Are Convenience Stores in Wal-Mart’s Future?

Discussion
Mar 05, 2007

By George Anderson

Back in August 2005, Wal-Mart’s CEO Lee Scott said that the company’s Asda division had been losing ground to Tesco in the U.K. because that chain had gone places and identified opportunities that its company had not.

At the time, Mr. Scott said, “A lot of Tesco’s growth has come from the small convenience chain. Andy (Bond, the chief executive of Asda) and his team have got to look and see where the opportunity is for us with that kind of space,” he said.

Well, coming up on 18 months later, Asda has still not developed a convenience store strategy. That makes it all the more strange that a number of reports have suggested that Wal-Mart has hired David Wild, a former international managing director of Tesco, for the expressed purpose of getting into the convenience store channel in the U.S. and cutting off the British chain before it becomes too strong here with its Fresh & Easy format.

While most believe Tesco will provide a challenge to retailers in America, many also suggest that it will be far from a cakewalk.

“I think there are a lot of problems with Tesco’s idea,” an unidentified executive told The Sunday Times. “The name for a start sounds like a chain of chicken ranches. More than that, you have to question if the supply base is there. Tesco is starting from scratch. People underestimate the differences between European and U.S. retailing. The density of the market, land costs, and the cultural and life-style differences are enormous. Nobody in the U.S. really buys ready meals now. Does Tesco think it can change that?”

With the amount of money the company is investing in the U.S., the answer would clearly appear to be yes.

Discussion Questions: How much of a competitive test does Tesco pose for Wal-Mart in the U.S.? Does David Wild’s addition to the Wal-Mart executive team mean the company is getting into the convenience store business? If it is, does it make sense that it would begin its test in the U.S. or the U.K. where Asda is losing ground to Tesco in part because of that chain’s convenience store business?

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17 Comments on "Are Convenience Stores in Wal-Mart’s Future?"


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Karin Miller
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Karin Miller
15 years 2 months ago

Just when I thought our market was completely saturated with convenience stores, Famima!! (a new division of a Japanese retailer), which has a bright, clean, non-sleazy, European look, is rolling out gourmet convenience stores throughout the LA area. They really are inviting and they demonstrate that there may be an opportunity to succeed with a more creative format.

There are also fast-food/convenience/grab and go store concepts in Europe that might succeed here also. I think that Wal-Mart would be most successful if they identified a need for convenience that is not being served.

Art Williams
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Art Williams
15 years 2 months ago

I think that it is inevitable that Wal-Mart will enter the c-store business–it’s more a question of when rather than if. As they continue to build superstores and neighborhood markets, they will reach a saturation point where they will have to enter other channels to continue to grow. I also believe they might do it in the U.S. first because that is where they have the best resources and available distribution facilities. It would be relatively easy to add c-stores to existing warehouses to test various concepts.

Mark Lilien
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15 years 2 months ago

Wal-Mart has the capital to build American convenience stores. But would that capital be put to better use elsewhere? Wal-Mart probably won’t really know until it tries some prototypes. Its biggest hurdle: what will the competitive moat be? If the moat isn’t effective, and the stores are successful, what will prevent the usual profit-draining copycat cycle?

Shaun Bossons
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Shaun Bossons
15 years 2 months ago
I think there are two discussion points here. First, there is certainly an opportunity for Wal-Mart to use smaller convenience stores as an opportunity to grow in the US geography (not to mention the UK), as there are only so many “big box” opportunities. Consumers are starting to move more toward convenience due to time pressures and the ability to conduct a total meal solution shop as category ranges become broader in smaller formats. The second point is Tesco’s potential in the US. How successful this will be can only be judged over time. However, it is certainly refreshing to see them enter the US region. Already the feedback I am hearing from US retailers, in relation to the mind-set change of “customer first,” is fantastic. Customer centricity has been discussed in the US for many, many years, however, over the last 12 months or so, we have started to see retailers executing these strategies. Tesco has proven what success this format of store and this consumer strategy approach can bring. With the correct investment… Read more »
Gene Hoffman
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Gene Hoffman
15 years 2 months ago

Wal-Mart is like a giant raging river that needs to find new tributaries to maintain its mighty flow or else flooding occurs and that river goes out of control. Convenience stores is one of its potential untapped tributaries in the U.S. and the mighty river will relentlessly seek it out. The hiring of David Wild indicates the water in the Bentonville Basin is bubbling.

