June 17, 2008
Wal-Mart Going Upscale with Marketside Concept
Wal-Mart’s formula for success has involved offering low prices on everyday staples to consumers looking to save any penny they can in an economic environment where fuel and food costs keep going up.
Interestingly, it appears that Wal-Mart may be deviating from its usual script with its new small format Marketside concept. The new stores are being built around a “premium” positioning rather than focusing the consumer on low-prices, according to a Financial Times report.
Wal-Mart’s tack is curious considering the low price approach that Tesco has taken with its entry into the U.S. market under the company’s Fresh & Easy Neighborhood Market banner. It would appear that the Marketside concept will be more like Safeway’s Market by Von’s small store format.
Tim Mason, chief executive of Tesco US, told the Financial Times that he doesn’t see the new Safeway format as being directly competitive with Fresh & Easy. “It is very expensive and it has got an awful lot of service counters in it – so it has a meats counter, a bakery counter, a fish counter – which take an awful lot of service in a small store, so it is doing a slightly different thing,” he said.
Wal-Mart has indicated that Marketside will focus on delivering “meal solutions” for consumers. The company’s recruitment ads describe the store as offering “unique solutions for time-starved consumers in a premium fresh/convenience oriented format.”
The Financial Times speculates that Wal-Mart may be developing a separate private label line for Marketside rather than import its existing store brands into the new environment.
Discussion Question: Does it make sense to you that Wal-Mart would pursue a positioning for Marketside separate from its traditional low price strength?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Marketside may be one path out of the “big middle” for Wal-Mart, which already boasts half the country as shoppers. Attracting the rest may require something other than a saturation strategy for supercenters.
To the extent that this urban/suburban format is driven by research and consumer responsiveness it has a good chance to succeed. I’m not too hung up on the branding issue either. Folks are going to know it’s a Wal-Mart company and they’ll get over any stigma to the extent that the format meets their product and experiential needs.
Wal-Mart’s strength is their consistent message and positioning around low prices. It is certainly possible for a retailer to run both high and low end store formats. Food Lion operates several formats including Sweet Bay stores. However, the very strength of the Wal-Mart name could present a great liability. They would have to completely disassociate from the Wal-Mart name and build a new brand.
When Wal-Mart stops testing new formats and concepts, I’ll be worried. They are constantly striving to please shoppers, and if they can find a small store format that works, good for them. I wish they would try one up here in Michigan!
I think the key is leaving off the Wal-Mart name to the consumer; big isn’t always better. If Starbucks had developed the Seattle’s Best Coffee which could have looked like a competitor rather than two or three in the same block, I’m certain they could have been even more successful. As a formidable competitor, they can afford any learning curve.
No matter how openly Wal-Mart communicates the connection to Marketside, the expectation will be lower prices than competitive upscale retailers. Word-of-mouth will make or break this venture. Some shoppers will avoid Marketside because of the W-M connection. Others who may be hesitant to pay premium prices at high end competitors will try Marketside under the expectation for lower prices.
Just remember that you can see luxury cars in the parking lots of both types of stores. The key will be location and saturation. The current real estate situation might offer a window to slide into some upscale developments that are stalling. Just how many of these outlets a market can support remains to be seen.
Wal-Mart seems determined to establish a presence in the upscale retail marketplace. This is just its latest venture in that area.
The key will be branding and the story behind the brand. To be successful, WM needs to develop a completely different brand. It cannot be called Wal-Mart. The story behind the brand is evolving towards meal solutions and healthy eating; again a significant departure from the tradition staples offered at WM stores.
WM has the buying clout to pull this off. Will they have the marketing and story telling expertise?
I think the key to this launch will be de-coupling Wal-Mart’s brand from the launch. It’s a contradiction of values to launch high dollar stores with the Wal-Mart name on it and will likely confuse those loyal Wal-mart customers and repel other customers who typically don’t shop Wal-Mart.
If they were to come up with a brand and atmosphere that is independent (much like McDonald’s and Chipotle) yet still utilize their economies of scale in buying, this could be an excellent opportunity to bolster margins for the retail giant while expanding market share into segments they currently can’t seem to penetrate.
As with any launch–it’s just as much how you launch as what you launch.
Wal-Mart’s experiments to go upscale with the discount stores was not successful because it went against the image created by “Always Low Prices Always.” As a result, opening a store with a different name, Marketside, does allow them the opportunity to create an upscale image. Trying to determine “meal solutions” on an upscale basis that will appeal to a broad range of consumers allowing them to create efficiencies of scale will be a challenge. It will be interesting to watch the test markets.
