January 14, 2008
Wal-Mart’s ‘Marketside’ Versus Tesco’s Fresh & Easy
Lee Scott has always maintained that Asda was outmaneuvered by Tesco’s convenience format in the U.K. and apparently he’s not willing to let the same thing happen in the U.S.
According to a report by the Financial Times, Wal-Mart plans to open four small-format grocery stores in Arizona this year under the “Marketside” banner in response to Tesco’s entry into the U.S. with its Fresh & Easy format. The new Marketside units will measure approximately 20,000 square-feet.
While Wal-Mart did not give the Financial Times a detailed description of the new format, it did indicate that the Marketside concept would be similar to its Neighborhood Markets.
Wal-Mart is looking to open its first Marketside stores in corner locations that formerly housed drugstores. The company has applied for licenses to sell beer and wine in its new stores. The first stores will open in Mesa, Gilbert, Chandler and Tempe.
Discussion Questions: What is your reaction to news of Wal-Mart opening smaller format stores? What do you see as the opportunities and challenges facing the company as it attempts to operate a small store format?
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Is it reasonable for a petroleum company to operate huge, hammer-down truckstops replete with complementary lot lizards, in addition to tiny, backwoodsy, fill-‘er-up locations? Why, yes! Yes it is! And apparently we, as somewhat intelligent beings, have been able to deal with that staggeringly confusing dichotomy for decades. We are marvelous creatures indeed.
Sam Walton’s vision was never to sell stuff at the lowest possible price in great big ol’ stores. It was simply to sell stuff at the lowest possible price. The Dream was never format specific, and the lesson learned is that you can’t shoehorn edicts (thou shalt always operate in big ol’ stores) into Sam’s vision any more than you can squeeze unintended interpretations into the Constitution. Oh, wait. Bad example.
Tesco has gone for a store exactly half the size Wal-Mart is proposing, although they do have at least one 15,000 square foot store. If they are intending to compete with Tesco, every one of those additional square feet they are adding will be an additional disadvantage for Wal-Mart. In fact, the single 15K store I have seen of Tesco has some significant differences from the rest of their F&E, probably by definite design, since many of their other stores are built in much larger buildings, with the actual retail floorspace pared to the exact same 10K footprint from store to store.
The 15K Tesco store has a significantly different “feel” than the 10K stores, due to that increased size. I didn’t count SKUs but presume there are more of those, too. This is not helpful from the shopper’s point of view, since they only need 300-400 items to keep them happy. However, it is easily possible that the 15K Tesco store will outperform the smaller stores because of a major design difference that Tesco may or may not have done deliberately. All of the F&E except that 15K store “force” the shopper into a clockwise flow around the store, which is anti-consumer friendly. The 15K store uses the traditional counter-clockwise pattern which is consumer friendly, and that may overcome the additional space.
As usual, the number of variables complicates clear, definitive conclusions, particularly absent the Tesco viewpoint and their actual data. But it is likely that the Wal-Mart stores are too big to seriously play in the C-store space, where a winning battle MAY rage in the coming years. “May,” because if all the major retail players give up on pursuit of the shopper in favor of pursuit of brand supplier dollars for more SKUs, they will be ignoring a major sweet spot in global retailing.
This conflict between trade and shopper interests CAN be resolved, but not if the voice of the brand drowns out the voice of the shopper. Someday, the shopper will win.
Wal-Mart is trying to be a learning organization. By starting Marketside with only 4 stores in 1 isolated geography, they can test and adjust the new concept multiple times until they get it right. More testing = less risk. Had Metro 7 been tested more carefully, ultimately it could’ve been more successful. It takes great strength of character to resist the competitive urge to expand a new concept immediately, especially to “beat the competition.” But the turtle often wins the race, ultimately. IKEA, Trader Joe’s, and Fairway have all expanded slowly, yet very profitably.
Since there are no details, it’s impossible to have an intelligent reaction other than to note that Wal-Mart’s future would seem to hinge on its ability to get the small store format right. So far that future is shaky at best. Wal-Mart is good at discounting, not necessarily at merchandising beyond price. That’s what keeps the Neighborhood Markets from being more effective. In their case, size does matter and smaller is better, but not if they don’t know how to use it.
Wal-Mart is too big (in many ways…not just size, but layers of management, the way they think, the difficulties communities and unions create for them and too oriented to price over quality and innovative products) to be able to “think small.” They are the biggest and most successful retailer ever in spite of all the negative we hear and read (and see and write) about them and if they stick to their core competencies and stay focused on what they do best they should have many, many years left at the top.
