Wal-Mart's Relationship With Procter & Gamble Is Complicated: Here's Why

Wal-Mart Stores, Inc. WMT is the world's largest retailer, which, by default, makes its shelf space highly desirable. Naturally, this creates a conflict of interest between Wal-Mart, which wants to keep the store fresh and clean, and its major suppliers, such as Procter & Gamble Co PG, which wants to dominate every square inch of the stores with their products.

According to the Wall Street Journal, the world's largest retailer and the world's largest consumer-goods company are "increasingly butting heads" at a time when both companies are seeing their businesses cool down.

Wal-Mart's annual revenue dipped for the first time since 1970 this year and P&G hasn't created a new blockbuster product that achieved $1 billion in annual sales since 2005. For its part, Wal-Mart is focusing on improving the store's physical image by reducing clutter and focusing on private label brands that offer consumers the chance to save a few dollars.

P&G on the other hand, wants Wal-Mart to accelerate sales of its products, maintain higher prices on some of its key items and provide additional shelf space.

It All Began With Air Freshener

The Wall Street Journal stated that the strained relationship between Wal-Mart and P&G began 2 years ago when the German-based discount chain Aldi began low-balling the price of P&G's Febreeze Air Effects.

Wal-Mart was "agitated" since P&G's Febreeze products account for nearly a quarter of the retailer's entire sale of air-freshening products. Naturally, it was unhappy that P&G agreed to sell its product to Aldi in the first place.

Since then, Wal-Mart may have strong-armed P&G into making concessions, as now the retailer sells Febreeze products for as much as $0.27 less per can than Aldi does.

"They need each other," Lou Pritchett, a former P&G vice president of sales who met with Wal-Mart founder Sam Walton in 1987 to establish the business relationship told the Wall Street Journal. "They know it. Sometimes it can get incredibly tense."