The supermarket industry trade publication Supermarket News reports in a brief item this morning that a Wal-Mart, Inc. spokesperson told the publication on Friday that its initial four Marketside small-format communtiy grocery stores set to open this fall in the Phoenix, Arizona Metropolitan region are part of "a small-scale pilot, and we have no plans [for the format] beyond a handful of stores."
The comment from the Wal-Mart spokesperson came in response to a report published in the Financial Times that quoted the Marketside website as saying the company expected to start with 10 stores and evolve to between 1,000 and 1,500 locations with more than $10 billion in annual sales," according to the Supermarket News report this morning.
As we've written all along since first reporting last year on Wal-Mart Inc.'s development of the 15,000 -to 20,000 square foot Marketside format stores--which will feature in-store fresh, prepared foods, fresh produce, fresh meats and a selection of basic, specialty and natural food and grocery products--Wal-Mart plans are to open an initial handful of the Marketside stores, see how they perform, and then move forward with additional stores slowly and carefully, unike Tesco with its Fresh & Easy grocery markets, which is taking a rapid new store opening approach, having thus far opened 68 of the combination fresh foods and basic grocery markets in Southern California, Nevada and Arizona in a 10 month period, with many more new stores on the way.
This strategy is for what to us are obvious reasons. First, Wal-Mart already is the number one food and grocery retailer in the U.S., with thousands of stores under four formats--Supercenters, Sam's Club warehouse-style club stores, Wal-Mart Neighborhood Market supermarkets and Wal-Mart general merchandise discount stores.
The discount stores, which sell a limited assortment of perishable and dry grocery products (but no fresh meats or produce) are the only one of these four Wal-Mart formats that don't feature a combination of both fresh foods and grocery items in them. Therefore, for Wal-Mart, Marketside is merely a fifth format in its multi-format U.S. strategy, albeit a very different one, and one that like its 45,000 square foot Neighborhood Market supermarkets focuses esclusively on food and grocery sales.
A tale of two (different) strategies: Tesco and Wal-Mart
On the other hand, Tesco's current strategy in the U.S. is a single small-format food and grocery retailing one, with its 10,000 -to- 13,000 square foot Fresh & Easy Neighborhood Market combination basic grocery, fresh, prepared and specialty foods convenience-oriented grocery stores. As such, Tesco's plans is to open hundreds of the Fresh & Easy markets over the next few years, primarily in the Western U.S. but also potentially elsewhere in the country, in order to create a "critical mass" of neighborhood grocery stores primarily in suburban but also in urban neighborhoods.
Additionally, except for the similarity of the Fresh & Easy and Marketside stores (small-format, combination fresh foods and groceries and the like) the strategies of the two mega-international retailers couldn't be more different in terms of format-focus, strategy and tactics in the U.S.
Marketside: More than a test
However, we also know Wal-Mart's strategy and plans for Marketside are far more ambitious than merely opening the four Arizona stores and then sitting back for some time and evaluating their performance before looking for other store sites in other states and market regions.
For example, we've reported that Wal-Mart is taking to a commercial developer in Reno, Nevada about putting a Marketside in a new urban mixed-use retail and residential development in that city. [Read the story: Is A Wal-Mart 'Marketside' Small-Format Grocery and Fresh Foods Store Coming to Reno, Nevada?]
We've also reported (May 18, 2008) Wal-Mart has been talking to commercial real estate people about various potential Marketside store locations throughout California. [See that story here: Wal-Mart Looking For Sites in California For it's Small-Format 'Marketside' Grocery Stores.]
In fact, Fresh & Easy Buzz was told long ago by a source who was in a position to know first hand about Wal-Mart's Marketside plans, that as early as late last year the marketside development team led by David Wild, who recently left Wal-Mart, Inc. to take the CEO position at British car parts and bicycle company Helfords PLC, that strategic plans called for locating Marketside stores in the San Francisco Bay Area, including more than one location in the city of San Francisco.
Wal-Mart only has a few Supercenters in the nine-county San Francisco Bay Area, which has a population of nearly 7 million people, and is one of the most food-oriented regions in America. Wal-Mart has wanted a stronger food and grocery retailing presence in the Bay Area for years, but has been unable to get approvals for most of the Supercenters its proposed in the region's city's because of opposition by many of the citys and numerous consumer and neighborhood groups to having the mega-Supercenters in their communities.