Wal-Mart has the unique capability of analyzing any market situation and successfully entering that marketplace. The best example of this is their increase from 0 to 26% of the grocery market between 1992 and 2007. This is probably the most successful entry of the major company into any consumer market in the past 50 years.
Simply stated, I don’t think that shoppers are going to buy into it. The WM shoppers that already shop superstores looking for bargains and discounts aren’t going to be likely to switch stores, even if the stores are on the same team. And for those who aren’t W-M shoppers, similar to the skepticism over W-M “going green” in the past few years, these smaller markets are one more cause for skepticism and distaste for the company.
From another perspective, I don’t believe there’s enough product in the pipeline for W-M to nationally mass market the same food types that Trader Joe’s and Whole Foods sell. And with specific products–like milk–some farmers have already reached production capacity and couldn’t supply another chain outlet. There are some companies that might also hold out and not want their brand associated with W-M. So I’ll be curious to see how this turns out for them. With Whole Foods and Wild Oats merging, maybe a bit of competition will be a good thing if W-M can pull it off.
Wal-Mart is a huge company that requires continual growth for vitality; even its survival. W-M can’t ignore the potential impact of a different smaller store format particularly when it originates from a skillful competitor that has out merchandised W-M’s stores in the U.K.
Addicted as it is to discount retailing, how successful will Wal-Mart be with its smaller-format test stores remains to be seen. The retail trend seems to be toward smaller markets with unique assortments and new ideas such as Trader Joe’s and Whole Foods, where the “fashion inside the store” is more important than discounting or price.
Can W-M go with that flow? That is the big question. But as Damon Runyon once said, “The race is not always to the swift, nor the battle to the strong–but that’s the way to bet.” Are you listening Mr. Lee Scott?
I was attending a presentation by William S. Simon, COO of Wal-Mart last year and I asked him about the impact on Wal-Mart of TESCO’s US entry via the small format concept. His response was that Wal-Mart was preparing a ‘good’ welcome for TESCO. I guess this is the welcome he meant. I guess it was inevitable for Wal-Mart to defend their home turf by countering TESCO’s entry, but a good follower strategy is one that lets the innovator (in this case TESCO) find all the stumbling blocks and then avoid them. So it would be prudent for Wal-Mart to wait until the new TESCO stores stabilize to leverage learnings from their mistakes.
If you look at the demographics of Fresh & Easy locations, you will realize that TESCO is experimenting with at least 3 different target markets and I would imagine they would focus on the most successful demographic for future store openings. Wal-Mart should be using this information to craft their strategy in this space. But then again, Wal-Mart has deep enough pockets to not wait until TESCO has discovered where the pitfalls in this strategy are.
Sam Walton would be proud that Mr. Scott is exploring the concept to stay in step with the competition, but I’m not so sure he’d go back into the small store business he came from.
Larger operators have tried the c-store thing…remember White Hen and Jewel? They’re simply two different business models. One of which, if you recall, Wal-Mart systematically destroyed–and not as a competitor, but as a replacement.
One thought…what’s the one retailer with about 10K SF in thousands of markets already? One that’s moving convenience like no other…Walgreens. They’re closer to Fresh & Easy than Wal-Mart and they’ve got a long way to go. Not to mention grocery, which has, for all practical purposes, become a neighborhood convenience format already.
How many different neighborhood convenience markets can we support?
How many competitive entrants in a limited channel would it take to screw in a light bulb? This is getting pretty crowded in terms of a very competitive channel for which there is sparse demand. I think this is attractive because it is “new.”
As mentioned earlier, Trader Joe’s and others are successful because they grew slowly and carefully. In the early days they selected sites that were low cost and they became a unique destination store. Tesco, Wal-Mart et al seem to want to create a neighborhood grocery store format, in new or expensive brick and mortar. Discount Pricing, high fixed costs and limited traffic is a recipe for failure. In the battle of ego vs. common sense, one should step back and face the reality that a limited assortment format may not appeal to a two earner household with time as a premium. What is available in the Tesco – Trader Joe’s – proposed Wal-Mart venture that is not available in a traditional Super Market?
By the way, isn’t the conventional Super Market ALSO conveniently located to the neighborhood? The Supermarket will also have the variety that is missing in the small format store, thus saving gas and time.
