yes.

Michael Lasser

Well it's scar tissue. With Michael and Greg today are members of the team from Walmart again. Dan Binder, who many of us know and runs Investor Relations, Kary Brunner and Christine Allen. I am going to let Greg run through some business and then we'll get started on our conversation.

Greg Foran

Thanks Michael and good afternoon, everyone. Glad to be here. Before we get into the Q&A, I need to say that we may make some forward-looking statements during the fireside chat. So review our entire safe harbor statement on our corporate website, please.

Michael Lasser

You should say, we hopefully will make some forward-looking statements during our conversation.

Greg Foran

I would say, I'll make none, but I wouldn’t want to put words in your mouth.

Michael Lasser

No promises, no promises. So over the last few years, Walmart has realized sizable gains in areas of its store execution like service levels, store appearance, in stock, one of the question that I think is on most investor's mind is given where Walmart come, how much more room is there to go and maybe you could talk through what does it implement to get where the business is today and where you see it going from here?

Greg Foran

Sure. I would say that we've made some good progress, but the unvarnished truth is that we had not even got close to arriving and I don't make that statement based on the fact that I am obsessed about we've got to do more, we've got to go faster. That is part of me and how I operate and my team would vow for that, but also make it based on what I look at when I look at things like Net Promoter Score, what I look at, when I consider surveys around the marketplace.

For sure we're doing better, but our peers are still a long way ahead of us and so I what would say is we haven't even got close to arriving. There are lots more opportunity to take this business a lot better and with a bunch of extra space whether it's in stock or inventory or associate service, quality of fresh, quality of private brands and I'm excited about that opportunity.

Lots of technology that we've introduced, but this is a massive change program. There is a 1.2 million associates, 4,700 stores, you just do the math around it. So it's 4,700 managers that almost 10,000 co-manages, that's 60,000 assistant managers because we have 12 per store, that's 120,000 department manages. So this isn’t going to happen in five minutes and nor should we expect it.

Outside we're about 50% of where we should be. The reality is we'll never get to 100 because we've raised the bar, but Michael and I often discuss this and we've shared it a couple of times this morning. I get out the stores every single week and half the time, I am okay with it and the other half I'm grumpy.

Michael Lasser

And to further put context around the sheer size of the business that Greg runs, the sales volume is 50% larger than the GDP of his home country. So it's quite remarkable. Hopefully I'd say that without the risk of embarrassing him, but can you give us a little flavor of how this transformation is taking shape over the last few years? Has it's been the mean of the population of the stores has just gotten better or you've really been able to have to effectuate change at the lower portion of the stores, brought that up and so if you can get them to look like the better stores, that's where the opportunity exist and Michael, you want to add to that well.

Greg Foran

Why don't you start off?

Michael Dastugue

I think just kind of adding on to some of the things that Greg was talking about, if you go back about four, five years ago we were opening 200 stores to 300 stores a year. So that was crediting its own piece of the tension and stress on the organization. We had good store managers, good market managers that were having to take on more responsibility and I think if the organization got its arms around what we're going to prioritize, what we decided is we really needed to invest in our 4,700 stores.

We made some changes, we had to make some difficult decision to close some stores, but I believe that first holiday that I was working with you Greg, we had 900 to 1,000 of our store managers that were first-time store managers gone on a holiday. So when you think about that, it's a real challenge and so the team has really done a nice job of focusing not only the capital investment, but our time investment into our existing stores and helping those store managers in terms of helping them with their leadership, getting them on process because it's not just about the technological innovation and investment but it's also about getting all of the associates in the store to get into this one best way which is talk about.

And if the journey as Greg says, it's a team sport and so we all have to work collectively together and we have to keep stepping it up.

Greg Foran

Just to build on that a little bit, I would say that a few years ago was much more about the general population getting better. Today I feel that we're sort of kept up a bit of the foundation and what I often find now is that it's more about moving that bottom percentage and doing that quite dramatically and drastically.

We're stepping up our view of what we expect in the business as I said in place some of the foundational things that we've done whether it's training or academies and you've started to move wage rights and benefits and bonuses for associates, What we've got to do now is lift that bar and the key to running a store generally comes down to the quality of the store manager and if we don't have a good store manager, the person I hold accountable is the market manager. They are the person that has 10 stores.