There are 64,000 households who live within a 7 minute drive time of one Marketside location (not even their best location) and 53,000 people who work within 7 minutes of the store. Over the next 4 years, population growth is predicted at 19.5% within that 7 minute drive time…so they have an opportunity to succeed with any 20,000 square foot format.
Average household income is over $84,000, so Fresh, Prepared Meals will resonate with those demographics–even if they don’t draw beyond the most immediate neighborhood areas.
Wal-Mart is placing their Marketside stores in middle class neighborhoods, in middle class suburbs–Chandler, Gilbert and Tempe…not in upscale Fountain Hills, Scottsdale or Paradise Valley. The “convenience” factor coupled with the ideal store size will help them do well in the prototype stores if they can deliver beyond the consumers expectations–which are not too terribly high based on the format choices available in Tempe, Chandler and Gilbert.
Like Tesco’s Fresh & Easy locations, they are reaching out to those that don’t feel they are served well by Frye’s (Kroger), Safeway, Albertsons, Bashas or Wal-Mart’s Neighborhood Markets.
Sprouts Farmers Markets and Trader Joe’s are doing well in Phoenix and I believe Marketside, sans the Wal-Mart signature logo, will do fine as well.
Early in my education, we were taught that pricing isn’t the issue–it’s the price/value relationship.
So I’m with the folks who say a sustained commitment is what it will take for the concept to succeed–execution will be everything.
Done right, this concept can even answer customers’ expectations for lower pricing, either by delivering an experience that makes people forget all about price or by persuading them that this level of service is in fact a breakthrough at these price points.
And it won’t even matter whether old Sam’s name is bandied about or not.
I agree that attaching the Wal-Mart name would be a mistake. Beyond that, Wal-Mart has to hope that the snooty consumers it is targeting are not sufficiently educated to know that the store is a Wal-Mart operation. The media has a way of telling consumers when a new store opens in their market.
Marketside needs to have a very high return on investment to beat some of Wal-Mart’s other enterprises. Wal-Mart de Mexico has a terrific ROI, for example. Nothing wrong with running pilots and tests, but before any rollout, the ROI has to be a proven world-beater.
It makes sense and it is the responsible thing to do. The Wal-Mart superstore format is not going to be accepted by all communities, so why not provide them with what they want?
There are two salient issues which no one seems to have noted so far: 1) you can’t be everything to everybody; 2) you must have a deep understanding of your customer.
No matter the size, product or market, violating #1 will fail (see Kmart, GM, M&S, etc.). Number 2 is connected to #1. Wal-Mart has shown already that it does not understand up-market customers. So it will likely bring in merchants from companies which do (e.g. Whole Foods). Wal-Mart will need to divert resources to the new venture, and to a new strategy which is not price-driven. There will be a clash of cultures because…right, Wal-mart does not understand this customer.
All I can say is that it’s about time. Stagnation abounds at Wal-Mart and they need to do something to break out of the “Made in China” stigma. I will be looking at this closely because I am curious to see if they can execute this with success.
This is a brilliant growth strategy that Wal-Mart needs to exercise in other categories. Wal-Mart is starting to recognize that it is NOT all things to all shoppers. By differentiating their store branding and merchandising they can better segment their customers and increase their appeal to each of these segments without cannibalizing upon their main brand (Wal-Mart).
Wal-Mart will be successful with this, and should use this model (and the lessons that they will learn) to increase their success in other segments. This would include their focus on International markets where this would be critical to marketing and understanding the nuances in each region.
This is genius idea.
Wal-Mart’s strength has been in execution. There’s no reason to believe that the upscale market can’t be Wal-Martized. I would think that, over time, Wal-Mart could open a prestige jewelry concept, higher-end apparel concept, or any other new format, and succeed. If they can deliver the right experience, they can thrive, and challenge the current big players.
The only issue, over time, might be antitrust. It will be interesting to see what happens!
There is nothing wrong with Wal-Mart testing a new concept that does not use the Wal-Mart brand name. It will probably be very successful because it will be approached with the usual efficiencies, regardless of its upscale end result.
If Wal-Mart launches and rolls out the Marketside format without attaching the Wal-Mart name to the concept, there is no reason why a more upscale brand positioning can’t succeed. On the other hand, branding the store as “Marketside by Wal-Mart” (for example) would send a mixed message, with the customer’s expectation of lower prices being disappointed inside. If the brand positioning is done right, this could be a big success; certainly Wal-Mart has the resources to experiment with multiple formats and to outpace Tesco’s expansion plans if it chooses to.
