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2007-08-29
Phoenix, AZ. British Grocer Forces Wal-Mart To Think Small

The British are coming! Strategists at Wal-Mart's Bentonville, Arkansas home office are casting about trying to figure out how to respond to a major new invasion of small, neighborhood grocery stores that are targeted to middle class Americans who want ready-made, nutritious meals that don't resemble a double-cheeseburger. Wal-Mart admitted this week that it is planning "multi-format strategies," adding new store sizes and formats, in the same week that England's #1 supermarket chain, Tesco, stepped up its visibility for a line of stores called Fresh & Easy, which may open as soon as November, 2007. Wal-Mart has had 4 basic store types for years (supercenter, discount, Sam's, Neighborhood Market) but has focused most of its capital on replacing discount stores with the more profitable supercenters. Since the mid 1990s, Wal-Mart has closed or expanded 1,000 discount stores, in favor of the much larger supercenter. But Wal-Mart has over-saturated its American markets, building supercenters within 3 or 4 miles of one another, thus cannibalizing its own sales per square foot. Same stores sales at Wal-Mart recently grew by less than 2%, compared to annual double digit increases in the 1980s. "Big box fatigue" is a term that will haunt Wal-Mart increasingly, as more and more consumers grow weary of navigating the huge, confusing stores for a few items. Tesco has announced that it will open as many as 100 stores in Arizona, Nevada and California. "We think that high-quality foods should be accessible and affordable in every neighborhood," Fresh & Easy's website says. "And with clear aisles and simple store layouts, we'll be making it easy for you to find all the products you need with all the clutter you don't." Fresh & Easy markets will be roughly 25% the size of Wal-Mart's smallest format -- the Neighborhood Market -- which has not been widely rolled out by the giant retailer. Neighborhood Markets first appeared in 2001, when the company built 19 Neighborhood Markets, in the very safe territory of Arkansas (5), Oklahoma (8) and Texas (6). But six years later, there are only 112 Neighborhood Markets in America, still a small, isolated experiment. The Tesco stores, at 10,000 s.f., "will be easily accessible and offer everything from everyday staples to gourmet items. Lots of fresh and delicious food choices, including pre-prepared and organic foods, will make healthy eating convenient and affordable." According to The Economist, Tesco's grocery launch in America was conducted with all the secrecy of a Homeland Security operation. A "mock store" operation was set up in Santa Monica, California inside a warehouse, and the public was told it was just a film set. Officials from the British firm were "embedded" with 60 American families for a couple of weeks, so they could see how we live and eat. The new format could be just the thing to cure "big box fatigue."


What you can do: These new Fresh & Easy stores are being described as the "Anti-Wal-Mart" concept: smaller footprint, with lots of ready-to-eat meals and fresh produce in localities that have few, or no, supermarket and grocery store chains. Tesco is the 3rd largest grocery chain in the world, behind the French Carrefour (#2) and Wal-Mart (#1). Compared to Wal-Mart, Tesco is hardly analogous to the Beatles invasion which ate the lunch of 1960s U.S. rock 'n rollers. Tesco has just under 2,000 stores in the U.K. compared to Wal-Mart's 4,068 stores in the U.S., and the Tesco's net profits of $3.6 billion are only one-third of the profits at Wal-Mart. Tesco wrings out more profits from its sales than Wal-Mart, however. The British firm's net profits are 4.1% of revenues, while Wal-Mart's profits are 3.3% of revenues. Tesco plans to brand itself as an environmentally-friendly company, which will treat its workers better than Wal-Mart. But most importantly, the "small is beautiful" Tesco strategy must have Wal-Mart's strategists worried, because the giant retailer has put most of its growth investment into the ever-expanding supercenters, and finding 20+ acres of land is becoming harder and harder a challenge. About three weeks ago, Wal-Mart opened one of its newest supercenters on Route 34 in Oswego, Illinois. It is emblematic of Wal-Mart 'bigger is better' philosophy. The store measures in at 205,262 square feet. Wal-Mart described its new store as "a nice fit for the community." But Tesco could fit 20 of its Fresh & Easy stores into the Oswego supercenter. More and more consumers will be determining whether a store three and a half times the size of a football field is really a "nice fit." Tesco's experiment in the United States could be the consumer climate change that signals the end of Wal-Mart's supercenter dinosaur.










 
 
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