So we're at a point now where we're putting a lot of pressure on that group to step it up and to get these stores that are letting us down to a level which we know they can hit, if we get the right team in place.

Michael Lasser

If presumably you're empowering them with the tools, whether it's price, staffing, assortment to get to that level of where they need to be, do you see any one aspect to unlocking the improvement of that core store that's trailing behind where you expect?

Greg Foran

I think that's a good point. What's interesting five years ago, just counting five years ago, that I joined, I stood on the -- didn’t have any great idea.

Michael Lasser

It still looks very good.

Greg Foran

I stood on the stage at a holiday meeting and felt like I was standing in front of whole of New Zealand because boy, there is a lot of people that work in Walmart US and can you tell me three things, what you think we have cut muscle instead of fat and email it to me and immediately I could feel the emails coming in. I ended up getting about 2,700 emails.

Michael Lasser

Oh my God. It sounds like one of these buy side.

Greg Foran

The most common thing that came through in that was, can you please put the toilet seat covers back in, small thing but really important. So restaurants, public restaurants, we had toilet seat covers in the interest of saving money, we've taken those out and you can understand why businesses get into this.

I've learned something over the years, you can never motivate anyone until you fix some of these factors. So basically for the first year, it was about fixing those hygiene factors. One of the things you need, okay you need the electrician to get that plug fixed, get it done, you need that restaurant remodeled, get it done. The people stop to buy into it.

The technology is great and we can two hours talking about some of the taken out stores from basically Google glasses that informing associates now have fixed battery and attack to improve rising par online grocery but the bid that everyone underestimates, all of us included is the change management piece and in Walmart before you underestimate that you appeal because it’s 1.2 million people.

Michael Lasser

Yes. It does seem like the one of the messages that Walmart has been increasingly offering is still owns this credit the amount of innovation that you're going to see from this business. The amount of technology that we're going to leverage good examples of this recent analyst meeting have been some of the industrial sized room buzz that will soon traverse the Walmart floors. Can you give us a sense for how this is going to look over the next few years? How the technology rollout is going to look and what's that? What might that enable the Walmart store to do?

Michael Dastugue

Yes, I'd put on a start and then flip to you and pick it up. It's going to come even faster than what it currently has. And you mentioned the floor cleaning device which of course actually communicates to our associates if we're running low with items on in-caps in our stores while it's cleaning the store.

Greg Foran

So I just share that as a real life example of we put something in but then what we're trying to as we connect it to the ecosystem. So we're rolling out something called FAST unloaded. It's no fun unloading a Walmart truck, it's floor loaded which by the way we're working on solving that by creating already pellets that will go to the store. And full loaded just means it's all Tetris, stacked on.

Michael Dastugue

Absolutely and why do we do that because actually our flight bill is more expensive than the bill for running a D.C.

Greg Foran

Yes, so since counting that business and small number times the big number is a big number. So we're still lighting but we've got to solve those actually have we don't flow alone and we can create already pellets for the storm, we're working on that. That's a different discussion. But we've got these FAST unloaders, so you unload the track, it comes down to conveyor belts that we've set up and reading barcodes but we actually know what the PI inventory is out on the shelf in the stores.

So instead of waiting for the night stocker to come in and fill it, we can send that down a different shoot now and get it straight on the shelf, so a lot of this tech is all about connecting but some of the stores so that you create not only a better experience for the customer but also for our associates. And there's lots more coming.

Bossa Nova which is going up and down and scanning aisles and checking mod accuracy. We're starting to get that operating to a point where we can start to make much better decisions. On PI, why is that important because it drives your replenishment. You're going to see continued work around self checkout to get smarter, to identify what the item is that's on there.

All kinds of activity around there to help us reduce shrinkage as well. Something I've discussed with a number of people this morning. You're soon going to be able to do a refund right at the front door of the Walmart store. We're not going to ask you to go to the service desk with a quip what we call now the customer host flip technology to do a refund for you right there including cash which won't come out of the self checkout. So we're continuously looking at customer journeys.

We're looking at associate journeys and we’re saying to ourselves, how do we in a really agile fashion take friction out, proves the experience for the customer and drop, drop our costs.

Michael Lasser

Michael how do you see the unlock here. What's the gating factor, is it capital, is it what’s the abilities for the organizational ability to tolerate change. How do you see that?

