Wal-Mart Looks For Aldi-Buster Format

Discussion
Apr 28, 2010
George Anderson

By George Anderson

Wal-Mart benefited during the Great Recession as consumers traded down to its stores to buy everyday items at prices lower than where they had been shopping before. At the same time, it seems, some of Wal-Mart’s shoppers were following a similar pattern by going to smaller, limited-assortment grocery stores such as Aldi and Save-A-Lot to reduce their food bills.

Speculation, as laid out in a Wall Street Journal report, is Wal-Mart may be looking to open its own small box format(s) to recapture lost customers while bringing in other price-value shoppers.

The Journal pointed to comments made last month by Bill Simon, COO of Wal-Mart, who said the company was looking for “more-efficient formats” in metropolitan areas around the U.S.

South of the border, Walmart de Mexico has seen growth rates beyond the U.S. business by operating seven different formats. The current chief of Wal-Mart in the U.S., Eduardo Castro-Wright, used to run the Mexican business.

Opinions differ on the nature of the threat to Wal-Mart from Aldi and Save-A-Lot.

“Aldi literally ran Wal-Mart out of continental Europe, and now they’re taking the fight to Wal-Mart in the U.S.,” Burt Flickinger of Strategic Resource Group, told the Journal.

Gary Stibel of New England Consulting Group sees a different scenario. “While the challenge for Wal-Mart will be retaining the new customers they gained in the recession, that challenge will be even tougher for Aldi and the other hard discounters,” he said.

Discussion Question: Does Wal-Mart need a small box format to compete with the likes of Aldi and Save-A-Lot? Does it need other small box formats to address competition from convenience stores and newer competitors such as Fresh & Easy?

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27 Comments on "Wal-Mart Looks For Aldi-Buster Format"


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Carol Spieckerman
Guest
9 years 7 months ago

Yes, Walmart (and Home Depot, and Target and . . .)needs an urban mini-box and, as I’ve taken to pointing out lately in presentations, smaller urban formats are going to just start popping up without a lot of fanfare. Some will be stand-alone labs, others will be intended for roll out. One of the less-discussed reasons why Walgreens gobbled up Duane Reade is to jump start their urban planning and of course, they and Duane Reade are adding prepared meals, high-end cosmetics concepts, liquor and you-name-it to these stores. Aldi isn’t the only urban opportunist out there and Walmart and others need to get cracking.

Lee Peterson
Guest
9 years 7 months ago

Totally makes sense, and they’ve already learned a lot with Neighborhood Market, Super Mercado and even Marketside. A portfolio of formats is really the best way to get to all consumers in the U.S. and especially the urban markets (where Walmart is not). I’m sure the most affected segment, mid-market grocery stores, is quivering with anticipation.

Bob Phibbs
Guest
9 years 7 months ago

Are retailers banking on America becoming poorer? I believe yes in my blog post. It’s not Obama or China but a wholesale uncoupling of aspiration in retail which is a big mistake for those not riding a trend but making it a reality.

Dan Desmarais
Guest
Dan Desmarais
9 years 7 months ago

The lesson in Europe was a tough one for Walmart. They don’t want to go through that again.

ECW did a great job with the Mexican division and is going to bring some of his experience to the US. I’m surprised we haven’t seen a huge number of the micro stores already.

David Livingston
Guest
9 years 7 months ago
First, Fresh & Easy could only dream of being competition to anyone. As for Wal-Mart getting into the limited assortment business they would probably just undermine their existing stores. Aldi loves being in the parking lot of a Wal-Mart because Wal-Mart cannot compete on price and Aldi parasites from the traffic drawn. Save-A-Lot can’t compete with either Wal-Mart or Aldi and usually gets hammered by them. I really doubt that even Wal-Mart could get to Aldi level pricing. If they could do that, they would be doing it already and Aldi would not be so successful. Wal-Mart has tried the small store format but it seems to be a bust. So the answer is no. Wal-Mart has not been competitng with Aldi on price, probably because they can’t. Despite the hype in the press, I think Save-A-Lot is on its way out. Super Valu can’t even get one to work in Minneapolis, their home base. Maybe they just don’t want to undermine their higher price stores.
Dr. Stephen Needel
Guest
9 years 7 months ago

I think we need to separate the urban concept from the limited assortment off-brand Aldi type concept. Yes, Wal-Mart might benefit from an urban format that fits the smaller store footprint. But should they go to an Aldi-style assortment? Absolutely not. They learned in grocery that shoppers want a reasonable selection of products. If they do a limited-style non-urban format with low prices and off brands, they are only going to hurt their image.