Our source told us Wal-Mart was looking to Marketside as a way to increase its food and grocery sales market share in the Bay Area by locating the small-format, more upscale stores in city's throughout the region. The argument goes that it would be rather difficult for city's and community groups to use the same arguments they've used in opposition to the Supercenters--too big, bad for the environment, ect.--against Wal-Mart's proposals to build and open the small-format Marketside stores in the region. Wal-Mart also isn't calling the stores "Wal-Mart" Marketside in part for that very reason.
The Marketside development team led by David Wild did its work in fact out of the San Francisco Bay Area, where Wal-Mart operates its Wal-Mart.com online business from. Wild also lived in the San Francisco area even though he had the title of corporate vice president for new business development. Nearly all Wal-mart corporate officers work out of headquarters in Bentonville, Arkansas.
Commercial real estate sources in the Bay Area also have told Fresh & Easy Buzz about conversations they've had with members of the Marketside development team in the past regarding store locations in the Bay Area, including in the city of San Francisco, as we've reported previously.
The emphasis on in-store fresh, prepared foods for Marketside in fact was greatly influenced by David Wild's touring numerous San Francisco Bay Area grocers that are famous for quality in-store fresh, prepared foods merchandising, including Draeger's (3 stores), Andronicos (8 stores), Mollie Stone (9 stores), Whole Foods Market (about 25 Bay Area stores), and a number of others.
Southern California also is on Wal-Mart's radar for Marketside. based on source information we know that Wal-Mart representatives have had discussions with real estate agents and developers about numerous potential sites in Southern California, including a site in downtown San Diego's popular Gaslamp district which the retailer may be close to signing a lease on.
Therefore, based on our reporting and source information, we suggest Wal-Mart's strategy and plans for Marketside are neither the ambitious 1,500 stores and $10 billion in annual sales scenario reported in the Financial Times, although such long range plans have been discussed by the Marketside development team when it was headed up by David Wild, nor the tiny mere four store test the Wal-Mart sopkesperson told Supermarket News is the case in its report this morning. (We aren't criticizing Supermarket News. It is reporting what it was told by the spokesperson.)
At a June 6, 2008 press conference held by Wal-Mart's CEO for U.S. operations (in conjunctions with the company's annual meeting) Eduardo Castro Wright, a Fresh & Easy Buzz correspondent asked Mr. Wright about the retailer's expansion plans, including in California, for Marketside. He neither confirmed such plans nor denied them.
However, he made it clear in a number of ways during the press conference, and when he spoke earlier about Marketside at Wal-Mart's annual meeting prior to the press conference, that the retailer's plans for Marketside went far beyond a mere four store test. [Read the June 6 report, "Wal-Mart USA Chief Eduardo Castro-Wright Confirms Fresh & Easy Buzz Reportage on 'Marketside,' Adds Information From the WM Corporate Side.]
Further, Fresh & Easy Buzz has talked with a person who interviewed for a position at Wal-Mart's new Marketside corporate offices in the Phoenix, Arizona region. That person was told by a Wal-Mart executive that the retailer has plans to open Marketside stores far beyond the Arizona market, including in California and numerous other U.S. states. The strategy was described to this person as a combination "fill-in" and upscale retailing (with a fresh, prepared foods emphasis) focus for the company.
In the piece linked above, Eduardo Castro Wright uses this same term, "fill-in," meaning the retailer is positioning the Marketside stores in markets like Arizona for "fill-in" rather than primary food and grocery shopping, meaning it hopes consumers shop its Arizona Wal-Mart Supercenters for major purchases and Neighborhood Market supermarkets and Marketside stores to "fill-in" their shopping after doing the primary at the Supercenters.
The upscale focus refers to using the Marketside stores as a way of attracting higher income and more quality food-oriented shoppers, which is a market Wal-Mart hasn't tapped into with any of its formats. These are shoppers who primarily shop Whole Foods Market and other more upscale regional food retailers' stores. In Arizona this includes Bashas-owned AJ's Fine Foods, Sprouts Farmers Market, Safeway's Lifestyle format stores, Tesco's Fresh & Easy (its fresh, prepared foods and organic groceries sides of the business) and Trader Joe's, for example.