Most importantly, a small format store still has high fixed costs. Lease, Labor, and Utilities still need to be offset by dollar volume through the registers.
To the point of the question, Wal-Mart can enter the fray, but why would they? The whole concept is to make money and they do that very well in the channel in which they dominate.
Hmmm….
To paraphrase what I’ve read here: the answer to the question (should Wal-Mart stick to its core competency of large discount stores, or should it expand into smaller format “designer” outlets?) is “Yes;” and I agree…wholeheartedly.
Wal-Mart is a retailer. Limiting themselves to just certain footprints is a recipe for failure. Adjusting to consumer demand and changing formats to respond to different market pressures will enable Wal-Mart to first try, then identify, the different footprints which they should be appealing to.
Wal-Mart has never been about forcing one concept into all retail efforts, and they shouldn’t start now. From their start as a competitor to the Five and Dime stores, Wal-Mart has recognized that they need to be continually evolving to stay competitive. Once we have details on what this footprint will embrace, we can comment better, but for now, change is good.
The future of retailing is in segmenting the consumer. The article doesn’t give the necessary details to form an opinion and comment on the success of Wal-Mart’s new concept.
This much is clear to me: Tesco has an advantage by opening stores in California vs. Arizona. The density of the California market allows for segmenting and larger RTAs which will increase their opportunity for success.
My biggest reaction is “It’s about time.” Wal-Mart has known for years that Tesco was going to enter the US market with a smaller store, and could have learned from their ASDA experience.
Tesco’s UK and US stores are actually quiet similar–just the basic ~300 items consumers need on a regular basis, shelved using 100% Retail-Ready packaging, with easy to shop layouts, and located in a great location on the way home from work. Wal-Mart may struggle with the Retail-Ready approach as it means listing new items which could be cost-prohibitive for just a few stores.
Wal-Mart will, as they always do, invest in this new store format and test and test until they get it right. Tesco should expand F&E as fast as they can to new markets to secure market share before any real competition can catch up.
Wal-Mart tried this concept before and it was unsuccessful for a number of reasons, the first of which was it was NOT convenient. The convenience audience is drastically different than Wal-Mart’s big-box demographic. Convenience customers want fresh food and variety, but also want front-door parking, service in less than 3 or 4 minutes and value. Wal-Mart’s Neighborhood Market offered very little of that and certainly not enough to compete with the likes of Sheetz, Wawa and QuikTrip.
The second is location. The company’s stores are typically away from main roads and more of a destination for bulk purchases rather than convenience. Certainly, that strategy could change, but they will have their work cut out because the competition for great corners between c-stores, drug stores and fast-food restaurants is already fierce. Even now, they will be playing catch-up with Whole Foods, Trader Joe’s and the strong regional brands that have been filling the “convenience proposition” (good food, great location, fast service and value) for some time.
The variable here is Wal-Mart’s desire to succeed. They have the money and the resources to make sure they are successful. But will they grind it out and start flexing their muscles to grow this end of the business? In the end, I don’t see it as a core competency. They would be much wiser to try to acquire a company like Whole Foods or a strong regional convenience brand than to try to emulate them. That would be the biggest statement yet that they are serious about this business.
Both Fresh and Easy and Marketside are a new paradigm for the U.S., responding to the densification of the suburbs.
Wal-Mart has several advantages over Tesco. Initially, they have a must better understanding of their existing customer metric, and the demographic and sociographic properties of their target areas. They have the capability to actuate a successful neighborhood pod retail concept through sheer buying power and vendor relations as well as familiarity with top SKUs in their conventional grocery store, traditional Wal-Marts, and the Super Centers. Another rather basic factor is that Wal-Mart has the reputation of paying up for a site they want, and Tesco is attempting to drive extremely difficult rent and land lease deals with their 14,000 SF concept which we are seeing in Northern California.
I believe this will be Hollywood and Blockbuster all over again, and that both ops will share the identical niche. The fundamental problem with this vertical is that the presence of two in very close proximity does not drive additional synergistic sales; these are convenience stores, not comparison shopping stores.
I think this could work out well for Wal-Mart if done correctly.
I live in the Phoenix area and am a big fan of the new Tesco Fresh & Easy stores here. They are convenient, prices are great, and offer very good quality private label items. The locations are easy to access, parking is good, etc. The prepared foods are amazingly good, I find this as a similar reason to shop Trader Joe’s–you go there for certain items you can’t find anywhere else.