Gene Detroyer
Guest
9 years 7 months ago

The Wall Street Journal must be running out of things to write about. “More efficient formats” for metropolitan areas does not mean “small box formats”. The Aldi and Sav-a-Lot business models are completely different than the Wal-Mart model. And, while companies should always be aware of changes in the marketplace and adapt, responding to every niche threat is operationally expensive and counter-productive.

Wal-Mart’s success in metropolitan areas will be in delivering “Wal-Mart”, not a distant cousin. Wal-Mart has much more to gain by making inroads with Wal-Mart, or even Sam’s, than taking their eye off the ball and delivering a little known Aldi alternative.

Wal-Mart has a dozen formats in the U.S. Each has a purpose. They will find an efficient format for metro areas.

Gene Hoffman
Guest
Gene Hoffman
9 years 7 months ago

What Wal-Mart needs – or doesn’t need – depends upon their sales objectives. Now that W-M has the largest SOM they are also the opertor most potentially vulnerable to have their food sales scavenged … and that’s what Aldi is trying to do.

Aldi is the new guy on the block. Based on their European model and success, they’re confident as they expand in America. Based on the convenience of their existing store locations to many W-M customers, Aldi gives those cost-conscious consumers in those environs a more accessible option for securing low priced groceries than does a most-distant huge W-M emporium. That’s life!

It always arrives — the point of diminishing returns. W-M must recognize that there now needs to be another broad sector for their sales expansion and focus on finding it rather than continuing to proliferate its food store formats.

Liz Crawford
Guest
9 years 7 months ago

I agree with Stephen, the urban concept should be separated from the small box. In many cases, these are different shoppers on different missions.

Of the two, an urban store would be the lower hanging fruit, because it is a need gap. Getting reasonably priced food in urban settings is a real challenge. I believe there would be a near-immediate audience, that wouldn’t have to be wrested away from a competitor.

X X
Guest
X X
9 years 7 months ago

Unfortunately, Wal-Mart already beats Save-A-Lot in head-to-head competition. In the last few years, SuperValu management (the parent company of Save-A-Lot) messed up a great concept. Too bad, because Save-A-Lot used to beat Wal-Mart and Aldi easily.

Aldi does very well against Wal-Mart and Save-A-Lot, and makes a lot of money doing it. Wal-Mart is very smart to develop a concept to compete in this space.

David Biernbaum
Guest
9 years 7 months ago

No retail company, including even Walmart, should try to be “all things/all formats” to all the people. Walmart doesn’t need to open small box formats like Aldi. Walmart just needs to be Walmart and do what Walmart does best.

Randy Friedlander
Guest
Randy Friedlander
9 years 7 months ago

Yes, Walmart’s goal should be to bring the Walmart offering to urban consumers, but that doesn’t mean it has to be one of Walmart’s existing prototypes. A lot depends on which segments of urban consumers they are targeting. Walmart as a brand may not appeal to affluent city dwellers, but certainly it should succeed with lower income groups. The merchandise mix of brand-name products, private label products, bulk items, fresh food, general merchandise, health and beauty aids, etc, will vary widely depending on locations and demographics.

Marketside has not succeeded partly because Walmart didn’t sufficiently identify its target consumers and determine what they need and want. They won’t make that mistake this time.

“Experience is the toughest teacher…the tests come first and the lessons afterward.”

Alina Popkova
Guest
Alina Popkova
9 years 7 months ago

An urban store format has been on WM’s radar for a while. The thing is that WM grew because of a suburban phenomenon and now the trend is slightly reversed where urban areas/big cities are seeing a resurgence. Therefore it is really a great growth opportunity for many retailers, not just WM. Maximizing the space in downtown areas will bring in shoppers who don’t drive, buy in small quantities and shop more often.