Based on all of our reporting and sources, we can say Wal-Mart's plans at present for Marketside aren't to open 100 or more stores a year to achieve that 1,500 store, $10 billion a year sales number anytime soon, like the report in the Financial Times suggests is the case. But, such a strategy (those figures) wasn't put on the Marketside website as a joke by a hacker either.
Conversly, Wal-Part's strategic plans for Marketside also aren't the mere test-oriented strategy the Wal-Mart spokesperson told Supermarket News is the case.
Lowering expectations almost always best
Unlike Tesco's Fresh & Easy, which used a public relations strategy to create a huge buzz about its Fresh & Easy stores prior to the first store opening, Wal-Mart is taking the complete opposite approach, playing down the Marketside development as a test in order to keep expectations low. It takes digging and reporting to learn what we have thus far about Marketside.
As all political and corporate image masters know (well, should know), managing media and consumer (or voter) expectations is key. And creating lowered expectations, especially for something or someone new to the scene like a small-format groery store from a retailer known for big boxes, almost always is the smartest strategy in business as well as in politics.
Tesco set the bar too high with its pre Fresh & Easy PR campaign. As a result, the mainstream media played it up like it was the second coming of food and groery retailing in America. Once this expectation was set, it has resulted in every negative aspect of Tesco's Fresh & Easy's operations being focused on more so than had Tesco set expectations lower with its public relations efforts like Wal-Mart is doing with Marketside.
Sometimes a retailer, business or politician can be the victim of its own publicity blitz, ezpecially when the expectations game isn't properly maanged or not managed at all. Our analysis is that Tesco did this with its Fresh & Easy campaign (the British Invasion headlines and such). Wal-Mart is making sure to avoid this with Marketside.
By doing so, Wal-Mart is giving the company more room to fail and then course correct with Marketside. This is a good idea since the retailer's culture isn't historically one that is known for either small-format, specialty-oriented or in-store fresh, prepared foods merchandising, despite the fact its done lots of preparation for its Marketside format launch.
Wal-Mart has zero reasons to play-up Marketside--and many reasons to low-key the small-format development. But don't mistake the brawny big-box (and soon to be small-box too) retailer's low-key approach to Marketside for a mere four store test, that if it doesn't work Wal-Mart plans to just close the stores and move on to something else.
The retailer has put lots of research and development into Marketside, including bringing in executives like David Wild--who spent many years working for Tesco in the UK and elsewhere in Europe, and was involved in its initial small-format Tesco Express store development--along with the hiring Jack Sinclair in January of this year as executive vice president of grocery merchandise for Wal-Mart USA. Wild has left but was ready to move onto other new business development tasks before leaving anyway.
Mr. Sinclair spent his entire food retailing career before joining Wal-Mart this year in the United Kingdom (UK), first for many years with Tesco PLC, and then for 14 years before that with the former British Safeway chain, which was acquired last year by Morrisons, the UK's fourth largest supermarket chain. To paraphrase the popular culture saying: 'Jack' (Sinclair) knows small-format food and grocery retailing, along with knowing Tesco and it's brands of small-format, convenience-oriented food retailing, according to those who've worked with him or know him.
He has been involved in the Marketside small-format store process along with his other duties since joining Wal-Mart in January, especially since the new business development team formerly headed by David Wild turned over Marketside to the Wal-Mart operations and grocery merchandising team a couple months ago as the retailer prepares to open the first four stores this fall in the Phoenix, Arizona Metropolitan region.
Wal-Mart may be being low-key with Marketside, but it's a top corporate priority. Similar to what the retailer has done with its Neighborhood Market supermarket format, which has undergone slow but steady expansion, and the expansion of which Wal-Mart has recently been kicking up a couple notches, so too does it plan to grow and evolve Marketside rather than look at it as a mere hit or miss test.
Again, the key fact to remember is that for Wal-Mart, Marketside is a part of its national multi-format food and grocery retailing strategy with its Supercenters, Sam' Club stores and Wal-Mart Neighborhood Market supermarket format. Understanding that fact is central to observing and understanding Marketside as it developes after the first four stores open in Arizona this fall.
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