If Wal-Mart can use their price leverage as much as they can they should do fine, but I am not so sure if they will be able to create the quality unique products that Fresh & Easy has…why wouldn’t they have already?
Also, I have seen the 4 locations at which the new Marketside stores will be; they are all in similar demographics–middle/upper income fairly established suburban areas. Looks like that is more of their test target vs. Fresh & Easy which has gone in to a variety of demographics here.
Of course, there are a couple ways to look at Wal-Mart’s opening of the small format “MarketSide” stores later this year in Arizona. One of those ways is the impact it will have on Tesco’s Fresh & Easy stores, even if it takes Wal-Mart a considerable amount of time to get things “right.”
Fresh & Easy is basically a hybrid, small format grocery market. It’s going after at least two consumer segments at the same time, and under the same roof. These segments are the shopper looking for a limited assortment of basic private label and branded grocery products at a low price, and in an “easier to shop” store, along with the convenience-oriented prepared foods shopper. The jury is out on if this is a brilliant idea or if it will result in a format muddle, and hence fail.
On the basic grocery low-price side, Wal-Mart should have no trouble meeting (and beating if it chooses) Fresh & Easy’s low-price, basic grocery item model. On the prepared foods front, unless Wal-Mart really messes it up, they should be able to offer a prepared foods offering as good as Fresh & Easy’s. (Fresh & Easy’s prepared foods are better good at present; but they aren’t superior. About a B grade.)
Safeway also is entering the small store grocery market format later this year in Northern California, in the San Jose region in the Bay Area to start. Tesco has at least two leases already in the Bay Area, and plans at least 15 or so stores opened in NorCal this year. (They want as many as 50 by the end of 2009.)
So, Wal-Mart with “MarketSide” in Arizona to start, Safeway with its new small format stores on its home turf in Northern California to start. And, of course, does anybody really not think either Wal-Mart or Safeway (or both) aren’t looking to Southern California, where Tesco is putting it’s main focus? Both chains are looking hard in SC.
So, the big question at this point is what these two retailer developments means to Tesco’s Fresh & Easy. Tesco’s Fresh & Easy venture is eating lots of dollars at present: the low prices, start-up costs, etc. Imagine how many more of those dollars Tesco will have to eat when Wal-Mart and Safeway come on line. (This isn’t necessarily bad, but could result in lots more bleeding than Tesco anticipated.)
I wrote a piece about this new, small format competitive landscape yesterday at: http://www.naturalspecialtyfoodsmemo.blogspot.com
The piece goes into the issue more than I can here. But at this point in time I think the competitive issues vis-a-vis- Fresh & Easy are more key than if Wal-Mart can get it right.
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Is it reasonable for a petroleum company to operate huge, hammer-down truckstops replete with complementary lot lizards, in addition to tiny, backwoodsy, fill-‘er-up locations? Why, yes! Yes it is! And apparently we, as somewhat intelligent beings, have been able to deal with that staggeringly confusing dichotomy for decades. We are marvelous creatures indeed.
Sam Walton’s vision was never to sell stuff at the lowest possible price in great big ol’ stores. It was simply to sell stuff at the lowest possible price. The Dream was never format specific, and the lesson learned is that you can’t shoehorn edicts (thou shalt always operate in big ol’ stores) into Sam’s vision any more than you can squeeze unintended interpretations into the Constitution. Oh, wait. Bad example.
Tesco has gone for a store exactly half the size Wal-Mart is proposing, although they do have at least one 15,000 square foot store. If they are intending to compete with Tesco, every one of those additional square feet they are adding will be an additional disadvantage for Wal-Mart. In fact, the single 15K store I have seen of Tesco has some significant differences from the rest of their F&E, probably by definite design, since many of their other stores are built in much larger buildings, with the actual retail floorspace pared to the exact same 10K footprint from store to store.
The 15K Tesco store has a significantly different “feel” than the 10K stores, due to that increased size. I didn’t count SKUs but presume there are more of those, too. This is not helpful from the shopper’s point of view, since they only need 300-400 items to keep them happy. However, it is easily possible that the 15K Tesco store will outperform the smaller stores because of a major design difference that Tesco may or may not have done deliberately. All of the F&E except that 15K store “force” the shopper into a clockwise flow around the store, which is anti-consumer friendly. The 15K store uses the traditional counter-clockwise pattern which is consumer friendly, and that may overcome the additional space.