Great move, not just to beat the competition but to ensure the future for the retailer.

Marge Laney
Guest
9 years 7 months ago

I am usually a proponent of the “you can’t out Walmart Walmart, so don’t try,” but in this case I will have to give it to Aldi. They know who they are and who their customer is and they don’t seem to veer off their path in search of new conquests.

Walmart lost focus, again, during this recession and ran some of their core customers off in pursuit of the higher income consumer. And, again, this bit them. This head to head with Aldi won’t be a big problem for Aldi, but it will cost Walmart some of the gains they may have made with the higher-end customer.

As far as opening smaller format stores to wage the battle, I think it would be a costly move that could cannibalize their existing share from the larger stores and confuse their core customer even more.

Cathy Hotka
Guest
9 years 7 months ago

I’ll focus on the urban angle. We who live in cities have pricey full-service supermarkets in affluent areas, and tiny neighborhood convenience stores selling snack foods in poorer areas. Smaller format stores selling healthy, discounted food are unknown here. May the best company win!

Gordon Arnold
Guest
9 years 7 months ago
Wal-Mart, Home Depot and several others have addressed “now customer” needs with new products and categories as well as strong pricing reductions. These aggressive adjustments to the world economic depression will be obsolete and superseded by the age old big box stigmas that have never been successfully addressed. Getting the customer to what they want with the desired amount of service and letting them pay for it and be on their way quickly is still a problem for the big stores. Too many managers barking for this and that and not enough workers to get barked at is still the perceived problem. The reason for this continued perception is that ownership and management do not understand the rules of multitasking. Management feels that everyone must be prepared to do what it takes to make the customer happy and that is without them, management, knowing what it takes. Countless customers leave stores every day because they do not want to wait for a sales person, a checkout, or a product to be located and or loaded.… Read more »
Bill Emerson
Guest
Bill Emerson
9 years 7 months ago

Betting against WM is like betting against the Yankees–they don’t win every World Series, just more than anybody else.

My sense is that this is a big opportunity for WM. They will no doubt make some mistakes, but I wouldn’t bet against them over the long haul.

Jonathan Marek
Guest
9 years 7 months ago

Yeah, I wouldn’t bet against Walmart either. Tesco has shown that operating across a wide variety of formats can be very effective, even in a hyper-competitive retail market. With the operational and supply chain expertise that Walmart brings, and with the current cost of real estate, I’d say watch out.

Herb Sorensen
Guest
9 years 7 months ago
“The store as the communal pantry” is driving the small store movement–and urban is the point of the spear. In very poor countries, stores are the “communal pantry” because shoppers cannot afford to stock up–anything purchased is needed RIGHT NOW, or will be consumed right away. In the developed world, time pressure and convenience re-demand the similar small store. So immediacy and the communal pantry are two sides of the same coin. Put these together and you see the C-store leading the way, 30-40 years ago, and reaping high margins from hurried, price insensitive shoppers. (Note, too, that the pantry ALWAYS has a limited selection.) So everyone, drug stores, small format “supermarkets,” limited selection hard discounters, etc, are converging on the small, neighborhood store. Even the stock-up shopper focused supermarket does 1/3 of their business with the 1/2 of their own shoppers who buy only 1-5 items. Unless they learn how to serve all of their customers well, their businesses will continue to suffer in consequence of the suffering they inflict on that half of… Read more »
Anne Bieler
Guest
Anne Bieler
9 years 7 months ago

Walmart will continue to explore growth options – the recession has changed the shoppers’ value proposition for a long time to come.
Shoppers have become thoughtful, savvy, and frugal – and when they looked carefully at some categories Aldi won. The needs of urban shoppers across regions and income levels are new territory for big box formats – and ripe for new business models. At the end of the day, value and quality must be consisitently delivered for local, urban shoppers – who will want and expect different things.

James Tenser
Guest
9 years 7 months ago

Simply put, Walmart needs massive additional growth vehicles for the U.S. market in order to meet shareholder expectation. It is already over-stored in most suburban areas and it can’t grow same-store sales fast enough in the new, downscale economy.