Given Wal-Mart’s recent success with its new positioning (Save Money, Live Better), I’m more confident that they will pull this off than I was a year ago. Marketing is ascendant now at Wal-Mart, and if they can translate that into the store, it may very well succeed.
Wal-Mart has a history of experimentation with new concepts and store formats, so this strategy doesn’t overly surprise. As long as the store format doesn’t advertise Wal-Mart, which is known to the consumers as an EDLP/low price retailer, they will have a chance for success.
It starts with the shopper and exceeding their needs and expectations, which in this format will require excellent service personnel in the store, outstanding freshly prepared meal solutions in an attractive retail format and a marketing approach that is unique and very differentiated. Can they pull this off? My reply is YES–but only if they place the amount of focus and leadership attention needed as well as a sustained, committed investment vs. a “trial approach” as they have done in the past with formats like Dots Drugs, Buds, etc.
At some point Wal-Mart will realize that these efforts are dalliances. A retail brand should play its strong cards. It should be true to the reasons customers “do business” with it. If a brand wants to go that far afield, start a new brand.
Wal-Mart is a mass market, low-priced retailer. Nothing wrong with that (although I disagree with some of their business practices.) If it wants to go upscale, the examples of branching out with new brands are well-populated. Victoria Secret started Pink to get young kids involved. Gap started Banana Republic and Old Navy.
I think creating new brands is better for the long-term health of the company, and better for the different customers it is attracting.
It is true the Wal-Mart Marketside stores, which will open soon in the Phoenix area, will be more upscale than Wal-Mart’s other formats. However, in terms of information, the FT story is very limited. There’s lots of additional, more detailed information out there.
Don’t assume based on that one piece (the FT story) the Marketside stores will be pricey, for example.
One reason WM isn’t using “Wal-Mart” in conjunction with Marketside, is because the format is so different–and more upscale–than its existing formats. Don’t mistake that however for the Marketside stores being mini-Whole Foods Markets or Bristol Farms per se.
Also, don’t mistake it to mean retails in the stores will be high. Wal-Mart is using Marketside as part of a multi-format strategy–especially in Arizona–but it plans to be competitive with Tesco Fresh & Easy, Trader Joe’s and all others. Remember, Wal-Mart can leverage its supply chain and procurement machine for Marketside. If it wants, it can meet Tesco’s and any other retailer’s prices and still make higher margin than they can.
Another note: Safeway had originally planned to have a much more specialty and natural foods selection in its new The Market format stores. The first is “the market by Vons” in Long Beach, California. However, because of the poor U.S. economy, and Safeway’s data which has shown a huge shift among its customers to the retailer’s value store brands, it decided to actually put a much more extensive selection of its value store brands in The Market than specialty/natural goods; at least for now.
Don’t be surprised if Wal-Mart also offers a significant value proposition in the form of discount-priced basic groceries in the Marketside stores. After all, no retailer is benefiting more from, and currently has a better understanding of, how value is driving food sales than Wal-Mart in the current poor U.S. economic climate.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
Marketside may be one path out of the “big middle” for Wal-Mart, which already boasts half the country as shoppers. Attracting the rest may require something other than a saturation strategy for supercenters.
To the extent that this urban/suburban format is driven by research and consumer responsiveness it has a good chance to succeed. I’m not too hung up on the branding issue either. Folks are going to know it’s a Wal-Mart company and they’ll get over any stigma to the extent that the format meets their product and experiential needs.
Wal-Mart’s strength is their consistent message and positioning around low prices. It is certainly possible for a retailer to run both high and low end store formats. Food Lion operates several formats including Sweet Bay stores. However, the very strength of the Wal-Mart name could present a great liability. They would have to completely disassociate from the Wal-Mart name and build a new brand.
When Wal-Mart stops testing new formats and concepts, I’ll be worried. They are constantly striving to please shoppers, and if they can find a small store format that works, good for them. I wish they would try one up here in Michigan!
I think the key is leaving off the Wal-Mart name to the consumer; big isn’t always better. If Starbucks had developed the Seattle’s Best Coffee which could have looked like a competitor rather than two or three in the same block, I’m certain they could have been even more successful. As a formidable competitor, they can afford any learning curve.
No matter how openly Wal-Mart communicates the connection to Marketside, the expectation will be lower prices than competitive upscale retailers. Word-of-mouth will make or break this venture. Some shoppers will avoid Marketside because of the W-M connection. Others who may be hesitant to pay premium prices at high end competitors will try Marketside under the expectation for lower prices.