Michael Dastugue

I think it's a combination of things. I don't think capital is a constraint. I think as we continue to test the technology the FAST unload that you would have seen in October, we've proven that out. We're rolling, I think we'll be up to about 1,400 stores this year. And as Greg said, it's not just a productivity play, it's also a sales play because if we can be in stock 100% right, then we don't lose those sales.

I do think the human element is changing the ways of working one best way. As we evolve, right, there are certain activities, certain jobs that'll go away but new jobs will be created. And in many cases if you think about some of the things we did a few years ago with some of the back office activities we took out certain roles. But then there was a new role say online grocery customer service.

And so the associate has so many different opportunities to do different roles. Now what may happen over time is we may need associates that are comfortable working in multiple roles in a given day. The good news is with all the technology and the visibility, we can guarantee an associate in many cases 40 hours a week. But we may need them to do one activity in the morning and a different activity in the afternoon. So we're going to have to ask all of ourselves to be more flexible, to be able to use technology and to be able to handle change.

Michael Lasser

It has been well documented that wage pressures are continuing to rise. Is this technology unlock in the different way that you may be thinking about the store enabling you to navigate through some of those wage pressures. Walmart was one of the first to make some wage investments and it's proven to be very successful seems like some of the more recent messaging has been look while we’re going to make wage investments, it’s more going to be on a case by case basis and we'll be able to navigate to do that it seems like one of the wages we will be able to navigate through that is in part through this technology deployment. Is that fair?

Michael Dastugue

Yes and yes.

Michael Lasser

So we've got a store within 10 miles of 90% of the population. I've been to about 2,000 of them now. So what happened to the 2,700 Greg, you guys are not working on it?

Greg Foran

Not everything is created equal in this country and so we the way we look at our business is we break it down, in some cases we will break it down the store by store. In other cases, we can find cohorts of stores.

So what happens in Liberal Kansas is not the same as what happens in Shreveport, Louisiana is not the same as what happens in Long Island. So we think about that not only in terms of wage pressure, we think about in terms of assortment, we think about it in terms of associate benefits. So we're very, I guess thoughtful about how we do that. And the answer is yes, technology helps unlock some of that but probably the biggest unlocks is the whole change management process.

Michael Lasser

Yes, I think there's been a lot of pride from the company, its ability to leverage its store expenses. I think eight quarters in a row. Do you see that flowing continuing to be a linear fashion or is that it's become part of the muscle of especially the U.S. business and so that's going to be something that should build on itself from here?

Greg Foran

Yes, I think we are starting to develop that muscle out. I think it was appropriate for the first couple of years to deal with these so-called hygiene factors to give people a reason to believe to listen to what was on their minds, give them the tools and I know when I now visit not just stores but distribution centers and I talk to our associates and I talk to our leaders, they’re often the conversation is actually you’ve given us what we need.

Now we've got to get it, got to get on and execute. So my sense is we're handling this sort of throughout the right cadence. This is more upside, there always is in our business is always things that you can do better, the bit that I always had in the back of my mind is what's it going to take us to get to a point where effectively the product arrives just before we need it in just the right quantity, so I touch it once.

The only every time I touch it is if I'm taking that order for a customer because the store is increasingly becoming a fulfillment center. Apart from that, I'm not touching it.

Michael Lasser

Yes, you probably lose off from that?

Greg Foran

Yes, it's interesting. We track now how often that doesn't occur or how often it does occur and we got a lot of opportunity there, the fact we know that number and we know it by department. We know it by SKU is a good thing. Now who we've got to challenge ourselves, how do we make that happen. I know it’s not one thing, it's not just saying well go and fix your replenishment system.

Some of its training of associates, some of its thinking about where you're going to locate items. It's the quality of the mob that's been dropped down to the store i.e. how many phasings, the quality of the shelf ready tray that you worked with the supplier because if that's not a quality tray sometimes the associates who take it out of the shelf ready tray that we've gone to all the energy of getting put it in hand stack it. So there's sort of 100 moments the truth just in there that you've got to deal with times 1.2 million associates.

Michael Lasser

I'm sure the merchant it hard, one of the areas you're probably excited about is the performance in the grocery business and how successful that's been over the last few years, which initiatives do you attribute that improvement to and looking forward can this growth within the grocery business be maintained especially as competition remains pretty fierce?

