Opinion: Reasons why Walmart may consider Humana merger
Why would the world’s largest retailer want to buy a health insurance giant? On the surface, there doesn’t seem to be much logic to a deal between Walmart and Humana.
The risks of becoming entangled in the complex U.S. healthcare industry are considerable, especially at a time when Walmart is grappling with the competitive challenges of a rapidly shifting retail market. The hammering out of any agreement — which would be Walmart’s largest ever corporate deal — would, of itself, be an enormous distraction.
Integrating and running the business would be even more challenging. It would mark a significant change of direction for Walmart, which would, overnight, move from being a retailer to a more diversified consumer services company.
Despite the risks, there is some appeal and a bit of logic in a partnership between the two firms.
The U.S. healthcare industry, including insurers, has never been particularly customer-centric. The tendency to overcomplicate options and plans has led to confusion, low satisfaction, and a lack of trust. On top of this poor experience, the industry is riddled with inefficiencies. These things are an anathema to most retailers, particularly so to Walmart.
Therein lies a potential opportunity for Walmart to bring some much-needed focus and discipline to the health insurance industry. However, on its own, this is too vague a notion to act as a catalyst for a deal; other things have to be in play to make the risks of any tie-up worthwhile.
One of these is the potential to use customer data to improve decision making and health outcomes. Like Amazon, which has also sent signals that it wants to disrupt healthcare, Walmart has an in-depth knowledge of customer analytics and behavioral patterns. This can be used to provide more tailored services and plans to end users.
The second area of interest is the linkages between insurance and lifestyles. As the country’s largest retailer and the biggest seller of food, Walmart is in a unique position to help consumers lead healthier lives and make informed decisions about things like diet. As the potential owner of a health insurance firm, it would also be in a position to reward customers for making healthy choices. As much as this raises ethical concerns about privacy, there would be logic in sharing data between the retail and insurance divisions.
The third reason is the other linkages Walmart could make between healthcare and retail. This includes health services in stores, drug and prescription sales, and the sale of all manner of health devices and products. The connections might be somewhat oblique, but Walmart’s reach and its nationwide store coverage mean that there is an opportunity to be exploited.
The fourth reason is the need to diversify for growth. As much as Walmart can grow organically and through retail acquisitions, the company is of such scale that the opportunities for future expansion in the U.S. are limited. Healthcare is a huge market and a significant area of both consumer and corporate expenditure. It is also a major growth sector. Moving onto this turf would give Walmart a whole new arena in which to expand. Something that would be valuable at a time when its retail margins are under pressure.
The final driving force is the likely risk of Amazon getting into health insurance and healthcare. Walmart will have read these reports and will understand the threat of allowing Amazon to get too powerful a grip on the lives of consumers. Although Walmart is unlikely to initiate any deal merely to fend off future competitive risks, Amazon will be at least part of the consideration.
It is far from certain that any deal will come off. There are financial and regulatory hurdles as well as enormous corporate considerations. However, that the deal is even being discussed shows how much both retail and healthcare are changing.
Newfangled collaboration: Part two
I first offered ideas on this topic a little over a year ago and remain passionate about the possibility of unlikely bedfellows creating new shopper experiences. With recent news of relationships between Kohl’s and Aldi, and Kroger and Ace, and recent innovations in the grocery channel — Dollar General opened a gorgeous, fresh-focused format in Florida and The Salvation Army opened their own grocery store, DMG (Doing the Most Good), in Detroit – I felt it a great time to revisit the concept.
For purposes of this article, I’ll first examine the pros and cons of these two more recent mash-ups and then offer a few ideas to help fire up your imagination.
For Kohl’s, which frankly has been experimenting in a number of ways, it is yet another example of a department store looking to not only attract new shoppers but increase the appeal to visit more often. If you recall, Kohl’s has been working with Amazon in a limited scope trial to serve as drop-off points for Amazon return efforts. Additionally they have not been bashful about foretelling that the space within their traditional footprint needs to be reengineered to create a better experience. Not sure they will go as far as the two entrance test underway with rival Target, but undoubtedly they are considering all options.
As to the pros, I like the idea of bringing more reasons to the forefront for shoppers to visit Kohl’s department stores and the profiles of Aldi and Kohl’s shoppers may not be that dissimilar. Another advantage is that the real estate choices made by Kohl’s may, in many cases, lend themselves to offering grocery in high demand markets.
The cons are certainly worth noting. Placing the Aldi outside the physical structure does little to nothing to leverage the physical footprint of Kohl’s square footage. Also, the two operations may simply coexist in the same proximity (e.g., parking lot) which does not do much to cross-pollinate shoppers nor build the basket. However, I can’t blame them for staying separate – the grocery experience within Target has definitely not reached its stride and many critics suggest it is a failed model.
Turning my attention to the possibilities of the Kroger and Ace combination, I’m a big fan. In fact, not terribly long ago I had suggested a similar home improvement and drug store alignment to meet the needs of family caregivers modifying their homes for home care.
The pros, in my opinion, far outweigh the cons. Not only does such a partnership build a stronger market basket and take advantage of the frequency of trips to the grocery store, but it also is largely non-competitive. For Ace, it adds store count and visibility – two things that can be achieved without the expense of real estate or less-than-optimal inventory. For Kroger, their shoppers should welcome easy access to everyday hardware products.