Just remember that you can see luxury cars in the parking lots of both types of stores. The key will be location and saturation. The current real estate situation might offer a window to slide into some upscale developments that are stalling. Just how many of these outlets a market can support remains to be seen.
Wal-Mart seems determined to establish a presence in the upscale retail marketplace. This is just its latest venture in that area.
The key will be branding and the story behind the brand. To be successful, WM needs to develop a completely different brand. It cannot be called Wal-Mart. The story behind the brand is evolving towards meal solutions and healthy eating; again a significant departure from the tradition staples offered at WM stores.
WM has the buying clout to pull this off. Will they have the marketing and story telling expertise?
I think the key to this launch will be de-coupling Wal-Mart’s brand from the launch. It’s a contradiction of values to launch high dollar stores with the Wal-Mart name on it and will likely confuse those loyal Wal-mart customers and repel other customers who typically don’t shop Wal-Mart.
If they were to come up with a brand and atmosphere that is independent (much like McDonald’s and Chipotle) yet still utilize their economies of scale in buying, this could be an excellent opportunity to bolster margins for the retail giant while expanding market share into segments they currently can’t seem to penetrate.
As with any launch–it’s just as much how you launch as what you launch.
Wal-Mart’s experiments to go upscale with the discount stores was not successful because it went against the image created by “Always Low Prices Always.” As a result, opening a store with a different name, Marketside, does allow them the opportunity to create an upscale image. Trying to determine “meal solutions” on an upscale basis that will appeal to a broad range of consumers allowing them to create efficiencies of scale will be a challenge. It will be interesting to watch the test markets.
There are 64,000 households who live within a 7 minute drive time of one Marketside location (not even their best location) and 53,000 people who work within 7 minutes of the store. Over the next 4 years, population growth is predicted at 19.5% within that 7 minute drive time…so they have an opportunity to succeed with any 20,000 square foot format.
Average household income is over $84,000, so Fresh, Prepared Meals will resonate with those demographics–even if they don’t draw beyond the most immediate neighborhood areas.
Wal-Mart is placing their Marketside stores in middle class neighborhoods, in middle class suburbs–Chandler, Gilbert and Tempe…not in upscale Fountain Hills, Scottsdale or Paradise Valley. The “convenience” factor coupled with the ideal store size will help them do well in the prototype stores if they can deliver beyond the consumers expectations–which are not too terribly high based on the format choices available in Tempe, Chandler and Gilbert.
Like Tesco’s Fresh & Easy locations, they are reaching out to those that don’t feel they are served well by Frye’s (Kroger), Safeway, Albertsons, Bashas or Wal-Mart’s Neighborhood Markets.
Sprouts Farmers Markets and Trader Joe’s are doing well in Phoenix and I believe Marketside, sans the Wal-Mart signature logo, will do fine as well.
Early in my education, we were taught that pricing isn’t the issue–it’s the price/value relationship.
So I’m with the folks who say a sustained commitment is what it will take for the concept to succeed–execution will be everything.
Done right, this concept can even answer customers’ expectations for lower pricing, either by delivering an experience that makes people forget all about price or by persuading them that this level of service is in fact a breakthrough at these price points.
And it won’t even matter whether old Sam’s name is bandied about or not.
I agree that attaching the Wal-Mart name would be a mistake. Beyond that, Wal-Mart has to hope that the snooty consumers it is targeting are not sufficiently educated to know that the store is a Wal-Mart operation. The media has a way of telling consumers when a new store opens in their market.
Marketside needs to have a very high return on investment to beat some of Wal-Mart’s other enterprises. Wal-Mart de Mexico has a terrific ROI, for example. Nothing wrong with running pilots and tests, but before any rollout, the ROI has to be a proven world-beater.
It makes sense and it is the responsible thing to do. The Wal-Mart superstore format is not going to be accepted by all communities, so why not provide them with what they want?
There are two salient issues which no one seems to have noted so far: 1) you can’t be everything to everybody; 2) you must have a deep understanding of your customer.
No matter the size, product or market, violating #1 will fail (see Kmart, GM, M&S, etc.). Number 2 is connected to #1. Wal-Mart has shown already that it does not understand up-market customers. So it will likely bring in merchants from companies which do (e.g. Whole Foods). Wal-Mart will need to divert resources to the new venture, and to a new strategy which is not price-driven. There will be a clash of cultures because…right, Wal-mart does not understand this customer.
All I can say is that it’s about time. Stagnation abounds at Wal-Mart and they need to do something to break out of the “Made in China” stigma. I will be looking at this closely because I am curious to see if they can execute this with success.