Greg Foran

Yes, there's a few things that have gone into the grocery improvements that we're seeing. In no particular order and they all play a role in it. I think the assortments improved, I'm sort of renowned as I walk stores of laying things like Ritz Crackers for example original Ritz Crackers out on the floor. I will quite often have the buyers with me. I think we had nine different variants of Ritz original Crackers from a single pack to a double pack to a flat pack to a bonus pack to and you just got what are we doing here.

Michael Dastugue

Little too much.

Greg Foran

Simplify the assortment, I think the work that we've done on pricing has been thoughtful, strategic. It's working. We like that, Fresh has been a big deal and we haven't even got close to arriving on Fresh, I still go into stores and the wait for leafy greens, quality isn’t good without of the store, they haven't got their PI right. They're not rotating the merchandise but it's better than it was, meats improved the quality of our beef.

Our drive to get Angus, Prime Angus has worked and I know what I buy. I eat it. I can taste the difference. So it's a combination of things, Otis on time in full, one of our favorite topics was suppliers. You'd be horrified if you knew what that number was three years ago and you tell me.

Michael Lasser

Please tell me.

Greg Foran

It is too horrified if I told you but it's way better than it used to be. But if we don't get the order on time and in full then nothing else works.

Michael Lasser

Yes.

Greg Foran

So it's a combination.

Michael Dastugue

I mean I would add the online. I mean it’s really the private brands. Right, we have invested in the quality of our private brands, you've seen steadily an increase in the penetration, we've improved the packaging. And I think all of those things are helping to drive our online grocery business also.

The big one is online grocery. You want to know one of the things that helps food and food business is when the store knows that it's going to become an online grocery store because now you are the personal shopper. You've taken out the capsicums or the asparagus. You're the one that's pulling out the meat. And there's a really interesting statistic which I take a lot of time understanding in every single store I visit and what I and I look at as a company. What is your first time pick rate? That's better than any Oscar score on shelf customer availability which is a series of algorithms which I won't go into it. But what happened when I picked your grocery order let’s say 30 or 40 items.

How many of those items did I find first time? And so when we roll out online grocery, the store actually has to lift its total performance because now you have absolute visibility into what's going on better than you ever had before. Customer feedback on what’s the quality of the product. How many items were substituted? Did I get it on time. And that has actually had a halo effect on the entire food business.

Michael Lasser

And what are the observations being from those stores that were first to roll out the online grocery pickup initiative even delivery of grocery and how you been able to apply those learnings to the subsequent thing?

Michael Dastugue

You get better at it the more you do, don't you?

Michael Lasser

Yes.

Michael Dastugue

So I reflect on the fact that we really got into this about three years ago. We were fooling around a bit, four years ago but three years ago we said let's go. So we did it just over a 1000 stores a year, that is 20 stores a week, every single week, bang, bang, bang.

This is a big deal. This is complicated to do. We just don't turn up at the store and say you're an online grocery. You got to train eight associates, you've got to get payments. You got to paint the outside of the building. You got to build refrigeration. You got to build phrases. You've got to create staging areas. You've got to go and reconfigure parts of your parking lot and you've got to do that 20 times a week, every single week.

And so you get better at it. And I love the way the team have just gotten to this with real passion and they pride themselves. And often when you visit stores, the most coveted job in a Walmart store is to be on the online grocery chain.

And they take great pride in these statistics and how are they going and they share ideas. And I do think we've got better at it and I'm very proud of the fact that we're building something which is very internal to Walmart. So we own most of those, it's ours. It's our website, it’s our descriptions that are on there. It's our ticking algorithms. It's we're even working on delivery. So I think it's a good example of us actually utilizing our scale well.

Michael Lasser

Yes. And Michael I'm sure you're keenly focused on the profitability of that, it seems like one of the ways that the profitability of the grocery business be unlocked is as you open the assortment to particularly in general merchandise categories. How is that going to flow and what would be the other ways that you'll make this just the online grocery pickup, since we can talk about the e-commerce business more broadly?

Michael Dastugue

I think right now it’s been primarily around the food and consumable business offering and as Greg said, if that first time pick rate can continue to improve that includes the efficiency and productivity and there will be technological benefits as we go forward. But I think to your point as we think about mixing out really because at the end of the day, we all have to be merchants, we all have to think about how do we mix out the basket, if we can add more general merchandise to the basket that clearly helps the profitability.

