Friday, November 21, 2008

Guest Analysis: Maggie Gilliam of Gilliam & Company On Wal-Mart's Marketside and Tesco's Fresh & Easy

Fresh & Easy Buzz Editor's Note:

As our regular readers know, Fresh & Easy Buzz has been covering the development and opening of Wal-Mart's new small-format (15,000 -to- 20,000 square feet) Marketside fresh food and grocery format and stores all year. [Click here and here to read a selection of those stories.] Wal-Mart opened its first four Marketside stores in the Phoenix, Arizona Metropolitan region cities of Chandler, Gilbert, Mesa and Tempe in early October, as we've reported on and written about extensively.

We've written often that although Wal-Mart's Marketside is in a very small way a response to Tesco's small-format, convenience-oriented Fresh & Easy Neighborhood Market fresh foods and grocery retailing venture in the Western U.S. states of California (Southern only at present), Nevada and Arizona, its much more than that -- it's a natural progression of the mega-retailer's multi-format U.S. food and grocery retailing strategy.

Wal-Mart, which recently became the number one seller of food and grocery products nationally in the U.S. in terms of total market share percentage, plans to be a 100% national food retailer in America, which means lots of stores of various formats that sell food and grocery products in every state in the nation. We call this Wal-Mart's multi-format national food retailing strategy.

The Bentonville, Arkansas-based retailer realized some years ago (and realized it even more clearly a couple years ago) that in order to achieve this goal and implement its national food retailing strategy, it would have to create various retail formats, other than putting a sole focus on just its mega-Supercenters, that sell food and grocery products. Marketside is in the main part of that strategy.

Wal-Mart did however speed-up the development of Marketside under the then leadership of former corporate director for business development David Wild based in part on the rapid number of Fresh & Easy stores Tesco was opening in the Phoenix, Arizona Metropolitan market region, which is one of Wal-Mart's key focuses for its multi-format food and grocery retailing strategy. Tesco currently has 26 Fresh & Easy markets in the Phoenix area.

Maggie Gilliam, the founder and principal of Gilliam & Co., a strategic consulting firm that specializes in the retailing and consumer products industries, recently visited three of the four Wal-Mart Marketside stores in the Phoenix Metro market, as well as paying a visit on the same trip to a Tesco Fresh & Easy store in the market. Ms. Gilliam, who in addition to operating her firm for the last 11 years, spent 30 years prior to that as a Wall Street securities analyst following and covering the retailing and related industries. She also publishes a monthly newsletter about retailing, The Gilliam Viewpoint.

Below is an analysis piece Ms. Gilliam wrote in her Blog on the Gilliam & Co. Web site on November 6, 2008. She makes a number of observations about Marketside (and Marketside vis-a-vis Fresh & Easy) in her piece that are similar to many we've made in Fresh & Easy Buzz. But she offers her own unique observations and analysis of Wal-Mart's Marketside stores, along with comparing and contrasting the Marketside fresh food and grocery markets she visited to the Tesco Fresh & Easy store she visited in that very same market.

Wal-Mart’s Marketside
By Maggie Gilliam
Gilliam & Company Business Advisors
November 6th, 2008

On November 4, 2008, we visited three of the four new Marketside experimental stores in the Phoenix area, in Gilbert, Chandler and Mesa.

The British press particularly tried to make out that these stores are Wal-Mart’s response to—or as sometimes put, in fear of—Tesco’s US expansion. In reality, Wal-Mart is always testing new ideas, both within the four walls of the existing Wal-Mart store formats and in experimental stores. Some new ideas never get very far off the ground, like an entirely vendor merchandised store and retail concepts offering: deep discount drugs, arts and crafts, closeouts, and home improvement merchandise. Others, however, like the Walmart Supercenter and Sam’s Club, evolve into major undertakings. Even they though require tweaking, and the Supercenter involved an experiment with Hypermart USA and five years of testing on the street before being rolled out.

Although the Supercenter’s success is history now, Wal-Mart’s management has long recognized that there was business to be had with smaller stores to fill the neighborhood voids not readily reached by Supercenters, hence the Neighborhood Market. Marketside fills a similar void, but it is half the size and doesn’t have a pharmacy.

We won’t hazard a guess about Marketside’s eventual role in Wal-Mart, but we liked the stores. They are not a bit like Tesco’s Fresh & Easy which wreaks efficiency and offers few amenities, with most of the fresh merchandise packaged in a central commissary. Marketside, on the other hand, is much more inviting and emphasizes fresh in almost a Whole Foods kind of way, with most of the produce loose in open bins and some even hand stacked.

The stores have sushi and a Peet’s coffee bar, along with a big variety of prepared foods. The Chandler store did not have liquor but it had applied for a license.

There is very little in the way of nonfoods, except what would normally be found in a grocery store.

The stores were not very busy, particularly the one in Chandler, which is not very visible from the street, and catty corner to a Safeway Lifestyle store, which looked beautiful, although we have been fearful from the get go that it might cause Safeway’s price image to suffer.

The Marketside stores are not identified with Wal-Mart, and virtually no advertising has been conducted. Also, the very compelling pricing was not being conveyed. Clearly, the experiment has only just begun.

Fresh & Easy must have close to 30 stores in the Phoenix area and we were only in one, in Chandler. It had a few more skus than we had seen previously, but it was out of stock on baked goods—early in the morning—and it had some produce in mesh, as opposed to plastic bags. Tesco has a problem here. Why the company ever opened a big DC before it had perfected the concept is a big mystery to us.

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