As usual, the number of variables complicates clear, definitive conclusions, particularly absent the Tesco viewpoint and their actual data. But it is likely that the Wal-Mart stores are too big to seriously play in the C-store space, where a winning battle MAY rage in the coming years. “May,” because if all the major retail players give up on pursuit of the shopper in favor of pursuit of brand supplier dollars for more SKUs, they will be ignoring a major sweet spot in global retailing.
This conflict between trade and shopper interests CAN be resolved, but not if the voice of the brand drowns out the voice of the shopper. Someday, the shopper will win.
Wal-Mart is trying to be a learning organization. By starting Marketside with only 4 stores in 1 isolated geography, they can test and adjust the new concept multiple times until they get it right. More testing = less risk. Had Metro 7 been tested more carefully, ultimately it could’ve been more successful. It takes great strength of character to resist the competitive urge to expand a new concept immediately, especially to “beat the competition.” But the turtle often wins the race, ultimately. IKEA, Trader Joe’s, and Fairway have all expanded slowly, yet very profitably.
Since there are no details, it’s impossible to have an intelligent reaction other than to note that Wal-Mart’s future would seem to hinge on its ability to get the small store format right. So far that future is shaky at best. Wal-Mart is good at discounting, not necessarily at merchandising beyond price. That’s what keeps the Neighborhood Markets from being more effective. In their case, size does matter and smaller is better, but not if they don’t know how to use it.
Wal-Mart is too big (in many ways…not just size, but layers of management, the way they think, the difficulties communities and unions create for them and too oriented to price over quality and innovative products) to be able to “think small.” They are the biggest and most successful retailer ever in spite of all the negative we hear and read (and see and write) about them and if they stick to their core competencies and stay focused on what they do best they should have many, many years left at the top.
Wal-Mart has the unique capability of analyzing any market situation and successfully entering that marketplace. The best example of this is their increase from 0 to 26% of the grocery market between 1992 and 2007. This is probably the most successful entry of the major company into any consumer market in the past 50 years.
Simply stated, I don’t think that shoppers are going to buy into it. The WM shoppers that already shop superstores looking for bargains and discounts aren’t going to be likely to switch stores, even if the stores are on the same team. And for those who aren’t W-M shoppers, similar to the skepticism over W-M “going green” in the past few years, these smaller markets are one more cause for skepticism and distaste for the company.
From another perspective, I don’t believe there’s enough product in the pipeline for W-M to nationally mass market the same food types that Trader Joe’s and Whole Foods sell. And with specific products–like milk–some farmers have already reached production capacity and couldn’t supply another chain outlet. There are some companies that might also hold out and not want their brand associated with W-M. So I’ll be curious to see how this turns out for them. With Whole Foods and Wild Oats merging, maybe a bit of competition will be a good thing if W-M can pull it off.
Wal-Mart is a huge company that requires continual growth for vitality; even its survival. W-M can’t ignore the potential impact of a different smaller store format particularly when it originates from a skillful competitor that has out merchandised W-M’s stores in the U.K.
Addicted as it is to discount retailing, how successful will Wal-Mart be with its smaller-format test stores remains to be seen. The retail trend seems to be toward smaller markets with unique assortments and new ideas such as Trader Joe’s and Whole Foods, where the “fashion inside the store” is more important than discounting or price.
Can W-M go with that flow? That is the big question. But as Damon Runyon once said, “The race is not always to the swift, nor the battle to the strong–but that’s the way to bet.” Are you listening Mr. Lee Scott?
I was attending a presentation by William S. Simon, COO of Wal-Mart last year and I asked him about the impact on Wal-Mart of TESCO’s US entry via the small format concept. His response was that Wal-Mart was preparing a ‘good’ welcome for TESCO. I guess this is the welcome he meant. I guess it was inevitable for Wal-Mart to defend their home turf by countering TESCO’s entry, but a good follower strategy is one that lets the innovator (in this case TESCO) find all the stumbling blocks and then avoid them. So it would be prudent for Wal-Mart to wait until the new TESCO stores stabilize to leverage learnings from their mistakes.
If you look at the demographics of Fresh & Easy locations, you will realize that TESCO is experimenting with at least 3 different target markets and I would imagine they would focus on the most successful demographic for future store openings. Wal-Mart should be using this information to craft their strategy in this space. But then again, Wal-Mart has deep enough pockets to not wait until TESCO has discovered where the pitfalls in this strategy are.
