Jeffries: Start Betting on Big Brands to Beat the Smaller Rivals

There are advantages to being the biggest name in town. One is the accessibility of resources. With sufficient resources on your side, you can do just about anything you set out to do, no matter how weird, outlandish, or even unprofitable it may seem on the outside. It's also a path that allows a business to better absorb the impact of mistakes. There are a lot of benefits to being big, and based on a new report from Jefferies analysts, this could be the year that sees the big-name push a lot of its smaller rivals out of the market.

Walmartization Goes Big?

The word from Jeffries strategists Steven DeSanctis and Sean Darby suggest that this year will be the year that bigger companies get aggressive about taking market share away from their small and medium-sized business (SMB) counterparts.

Specifically, the move will be part of continuing development in consumer-focused efforts: those companies that have been putting a lot of weight—especially resources—behind technological development are likely to put that newly-minted technology to work and bolster their market share by improving customer experience. This includes developments in consumer data gathering, digital engagement, analytics, and several other key technologies that some SMBs have never even heard of, let alone use with any regularity.

Who In Particular Is Set to Benefit?

The note came with a laundry list of firms poised to see benefits as a result of this move to greater technological prowess. Ulta NASDAQ: ULTA is set to see some gains in the beauty products segment, while Constellation Brands NYSE: STZ will get ahead in the liquor market with brands like Corona, Modelo Especial, Svedka Vodka and others under its belt.

Further expected to gain are convenience store brand Casey's General Stores NASDAQ: CASY, restaurant brands McDonald's NYSE: MCD and familiar-winner Starbucks NASDAQ: SBUX. The company that named the trope of Walmartization, Walmart NYSE: WMT is also set to gain, along with big-box retail classics Lowe's NYSE: LOW, Home Depot NYSE: HD and Best Buy NYSE: BBY

A Familiar Theme Taken to New Heights With Potential Drawbacks

It's been said for some time now that the only way to get ahead in retail is to offer a highly-personalized—and thus highly satisfactory—customer experience. That's not without reason; after all, people like to feel like they matter when they shop with a business, and a highly-personalized experience is a great way to get to that point. When the business at least appears to know who you are, has some kind of knowledge of what you like, and is willing to help you find those items—or close approximations thereof—there's a semblance of caring that comes with that.

Think of it as being like the “Cheers” effect. Sometimes you want to go, as the eighties, classic's theme song opined, where everybody knows your name. It does beat being Customer Number Fill in the Blank, or only slightly better, Rewards Benefit Member Whatever Number It Is.

To think of this as another form of Walmartization isn't out of line, but it's also not completely accurate. After all, we're not talking about a price war here that sees the little guy go smack out of business, but rather, a refinement of customer service so apparently deep that the customer just gravitates naturally to the bigger business that seems to care more. Sure, the small business can do something similar; just ask anyone who's a regular at a coffee shop. But the larger business has, again, the resources to do this job on a wider scale, resources its smaller counterpart doesn't have. Instead of Walmartization working to take out competitors on price, it takes them out on service.

Yes, that's going to give some people the creeps and send them packing to the smaller and slightly more anonymous business. A lot of people, however, will prefer this brand of deeply personalized service and surprisingly accurate recommendations, and stick with the larger business. If this keeps going long enough, the smaller businesses will simply have to fold with too little market share.

A deeply personal customer experience could be the secret to giving big business an edge, but then, it could open up a new market too. Consider how many SMBs would love access to such tools, on a smaller scale, and the kind of business that could be done from a company willing to offer access to those tools.  Big business may have the edge in 2020, but that edge may not be as sustainable as they hope.