It is hard because you're going from the food and consumables area of the store to now we're potentially going up to 200,000 square feet that we're going to be picking from, we need to make sure that our PI is correct, that it's in the right spot for the associate to find.

And so the good news is we've been slowly adding more and more general merchandise availability as you shop for online grocery. Certain times of the year such as like Back-to-School, if you're a parent, you've ever had to do the Back-to-School supplies, not a fun task being able to order that online is available Halloween et cetera. So I think you're going to see us continue to add those items to the basket to make it more efficient.

There's some other things that we're investing in some trials in terms of automation that are just now starting, so it'd be premature to talk about it. But I think that especially as we get to higher volume stores, there's probably some additional productivity that we can get from that.

Michael Lasser

It was one of the reasons why you, the general merchandise categories have been slower to be added or added after later is because then you expand the geography that the particular store has to cover. It makes a bit more expensive?

Michael Dastugue

And as Greg likes to talk about it, we're picking a medium blue shirt, right. We need to make sure that it's on the arm of the rack that we said it was going to be otherwise, the associate is going to have a disproportionate amount of time finding that one item.

Michael Lasser

And when you're going in and turning these online grocery pickup location at your traditional stores online grocery pickup locations, what’s happening to the congestion to the store? How do you prevent the customer experience for those who want to shop in the store from being negatively impacted?

Greg Foran

Carefully and we haven't got it right. And we got into this discussion actually on Monday at our offices meeting where one of our senior folks was saying, I hate shopping in the store on Sunday trying to get up and down the aisles. You got a big cart in there. See we pick eight orders at once, so it's not point to point.

So we've got to be very careful, the store is doing X number of orders a week, that's quite different than if it's doing 4X orders a week and so part of what we're doing is exactly what Michael just said. We're looking at what happens when you start to cap this out and is there some automation that we can put in which may be built onto the store, in many cases that will allow us to not this advantage most profitable customer which is the one who drives to the store and does all the work themselves.

Michael Lasser

And we've got a question that that seems to be fit nicely in this part of the conversation is Supercenter is perhaps the most brilliant concept in a retail concept in history, store growth is pretty much done. Do you see because of what's happening the need for a wholesale reimaging of the Supercenter box in the coming years?

Michael Dastugue

We're certainly reimagining what we're putting in that box and we've already taken some action on some of these things and you'll see bits of that pop-up around the country as we do remodels, the amount of space that we're putting in for some seasonal, we're seasonal as located in food.

We're having a look at other areas of the box at the moment. Do we really need the amount of lineal footage that we've got in Greeting Cards and the answer is let's do the work and have a look at it and see what that -- what that means, what is happening with photo processing? So each remodel gets looked at, we do about 350 to 400 a year.

And increasingly we're also saying to ourselves as the store becomes more of a fulfillment center, what are the capabilities that I've gotten now build into that store and you've got to get this balance right because the way that you think about a store which is about adjacencies and flows and color and seasonal relevancy and sidelines is not necessarily the way you took think about a fulfillment center which is about efficiency footsteps and pick rates. So getting that blend right is something that we challenging ourselves with at the moment. So lots more changes, if you built a new Supercenter today, you would do it differently than the ones that we have right now.

Michael Lasser

How would that be?

Michael Dastugue

The primary driver would be, you’d be very thoughtful about where you're going to do your drive through, your pickups, your deliveries and you would think about the amount of stockroom space, how your refrigeration is laid out around all those things. I think you'd think about the services that you operate in the store. We call it the fourth wall. I think this is an important part of the mix. We've been increasingly pleased with what we do with things around FedEx for example.

I like what that what we're seeing around that, I'm thinking about things that you have to do physically that you can't do online. It's pretty hard to get your haircut on line.

Michael Lasser

Yes.

Michael Dastugue

So how do we think about that fourth wall and the services that we do. So those are the things.

Michael Lasser

This is a point of conversation I'm excited about because you two fellows have as good of a vantage point given your long history in the retail sector as anyone on this question which is you basically have a competitor out there who's using the retail profit for transacting goods giving a lot of value to the consumer to attract eyeballs, to fund their profitability by harvesting profits in other ways like advertising or selling access computing power because that's what turns their main economic engine which is retail. How is some as a retailer who's been solely dependent on the retail profit pool at least up until now.