This is a brilliant growth strategy that Wal-Mart needs to exercise in other categories. Wal-Mart is starting to recognize that it is NOT all things to all shoppers. By differentiating their store branding and merchandising they can better segment their customers and increase their appeal to each of these segments without cannibalizing upon their main brand (Wal-Mart).
Wal-Mart will be successful with this, and should use this model (and the lessons that they will learn) to increase their success in other segments. This would include their focus on International markets where this would be critical to marketing and understanding the nuances in each region.
This is genius idea.
Wal-Mart’s strength has been in execution. There’s no reason to believe that the upscale market can’t be Wal-Martized. I would think that, over time, Wal-Mart could open a prestige jewelry concept, higher-end apparel concept, or any other new format, and succeed. If they can deliver the right experience, they can thrive, and challenge the current big players.
The only issue, over time, might be antitrust. It will be interesting to see what happens!
There is nothing wrong with Wal-Mart testing a new concept that does not use the Wal-Mart brand name. It will probably be very successful because it will be approached with the usual efficiencies, regardless of its upscale end result.
If Wal-Mart launches and rolls out the Marketside format without attaching the Wal-Mart name to the concept, there is no reason why a more upscale brand positioning can’t succeed. On the other hand, branding the store as “Marketside by Wal-Mart” (for example) would send a mixed message, with the customer’s expectation of lower prices being disappointed inside. If the brand positioning is done right, this could be a big success; certainly Wal-Mart has the resources to experiment with multiple formats and to outpace Tesco’s expansion plans if it chooses to.
Given Wal-Mart’s recent success with its new positioning (Save Money, Live Better), I’m more confident that they will pull this off than I was a year ago. Marketing is ascendant now at Wal-Mart, and if they can translate that into the store, it may very well succeed.
Wal-Mart has a history of experimentation with new concepts and store formats, so this strategy doesn’t overly surprise. As long as the store format doesn’t advertise Wal-Mart, which is known to the consumers as an EDLP/low price retailer, they will have a chance for success.
It starts with the shopper and exceeding their needs and expectations, which in this format will require excellent service personnel in the store, outstanding freshly prepared meal solutions in an attractive retail format and a marketing approach that is unique and very differentiated. Can they pull this off? My reply is YES–but only if they place the amount of focus and leadership attention needed as well as a sustained, committed investment vs. a “trial approach” as they have done in the past with formats like Dots Drugs, Buds, etc.
At some point Wal-Mart will realize that these efforts are dalliances. A retail brand should play its strong cards. It should be true to the reasons customers “do business” with it. If a brand wants to go that far afield, start a new brand.
Wal-Mart is a mass market, low-priced retailer. Nothing wrong with that (although I disagree with some of their business practices.) If it wants to go upscale, the examples of branching out with new brands are well-populated. Victoria Secret started Pink to get young kids involved. Gap started Banana Republic and Old Navy.
I think creating new brands is better for the long-term health of the company, and better for the different customers it is attracting.
It is true the Wal-Mart Marketside stores, which will open soon in the Phoenix area, will be more upscale than Wal-Mart’s other formats. However, in terms of information, the FT story is very limited. There’s lots of additional, more detailed information out there.
Don’t assume based on that one piece (the FT story) the Marketside stores will be pricey, for example.
One reason WM isn’t using “Wal-Mart” in conjunction with Marketside, is because the format is so different–and more upscale–than its existing formats. Don’t mistake that however for the Marketside stores being mini-Whole Foods Markets or Bristol Farms per se.
Also, don’t mistake it to mean retails in the stores will be high. Wal-Mart is using Marketside as part of a multi-format strategy–especially in Arizona–but it plans to be competitive with Tesco Fresh & Easy, Trader Joe’s and all others. Remember, Wal-Mart can leverage its supply chain and procurement machine for Marketside. If it wants, it can meet Tesco’s and any other retailer’s prices and still make higher margin than they can.
Another note: Safeway had originally planned to have a much more specialty and natural foods selection in its new The Market format stores. The first is “the market by Vons” in Long Beach, California. However, because of the poor U.S. economy, and Safeway’s data which has shown a huge shift among its customers to the retailer’s value store brands, it decided to actually put a much more extensive selection of its value store brands in The Market than specialty/natural goods; at least for now.
Don’t be surprised if Wal-Mart also offers a significant value proposition in the form of discount-priced basic groceries in the Marketside stores. After all, no retailer is benefiting more from, and currently has a better understanding of, how value is driving food sales than Wal-Mart in the current poor U.S. economic climate.