On the con side, I do see spatial issues. Hardware merchandising demands substantial space. Furthermore, the size, variety, and logistical aspects will put additional strain on supply chain management. I’d also be curious how other Ace franchisees are feeling about this new “competitor” potentially entering their neighborhood.
Wondering which potential partners may boost your bottom line? Don’t confine yourself to traditional thinking. Who would have imagined meatballs in a furniture store (e.g., IKEA)? Here are several other far-reaching partnerships that I can imagine evolving. Feel free to reach out and offer your ideas – remember the impetus for this blog series was my late father’s mantra, “I have ideas I haven’t even thought of yet.”
- Could fitness centers introduce mini-electronics’ kiosks with headphones and cases inside (think the vending type machines we see at most every airport)?
- What might a natural skin and personal care “store within a store” look like inside a massage franchise?
- Would it be inconceivable to team a mini version of the struggling Toys-R-Us assortment within a drugstore operation?
- How could a disaster recovery or first aid supply-focused retailer reside in a grocery store?
- Is it possible that a more experiential offering like a sporting goods retailer (Dick’s or Bass Pro Shops) could show up inside a department store?
Keep dreaming. The possibilities are indeed endless. Retail must continue to evolve and I truly believe we ain’t seen nothin’ yet!
Dave Wendland is vice president, strategic relations and co-owner of Hamacher Resource Group, a company focused on improving results across the retail supply chain located near Milwaukee, Wisconsin. He directs business development, product innovation and marketing communications activities for the company and has been instrumental in positioning HRG among the industry’s foremost thought leaders. You may contact him at (414) 431-5301 or learn more at Hamacher.com.
Retail needs to get really personal
You only think you know me.
Those are words a retailer never wants to hear, especially after tailoring marketing and assortments to consumer needs.
The desire to get more targeted has the industry excited about a new era of personalized marketing. You think local marketing is cool? Personalized marketing is far more powerful. It’s generating buzz across retail channels, from mass market to hard goods to grocery.
Just to be clear, much of the momentum is driven by competitive threats. “It’s due in no small part to Amazon, which is presenting shoppers with items based on their past purchases, browsing, and wish lists,” said Gary Hawkins, a former retail CEO and an expert on consumer loyalty at retail. “So to compete with that, retailers need to become adept at personalization and relevancy.”
Retailers vary widely in these capabilities, with such companies as Kroger, Walgreens and Nordstrom often cited as leaders.
Why didn’t years of retailer loyalty programs manage to accomplish the kind of personalization we are now talking about?
A big reason is technology. It’s only now that new technologies, such as artificial intelligence and machine learning, are advancing capabilities. The excitement is about more customized solutions for everything from consumer products to healthcare, combined with better ways to deliver offers to customers, including through digital coupons, apps and digital wallets.
New developments also are starting to make personalization more affordable and less labor intensive. The era in which retailers need to employ large, expensive teams of data analysts may be coming to a close due to software advances that boost personalization capabilities, said Hawkins, a strategic advisor to digital solutions company Birdzi, which focuses on this strategy.
Personalization has the potential to address some of the most important consumer needs, delivering convenience to time-starved shoppers through on-demand products, or relevant healthcare solutions to consumers based on specific conditions.
The health and wellness potential can’t be overstated, especially in the face of overwhelming U.S. health challenges, much of it due to chronic conditions.
Personalized wellness has the opportunity to bring together healthcare and food to address this problem, according to a white paper by Hawkins and Dr. Marcus Sredzinski, COO and EVP of Medical Security Card, LLC.
“It bridges the chasm by leveraging nutrition science, big data, artificial intelligence, machine learning, and consumer technology to guide each person to foods and products beneficial to their individual health condition,” according to the paper.
Despite all the promise of personalization, we can’t count the benefits before they materialize. There will be hurdles to overcome. First, if products and offers aren’t relevant, it will turn off consumers, maybe for a long time. Second, it’s not just products that need to be personalized, but also prices.
“Usually the price element is not personalized,” said Graeme McVie, chief business development officer of Precima, a data-driven solutions company. “It’s often done by type of customer at the micro-segment level. But you need to truly get to price by item by customer.”
Roadblocks aside, personalization needs to move forward, because the potential benefits are so great. In fact, this strategy may help determine where consumers will shop in an omnichannel world. Personalization should be a province of tech-savvy online retailers, which have loads of data about their customers. However, it could also be a key strategy for brick and mortar retailers to attract shoppers to physical stores. Retailers need to create relevancy at all shopper touchpoints, including in-store, web, tablet, mobile app, and other platforms, Hawkins emphasized.
Ready or not, personalization will happen. And the generation everyone’s trying to reach, Millennials, will probably be the most receptive of all, as long as it makes a difference in their lives.
If it doesn’t, we’ll hear about it, loud and clear. The marketing may be personal, but consumer feedback these days is rarely private.
David Orgel is an award-winning business journalist, industry expert and speaker who was the longtime chief editor and content leader of Supermarket News. He is currently the principal of David Orgel Consulting, delivering strategic content and counsel to the food, retail and CPG industries.