Sam Walton would be proud that Mr. Scott is exploring the concept to stay in step with the competition, but I’m not so sure he’d go back into the small store business he came from.
Larger operators have tried the c-store thing…remember White Hen and Jewel? They’re simply two different business models. One of which, if you recall, Wal-Mart systematically destroyed–and not as a competitor, but as a replacement.
One thought…what’s the one retailer with about 10K SF in thousands of markets already? One that’s moving convenience like no other…Walgreens. They’re closer to Fresh & Easy than Wal-Mart and they’ve got a long way to go. Not to mention grocery, which has, for all practical purposes, become a neighborhood convenience format already.
How many different neighborhood convenience markets can we support?
How many competitive entrants in a limited channel would it take to screw in a light bulb? This is getting pretty crowded in terms of a very competitive channel for which there is sparse demand. I think this is attractive because it is “new.”
As mentioned earlier, Trader Joe’s and others are successful because they grew slowly and carefully. In the early days they selected sites that were low cost and they became a unique destination store. Tesco, Wal-Mart et al seem to want to create a neighborhood grocery store format, in new or expensive brick and mortar. Discount Pricing, high fixed costs and limited traffic is a recipe for failure. In the battle of ego vs. common sense, one should step back and face the reality that a limited assortment format may not appeal to a two earner household with time as a premium. What is available in the Tesco – Trader Joe’s – proposed Wal-Mart venture that is not available in a traditional Super Market?
By the way, isn’t the conventional Super Market ALSO conveniently located to the neighborhood? The Supermarket will also have the variety that is missing in the small format store, thus saving gas and time.
Most importantly, a small format store still has high fixed costs. Lease, Labor, and Utilities still need to be offset by dollar volume through the registers.
To the point of the question, Wal-Mart can enter the fray, but why would they? The whole concept is to make money and they do that very well in the channel in which they dominate.
Hmmm….
To paraphrase what I’ve read here: the answer to the question (should Wal-Mart stick to its core competency of large discount stores, or should it expand into smaller format “designer” outlets?) is “Yes;” and I agree…wholeheartedly.
Wal-Mart is a retailer. Limiting themselves to just certain footprints is a recipe for failure. Adjusting to consumer demand and changing formats to respond to different market pressures will enable Wal-Mart to first try, then identify, the different footprints which they should be appealing to.
Wal-Mart has never been about forcing one concept into all retail efforts, and they shouldn’t start now. From their start as a competitor to the Five and Dime stores, Wal-Mart has recognized that they need to be continually evolving to stay competitive. Once we have details on what this footprint will embrace, we can comment better, but for now, change is good.
The future of retailing is in segmenting the consumer. The article doesn’t give the necessary details to form an opinion and comment on the success of Wal-Mart’s new concept.
This much is clear to me: Tesco has an advantage by opening stores in California vs. Arizona. The density of the California market allows for segmenting and larger RTAs which will increase their opportunity for success.
My biggest reaction is “It’s about time.” Wal-Mart has known for years that Tesco was going to enter the US market with a smaller store, and could have learned from their ASDA experience.
Tesco’s UK and US stores are actually quiet similar–just the basic ~300 items consumers need on a regular basis, shelved using 100% Retail-Ready packaging, with easy to shop layouts, and located in a great location on the way home from work. Wal-Mart may struggle with the Retail-Ready approach as it means listing new items which could be cost-prohibitive for just a few stores.
Wal-Mart will, as they always do, invest in this new store format and test and test until they get it right. Tesco should expand F&E as fast as they can to new markets to secure market share before any real competition can catch up.
Wal-Mart tried this concept before and it was unsuccessful for a number of reasons, the first of which was it was NOT convenient. The convenience audience is drastically different than Wal-Mart’s big-box demographic. Convenience customers want fresh food and variety, but also want front-door parking, service in less than 3 or 4 minutes and value. Wal-Mart’s Neighborhood Market offered very little of that and certainly not enough to compete with the likes of Sheetz, Wawa and QuikTrip.
The second is location. The company’s stores are typically away from main roads and more of a destination for bulk purchases rather than convenience. Certainly, that strategy could change, but they will have their work cut out because the competition for great corners between c-stores, drug stores and fast-food restaurants is already fierce. Even now, they will be playing catch-up with Whole Foods, Trader Joe’s and the strong regional brands that have been filling the “convenience proposition” (good food, great location, fast service and value) for some time.