Do you manage to do that because a lot of what you're doing is very expensive and you're offering more value to the consumer, you're offering something that historically had been service now basically full service and how do you potentially expand the business model to potentially tap into other profit pools?

Michael Dastugue

Carefully, your description of the Amazon ecosystem is good and of course they have a few other things in there as well. Does that mean that that's what should Walmart should do? And the answer is depends, we've got some fantastic assets. We've got a business at the moment which is doing circa 320 billion Addison stores.

We have those stores well located to where people live. Here's the name of the game to have hundreds of millions of SKUs or is the name of the game to have a more curated assortment is the how important is media relative to that and how do you manage that in the light that you're an EDLP operator and your ability to separate co-operative funds from marketing. What opportunities are there with data? How should we be thinking about health and wellness in the space with 4,700 pharmacies? So these are all key strategic questions.

I think what becomes increasingly clear to us is be the best Walmart that you can be and there is no doubt that the customer is already demonstrating to us millions of times that they want to be able to shop where they want, when they want and how they want.

So this concept of the store being more than just a good store but being a fulfillment center feels like a pretty safe CDMA. Some of these and other ancillary activities let's work our way through those. And if they become additive and we think we can execute well then that feels, feels good as to how far you chase or not, a competitor on some of the other things.

That's part of how we're looking at things at the moment. So there's lots to play out in the space, I'm not smart enough and I think no one in our business would put their hands up and say we've got the answer. We're still working through it. In my experiences, I've sort of got around the world and spoken to other people. Most of us are having the same sort of conversations, so place your bets where you know you've got it right, put a foot in the water on some of the other things and let's test and learn and some of the others maybe you just sit back and wait and see.

Michael Lasser

My part of the answer would be, it depends on how much your customer is willing to accept from you and the good news for Walmart is that the customer has already shown its willingness and ability to accept it whether it's getting a haircut or getting a pair of glasses or doing a health check. And so that gives you permission to offer them more and more. Now with that being said, do you think your customer would be willing to accept advertisements in the store from you, one of your large competitors in the grocery space is slowly proceeding in this area. Is it something that will be necessary for the Walmart business models in the long run?

Michael Dastugue

So Steven, I had this conversation. We are forming a view.

Michael Lasser

Yes.

Michael Dastugue

It's a slippery slope, be very careful. One of the things that makes our business a bit unique is this thing called EDLP and I was lucky that I got taught it by the person who started it which was Jack Shewmaker and I think many people would go I understand everyday low prices, you just set your price and you leave it. This is so much more to it than that. It's a study and it's saying and trust me it's one of the hardest things to do in retail.

Michael Lasser

Yes.

Michael Dastugue

So that is so core to Walmart, what it stands for. It's so core to everyday low cost that I’m cautious as I think about anything that could disrupt some key principles doesn't mean that I would test some things and I wouldn't consider it but I'm cautious, it seems like Walmart may not necessarily have, but as stated has the luxury of some time because retail is still a relatively fragmented business.

You have 20% share in the grocery category. That means you have 80% that you could continue to consolidate. One of the ways you'll get there is putting pressure on your competition which it seems like you've done, you’re three years into this price investment initiative. How is that being looked at internally today versus when it was started. So it seems like it's now more purchase part of the regular process, regular muscle rather than having to make a grand splash. Is that fair?

Michael Lasser

Yes.

Greg Foran

I mean I think clearly it's kind of number one, we talk about we're in business to save people money slightly much better. So that means we have to continually figure out how to provide more value to our customer. We started I think about three years ago and continue to invest in price, as we've talked about we're investing in other areas to give the customer back time. We're working, we're financing some of that. We're partnering with some of our supplier partners to finance some of it. We're also working to continually figure out how to take cost out of the business to finance part of it. So it's a muscle that we continue to build. And I don't think -- I don't think it ever stops, I don't think you ever get to the top.

Michael Lasser

And you mentioned this discussion briefly before but one of the questions we've gotten from the folks in the audience is share your thoughts on the growth in private label and what that means to Walmart as an example, you've moved dairy in-house targets starting some new brands. What's the next segment on Walmart’s mind to push in private label?

Greg Foran

Yes, I think private label is something it's not just a way to improve gross margins.