Todd Belveal
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Todd Belveal
15 years 2 months ago

I think not, primarily for the reason that their focus has shifted squarely from how many stores to build and where, to what is in them, and justifiably so. Wal-Mart will also continue to be careful to avoid multi-channel strategies that draw trips away from the Supercenters, hindering the frequency model that drives their business. Also, the Neighborhood Markets never lived up to the hype, and don’t seem to have generated much excitement in Bentonville. Expect them to stay focused on the shopping experience this year.

Camille P. Schuster, Ph.D.
Guest
15 years 2 months ago

Tesco has been operating in the US market for at least a year testing ideas. Tesco is not just bringing their UK format over here with a cookie-cutter mentality. They seem to be acknowledging that they need to learn a lot about this market before expanding.

Offering fresh and upscale meals is considerably different than the hot dogs that have been rotating for hours, or packaged sandwiches. “Upscale” compared to the typical c-store offering is certainly not gourmet.

Wal-Mart has been testing the neighborhood concept for a number of years, has been rolling out the concept and is still trying to identify the best format.

Both Wal-Mart and Tesco will have the most competition from the local, non-chain small stores that have adapted to changing conditions and served their loyal customers well.

Charles P. Walsh
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Charles P. Walsh
15 years 2 months ago
The Neighborhood market concept was developed not so much as a small store concept unto itself but rather to tap into the “fill in” shopping needs of the Wal-Mart customer. Additional benefits were that the NM would take pressure off of the already over crowded Supercenters on the weekends and allow the company to tap dollars which were being spent by those who for convenience sake were shopping at other retailers for in-between shopping trip needs. It was a good concept at the time it was developed and launched but in effect, was a sort of “mini-me” for Wal-Mart. Initially, the stores had a much larger selection of GM, largish seasonal offerings and a smallish fresh section. Also the store size at 30-40,000 square feet was still pretty darn big. Over time the NM’s have been fine tuned to reduce GM, increase fresh and reduce seasonal offerings (other than candy). They still remain in my view a scaled down version of a supercenter however. The NM’s are not really convenient and are not tapping the… Read more »
Mike Daher
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Mike Daher
15 years 2 months ago

Two words. Neighborhood Market.

The Neighborhood Market concept is vastly underused. There is no reason why that platform could not be modified to fit various size “boxes” just as supercenters are.

The advantage to using the NM business model is that it would allow the company to tailor-fit the store to a size that will accommodate almost any “zoning restriction” cities or towns can think up. With creative merchandising the NM might be a terrific way to introduce Wal-Mart to downtown Metro areas as well.

(Imagine a few-thousand square-foot Neighborhood Market that would fit into the standard New York City storefront. Could have one on every block like Starbucks does!)

I’m just a retail enthusiast (Everybody needs a hobby right?) but I think there is a real opportunity to launch an existing platform with a few prototype storefronts and see if Wal-Mart can’t push Tesco back into the Atlantic.

David Livingston
Guest
15 years 2 months ago

As far as being a competitive test…I don’t think it will be much of one. If Tesco opens 100 stores doing $100k per week it would be the equivalent of about 5 average Wal-Mart Supercenters.

I think Wal-Mart should start with c-stores in the US, perhaps with an acquisition. Many Wal-Mart and Sam’s Clubs already offer fuel. Why not build a c-store to go with them? Albertsons and Meijer have already done so. If they can do it, then it should be child’s play for Wal-Mart.