The variable here is Wal-Mart’s desire to succeed. They have the money and the resources to make sure they are successful. But will they grind it out and start flexing their muscles to grow this end of the business? In the end, I don’t see it as a core competency. They would be much wiser to try to acquire a company like Whole Foods or a strong regional convenience brand than to try to emulate them. That would be the biggest statement yet that they are serious about this business.
Both Fresh and Easy and Marketside are a new paradigm for the U.S., responding to the densification of the suburbs.
Wal-Mart has several advantages over Tesco. Initially, they have a must better understanding of their existing customer metric, and the demographic and sociographic properties of their target areas. They have the capability to actuate a successful neighborhood pod retail concept through sheer buying power and vendor relations as well as familiarity with top SKUs in their conventional grocery store, traditional Wal-Marts, and the Super Centers. Another rather basic factor is that Wal-Mart has the reputation of paying up for a site they want, and Tesco is attempting to drive extremely difficult rent and land lease deals with their 14,000 SF concept which we are seeing in Northern California.
I believe this will be Hollywood and Blockbuster all over again, and that both ops will share the identical niche. The fundamental problem with this vertical is that the presence of two in very close proximity does not drive additional synergistic sales; these are convenience stores, not comparison shopping stores.
I think this could work out well for Wal-Mart if done correctly.
I live in the Phoenix area and am a big fan of the new Tesco Fresh & Easy stores here. They are convenient, prices are great, and offer very good quality private label items. The locations are easy to access, parking is good, etc. The prepared foods are amazingly good, I find this as a similar reason to shop Trader Joe’s–you go there for certain items you can’t find anywhere else.
If Wal-Mart can use their price leverage as much as they can they should do fine, but I am not so sure if they will be able to create the quality unique products that Fresh & Easy has…why wouldn’t they have already?
Also, I have seen the 4 locations at which the new Marketside stores will be; they are all in similar demographics–middle/upper income fairly established suburban areas. Looks like that is more of their test target vs. Fresh & Easy which has gone in to a variety of demographics here.
Of course, there are a couple ways to look at Wal-Mart’s opening of the small format “MarketSide” stores later this year in Arizona. One of those ways is the impact it will have on Tesco’s Fresh & Easy stores, even if it takes Wal-Mart a considerable amount of time to get things “right.”
Fresh & Easy is basically a hybrid, small format grocery market. It’s going after at least two consumer segments at the same time, and under the same roof. These segments are the shopper looking for a limited assortment of basic private label and branded grocery products at a low price, and in an “easier to shop” store, along with the convenience-oriented prepared foods shopper. The jury is out on if this is a brilliant idea or if it will result in a format muddle, and hence fail.
On the basic grocery low-price side, Wal-Mart should have no trouble meeting (and beating if it chooses) Fresh & Easy’s low-price, basic grocery item model. On the prepared foods front, unless Wal-Mart really messes it up, they should be able to offer a prepared foods offering as good as Fresh & Easy’s. (Fresh & Easy’s prepared foods are better good at present; but they aren’t superior. About a B grade.)
Safeway also is entering the small store grocery market format later this year in Northern California, in the San Jose region in the Bay Area to start. Tesco has at least two leases already in the Bay Area, and plans at least 15 or so stores opened in NorCal this year. (They want as many as 50 by the end of 2009.)
So, Wal-Mart with “MarketSide” in Arizona to start, Safeway with its new small format stores on its home turf in Northern California to start. And, of course, does anybody really not think either Wal-Mart or Safeway (or both) aren’t looking to Southern California, where Tesco is putting it’s main focus? Both chains are looking hard in SC.
So, the big question at this point is what these two retailer developments means to Tesco’s Fresh & Easy. Tesco’s Fresh & Easy venture is eating lots of dollars at present: the low prices, start-up costs, etc. Imagine how many more of those dollars Tesco will have to eat when Wal-Mart and Safeway come on line. (This isn’t necessarily bad, but could result in lots more bleeding than Tesco anticipated.)
I wrote a piece about this new, small format competitive landscape yesterday at: http://www.naturalspecialtyfoodsmemo.blogspot.com
The piece goes into the issue more than I can here. But at this point in time I think the competitive issues vis-a-vis- Fresh & Easy are more key than if Wal-Mart can get it right.