Marketside: Wal-Mart's entry into convenience
Insight partner Dan Munford visited Wal-Mart's new Marketside format in Phoenix, Arizona last week.
Phoenix is Wal-Mart’s US test market and they have chosen this fast growing city to develop a number of new initiatives which appear to be closely related to Tesco’s Arizona market entry with Fresh & Easy.
Wal-Mart’s first move was to refit certain larger stores to give them a more upmarket feel and a stronger fresh food emphasis. Then on 4 October, Wal-Mart opened a brand new neighbourhood convenience format called “ Marketside” in four Phoenix suburbs: Tempe, Chandler, Gilbert and Mesa.
My first impression was that there are some similarities with Tesco Fresh & Easy. Wal-Mart and Tesco are both aiming at a similar number of openings over the next few years. Tesco is aiming for 800 Fresh & Easy stores by 2012 and, after a temporary pause over the summer, its US expansion appears to be back on track with 90-plus stores now open. Press speculation is for Wal-Mart Marketside to be aiming to open 1,000 stores in total. Like Tesco, Wal-Mart is also rumoured to be targeting California in the future.
Inside, there are other similarities too, namely the low-cost concrete flooring and the absence of suspended ceilings. There is also strong price messaging. This store, like Fresh & Easy, is intended to offer value as well as convenience and fresh products. I learnt that Marketside pricing strategy is set at 10-15% below traditional small grocery stores, even though it is not as cheap as Wal-Mart’s Supercentre format.
But in many other respects Wal-Mart’s retail strategy differs from Tesco. Despite the flooring, the Marketside format creates a different, less functional, first impression. It has a warm plum and kiwi green décor, well lit and loosely merchandised fruit and vegetables and a roaring open pizza oven, rotisserie and serve-over deli which catch the eye.
The store is clearly zoned into produce (the garden), deli & bakery (the kitchen), meat (butcher shop) and other sections. There are no self scanning units, just six standard checkouts. And, whereas Fresh & Easy is 50% own brand, Marketside focuses on selling major brands.
I've spent a lot of time in Fresh & Easy stores in Los Angeles and now Phoenix. For me the major difference between these two opponents is operational costs.
Whereas Marketside has 25 employees, many Fresh & Easy stores have a far leaner head count. They appear to aim for a total which is less than half that typical for stores of their size, with around nine or 10 members of staff.
Refreshed Fresh & Easy
Tesco's decision to go 100% self scanning probably lies at the heart of this difference. When I visited Fresh & Easy in January, staff were kept busy “training” customers how to use the checkouts. This was fairly demanding of staff time. However, at the stores I visited in Scottsdale, almost all shoppers appear quite confident in their ability to check themselves out and only one or two staff members are needed to keep an eye on things.
Fresh & Easy: fresh produce in trays
The Tesco model may also be more economical than Wal-Mart in terms of shop fitting costs. There is little retail theatre. The stores have low cost concrete floors with sealant and low-cost shelving. They feature pallet filling and retail ready packaging. All fresh produce is in trays for minimal handling and all fresh product is made in the Riverside production facility, reducing supply chain costs. This stark, low-cost business model has impressed a number of retailers who I’ve spent time with there. If Fresh & Easy can halve staff costs and halve store build costs it is a retail model well suited to recession.
Tesco Fresh & Easy has been one of the most commented upon new store formats of recent years. Tesco’s impact on the US market was probably overestimated initially. It is now commonly being underestimated. During the pause over the summer, Fresh & Easy made quite a few changes to the format based on conclusions from detailed shopper research. New look stores feature a new, warmer interior décor and a stronger price message. Based upon lower operational costs, Fresh & Easy is now concentrating on driving up store sales, offering $5 off when shoppers spend $10 or more.
A recent interview in the UK trade press saw Tesco reporting average store sales of $11 per sq ft, above the US average of $8.50. And latest new stores reportedly opening with sales of $13 per sq ft.
If this holds good then Wal-Mart has a real contender to deal with in its own back yard.