George Anderson
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George Anderson
15 years 2 months ago

You would think that if Wal-Mart were to begin opening convenience stores it would be in the U.K. where. by Lee Scott’s own admission, the format is a clear competitive advantage for Tesco.

Don Van Zandt
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Don Van Zandt
15 years 2 months ago

Wal-Mart and convenience have never been synonyms to this point. They struggle with checkout times in current formats and “Fresh” would not be considered by most to be their forte.

The dynamic of reducing costs and making the profit based on volume, changes dramatically when you talk about c-stores. Wal-Mart will have to redefine margins and return on investment if they want to be a player in this market. If their Neighborhood Market division has not taken off because returns were so much higher from SuperCenters, then the returns on this will ensure the whole idea is stillborn unless that paradigm changes.

Ben Ball
Guest
15 years 2 months ago

The use of the “convenience store” moniker may be clouding our perspective a bit here. At least in terms of the U.S. definition, the Tesco Fresh & Easy concept is at least “one step up” toward being more of a (dare I say it?) neighborhood market. It appears to me like Wal-Mart is already testing a competitive concept here.

There is little question that a format somewhere between c-store and small grocery is going to be the next big thing. The real discussion is where on the scale of c-store to small grocery the winning concept is going to lie. What’s the right mix of dry grocery versus perishables? How much prepared meals is right? And how “prepared”? What’s the right mix of “prepared foods” versus “prepared meal”?

Who knows the right answer(s)–but this is going to be fun.

Bill Bishop
Guest
Bill Bishop
15 years 2 months ago

Tesco’s entrance into the U.S. represents a huge competitive test for Wal-Mart. After all, Wal-Mart hasn’t rolled over Tesco in the U.K., and it could be very embarrassing if Tesco enters the U.S. unchallenged by Wal-Mart. Remember, both of these global retailers go to market in a very similar way with a heavy focus on process, procurement, and logistics.

A lot of the competitive action is going to be in small stores in North America in the future. It really doesn’t matter whether we call them convenience stores, or what.

It’s pretty evident that if Wal-Mart is going to maintain a dominant store-network-driven strategy, they’ll need to figure out how to compete effectively in the small store arena, i.e., one level down from the neighborhood market.

Brian Jones
Guest
Brian Jones
15 years 2 months ago

I think c-stores are likely on Wal-Mart’s agenda…but do they have bigger priorities? I get the sense that they are under pressure in some international markets (just look at the debacle in Germany). And in the UK, they’ve done nothing about c-format stores even though it was identified and called out as an opportunity 18 months ago (and then did nothing about it).

Unless the Tesco F&E venture shows signs of really taking off in Arizona, I think Wal-Mart currently has more pressing priorities to address internationally.

Adding David Wild, who I remember from my Tesco days as a solid operator, is an interesting move but doesn’t confirm they’re out to torpedo Tesco. It could simply be they’re looking to fix some of their international challenges.

Nikki Baird
Guest
Nikki Baird
15 years 2 months ago

Tying in to the discussion last week on healthy eating, the thing I’m most interested to see is if Tesco keeps to the high percentage of “fresh” SKUs in their US formats. If you compare the contents of a 7-Eleven vs. a Tesco Express, they’re almost the complete reverse. 7-Eleven has one little refrigerated section with some grapes and apples, and Tesco has aisles and aisles of mango, pineapple, strawberries, carrots, etc.; all packaged for convenience, fresh, and ready to eat.

So while there is certainly going to be some competitive wrangling between Wal-Mart (who has to be feeling stung by the fact that international expansion has turned out to be harder than they thought) and Tesco, I’m most interested to see how Tesco brings that “fresh” concept to life–and if Wal-Mart and 7-Eleven respond in kind.

Bernie Slome
Guest
Bernie Slome
15 years 2 months ago

Wal-Mart doesn’t like to lose. It is probably very upset that another retailer took some share away from them. At some point, Wal-Mart either by building their own or by purchasing another company will get into the c-store business. It makes perfect sense.

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