Michael Lasser

Yes.

Greg Foran

Try to give more value to your customer especially when you think about the quality of the product. And I think that we're going to continue to see improvements in our penetration. Milk is probably roughly about 10% of our stores right now at this point. So were learning about that business. We do think it also gives us insights to things that we didn't really understand about the milk business. I don't think at this point we're ready to call any new areas, but it's something that we are focused on trying to learn more about it.

Michael Lasser

This is a tricky question, how would you describe the state of the US consumer?

Greg Foran

Solid. There is no doubt that last year has been I think a pretty good year for the customer and while we serve everyone in the U.S., we probably do a lot more business with people who are little bit more financially stretch than others and I think that in the main, we've had a reasonably solid period. One of the things that I think is important to me and as a surprise again and couple years ago, it was reasonably expensive, go back a few days before that it was really expensive and we've had a period where it's come down and it's uncommon around parts of the country to see sort of US$2 a gallon and certainly makes a big difference.

I think tax helped a little bit, I think prices generally coming down has helped a little bit, particularly in the staples that we sell. So I think it's been a reasonable year for the US consumer.

Michael Lasser

Another question we got from the audience is add my contacts around you're an expert into growing few states. There has been talk recently about an online competitor whose dabbling grocery, potentially pushing a bigger presence in the grocery category. Where you think the obstacles from a new start up to create a lot of location and trying serve the grocery category?

Greg Foran

It's all the things that I guess we've learnt over the years. So if you're running an online business, location doesn't matter too much. If you're going to go and build a shop, the location is everything. So those of you who shop on stores, the chances are you shop at the store closest to where you live, unless they are very good at what they do. It's the details around that isn’t it, its visibility from the road, it's also the signage of our government, what's the turn in like, can I just turn in from the right, where do I want my traffic signals, how is the store are entitled on the site, what is width between the parking lots and I can go on and on and on about those things, but it's a little bit to my point about online grocery.

It's great when you can develop these competencies in house and you build this muscle and the competitive you're talking about has built that muscle in their online business. They know how that site should look, they know how the pictures shold look, they know what should come up, they should know how many clicks it should be before you get out.

So every time you enter a new business, you've got to have that energy and that drive to actually understand all of those components that go to make it work. Let's see what happens as they get into the space. One of the things I love because I love competing and I should think competition makes us Betty. When we heard that legal were coming, trust me what a galvanizing moment for the eastern seaboard for Walmart. We just got people fired up North Carolina and South Carolina and Virginia and we're going to take the battle.

So we remodeled our stores and we made sure that that was an area that we prioritized for price investment. We drove our online grocery business, we remodeled our financial services area and it galvanizes an organization into doing something. So I like, bring it on.

Michael Lasser

And just speaking of legal have there been lessons they you've learned from that experience that you can then go and apply to the emerging competitor and what's the current status of your thinking on the hard discounters in U.S.?

Greg Foran

I never underestimate them. I've been competing against all them for 20 plus years and they are fierce and they are good. They've done a very good job in the last two years of remodeling their stores, revamping them, changing their layouts, increasing the amount of organics that they're offering, gluten-free, they’ve driven prices down clearly, improved the offer overall.

So they’ve done that because undoubtedly they’ve had a look at what happened in the UK where they probably reacted a little bit too slow and legal got the edge up on them. So I never underestimate where this is going. People love saving money on staples and it would apply to every single person in this room. You feel pretty good if you can save $10 on your grocery bill because it makes you feel better when you go out for dinner on Saturday night and spend $200 at a restaurant.

My experience of the best outlet stores is the best outlet stores are often in the highest income areas in a city. So if I took in Sydney, which is where I competed against them for basically 15 years, these big stores in Mossman, it is the wealthiest suburb in Australia you don't buy a house here for about $3 million and packed in the middle it is an outlet and the BMWs and Mercedes in the parking lot, because these people are smart shoppers. They know they’ve got great private brands, a great quality and you save money.

And by the way that help fund in the restaurant experience on Saturday night. So they're going to continue expand. They're going to continue to remodel their stores, legal had put down three big DCs here in the United States in million square feet, they got to lessen 100 stores at the moment, guess what they're going to do? They're going to 10 on the openings and on the third chief executive, so watch out here they come.