Ultra-low-cost box stores are one possibility to add rapidly to the top line. Rolling up a batch of convenience chains or buying a drugstore chain outright may be other options, especially for urban centers. But adding deep-discount formats will inevitably cannibalize the core business and add layer upon layer of operational and strategic complexity.

It’s tough to be number one, sometimes.

Jack Pansegrau
Guest
Jack Pansegrau
9 years 7 months ago

I agree with Stephen, a separate urban concept for Walmart would permit penetration of the dense metros, currently without either a Walmart or any fairly-priced daily needs products or department store-type merchandise. If Walmart can roll out an urban format to supply a reasonable array of branded daily needs, combined with their “site-to-store” providing free shipping for DTSM,the streets of central Manhattan and Chicago will be clogged with Walmart’s fleet of energy-efficient trucks resupplying their stores and delivering a wide array of the merchandise, including high-end merchandise available from Walmart online like a Nikon D700-SLR, a Garmin’s Oregon 550T and a La Pavoni Espresso Machines. Good luck to Aldi, Save-A-Lot and Walgreens trying to deliver these goods…

As far as attempting a limited assortment small format for non-urban markets to compete with Aldi and Save-A-Lot – no way Walmart needs to compete! If a Superstore is too large, Walmart can always open a traditional Walmart with expanded food or shift to a Neighborhood Market or even a Marketside.

Bill Cross
Guest
Bill Cross
9 years 7 months ago

Did you guys just wake up? Wal-Mart has been experimenting with “small footprint” stores, so far without much success. But they’re not alone, since many of the others who’ve tried this have failed or at least come up short (e.g., Tesco’s “Fresh & Easy”). Comparisons to Europe aren’t very helpful, since the economies, social outlook and buying patterns are so different. Europeans shop more often than Americans, and private label has always had a larger share of the business there.

Our advice is always “never bet against the Bentonville Behemoth.”

Ed Rosenbaum
Guest
9 years 7 months ago

Doesn’t this sound a lot like Best Buy and RadioShack talking about merging so Best Buy can penetrate their market as well as use a smaller footprint, with lower operational costs, to grab a larger piece of the market share? We spoke and read of this in the last two weeks.

I am not going to question Wal-Mart’s method only to say they have been right for a long time in selecting the markets they want to serve.

Are we watching the beginning of a trend in the market place with big box retailers looking for and getting more market penetration with smaller footprints? It is starting to look that way.

Adolph Menjou
Guest
Adolph Menjou
9 years 7 months ago

Ironically, Aldi has done to Walmart what Walmart did to Kroger, Ingles, Publix and the Mom and Pop downtown retail outlets. Anybody who has shopped at Aldi has got to admire their value-based business model. It’s helping to keep giants like Walmart more competitive. Aldi can keep expanding for a long time in the US, and I don’t see Walmart competing successfully with this segment.

Dushyant Kumar
Guest
Dushyant Kumar
9 years 7 months ago

I don’t think so that Walmart would be diversifying into smaller formats of mom and pop grocery stores. The simple reason is that Walmart and others like them operate on the scale of economies viz volumes. By investing in the smaller formats, they would be splitting their existing consumer base into different segments. I feel the increment in the consumer base would be unsubstantiated viz the incremental cost of operating the smaller formats. Walmart shouldn’t really be making the mistakes that they did outside the US market, and instead concentrate on their core competency which is hyper and mega hyper formats.

Michael Beesom
Guest
Michael Beesom
9 years 7 months ago
Urban and small-format are two very different things, as another poster pointed out. Sure, in high density urban areas and urban format usually means a smaller box – but it need not. A good example is what Safeway and Whole Foods have done in San Francisco – a mix of two story, with parking on top, larger stores, along with some smaller stores. Whole Foods has a 50K sq. ft. store in SF’s Potrero Hill neighborhood because not only was there room for it, but because it makes sense as a destination market there. On the other hand, it opened late last year a 14K sq. ft. store (old Kroger-owned Bell Market site) in SF’s Noe Valley neighborhood. There’s no room for anything bigger in the neighborhood – and anything much bigger in room would face resident opposition. So, key to an urban strategy is flexibility. The 14K Whole Foods is a complete market – but it doesn’t have all the bells and whistles of the 50K Potrero Hill store. Safeway has done similar. And… Read more »
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