Michael Lasser

You don't have to tell the people in this room about getting a good deal. They are keenly sensitive to that. It seems like part of your answer is whatever the competitor is good at, we're going to match them on mat. So if Amazon comes in and opens grocery stores and they're very technologically enabled, we're moving in that direction, so we'll be able to match them on that legal and only, they're focused on little price and privately label, we're matching them on that.

Not being things to everyone, but emphasizing those key attributes and that was within Walmart's capacity, is that the way to think about it.

Greg Foran

I think it is. The analogy I often use is a biblical one, for no other reason that I feel it makes some sense. There was a period in time when Walmart was David and Sears came up with Goliath and it's always fun being David. Everyone loves David. No one likes Goliath. We woke up at some point 2000 and whatever and found that we were Goliath. And we Goliath you find that there are other David's who are starting at you and you've got to learn to deal with that. If you become a mobile, you just end up taking a lot of hits.

The reality is I would say that we had about six Davids that we think about. These are people out there that attack us. You got drug stores, you got traditional supermarkets, you've obviously got Amazon, you got hard discounters, you've got other discount stores and we're going to try and necessarily combat every single aspect that they do, but when you've got stores that sit on 20 acres every two to three acres, you do have to deal with the fact that there are multiple Davids in your marketplace.

Some of them may not be physically there but they'll eventually because you're in a commerce operator, how am I going to combat that? And so we deliberately sit down as part of our strategy where you can say what are the 20% of the things that are worth 80% that they do that we need to deal with and that's exactly how we think about it.

Michael Lasser

As we reach closer to the end of our time together, I want to focus a little bit that may be outside your purview, but you're going to have a good perspective on which is e-commerce and there has been a lot of talk for more that one of the ways that Walmart is going to improve the profitability of its e-commerce business by it attracting more brand, more higher end brands to bring in that customer. What can a US stores, what can the US business do to improve that perception to make those brands, make those vendors want to do business with Walmart to unlock the profitability?

Greg Foran

I think as you kind of go back to what Greg mentioned earlier, which is no 90% of the US population lives within 10 miles of our stores. Clearly we think our stores are a competitive advantage and we often say that there really aren't any Walmart customers. Most people are in a Walmart store at least a few times a year. There is either low penetration or high penetration.

So if we continue to improve the customer experience and we can keep improving the quality of our fresh offering and we do a great job on online grocery as an example, which by the way has some of the highest NPS that we have, that's going to continue to -- it's going to be a great offering for all customers. It probably does over index to more affluent customers who would be in theory be the customers that would be attracted to some of the hiring brands.

Michael Lasser

And while we're on this page, we're literally on the online grocery pickup location, it's bringing in that more exclusive customer who has got the capacity.

Michael Dastugue

I would say that the pictures what we're doing is kind of -- we're democratic. We want to help everyone in the United States and a positive byproduct of that will be that, it would help the brands.

Michael Lasser

Greg, I want to finish five years from now, when you've accomplished so much more, what are we going to look back and say you're most proud of you think was led to some of the greatest success at the Walmart US business?

Greg Foran

Improve the experience for our associates and its multifaceted, it's not just what they're paid. It's their education level, since how the manager treats them, their opportunity for advancement and Walmart sure is big conglomerates and that's generally how you would think about it. Actually Walmart is a series of neighborhoods 4,700 of them.

The store manager is effectively the man of many of the neighborhoods and when Tokyo enters some of the places where we had stores, the nicest place in town is a Walmart store in the Baptist Church. We have an enormous responsibility to many parts of America, not New York and not Boston and not San Francisco but Meridian, Mississippi, Muskogee Oklahoma, the side of Chicago, places probably you're never going to go, but in that town we have the neighborhood.

We employ people, we give them jobs, we feed people, we cloth them and increasingly they're going to have the opportunity to get access to better products online. We are in many ways the fabric of this country and what you see with us is everything that is both heartbreaking and heartwarming, but that is our country and that's our responsibility and I don't take that lightly and none other doing is my team and maybe not in five years time that maybe in 50 years time, I'd like to think that we were still filling in need. It will be slightly differently need, but some of those fundamentals that I just spoke about will be as true in 50 years time is what they are today.

Michael Lasser

It's a great responsibility and you've been doing a fantastic job at it. So please join me in thanking the team.

Question-and-Answer Session

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