Can Walmart win small?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
The small-format Neighborhood Market has recently been Walmart’s star performer, showing a 5.5 percent comp jump in the recent third quarter, and is set for expansion.
Offering convenience and a more intimate shopping experience than a supercenter, Neighborhood Market is also enabling Walmart to reach smaller communities.
Although early stores (the first opened in 1998) were more like mini supercenters heavy on general merchandise and housewares, the newest iteration is much more like a traditional supermarket, with the emphasis on edibles — but without some of the bells and whistles you would see at other outlets. In addition to the usual shelf-stable, dairy and frozen items, Neighborhood Market offer fresh produce, fresh baked goods and service delis, all of which are targeted for improvement under a key initiative announced at an investor meeting last October.
"Our focus now is on optimizing this format … [including] improving the customer offer particularly in fresh and particularly around bakery, produce and deli," said Judith McKenna, who was recently promoted to COO.
A visit to a Neighborhood Market in Bentonville showed that the produce section looked good, perhaps due to increased application of the chain’s "Would I Buy It?" scale. But there was no in-store bakery — so no aroma of fresh-baked bread to attract consumers to the section — and an unexpectedly small service deli.
While the store was large and well maintained, the refrigerated and frozen sections packed the same top-10 brands in several categories you would find at your local Walmart supercenter.
Carrying similar assortments enables Neighborhood Market to leverage Walmart’s buying power and some observers think that’s fine, citing the old 80/20 rule.
But others believe assortments need to be greatly differentiated to local market tastes and shoppers’ needs. At the local supermarket, home-meal replacements, fill-in products like milk and bread, and fresh, perimeter items are more important; at a supercenter , where consumers go to stock up, it’s all about value sizes, pantry fillers and frozen foods.
"The variety at Neighborhood Markets should be wildly different from the commodity-focused stuff at a Walmart Supercenter so they can appeal to a slightly different consumer — not necessarily an upscale consumer but an aspirational consumer," says Minneapolis-based marketing strategist Craig Espelien. "But right now, I just see a slightly smaller assortment of what’s at a supercenter."
"The cookie-cutter approach to different markets just isn’t successful," agrees Nikki Baird, managing partner at RSR Research.
On the plus side, a large bank of grab-and-go prepared foods near the entrance of a new Denver store targeting the location’s heavy lunch-time crowd signalled progress toward more tailored assortments. Said Ms. Baird, "That tells me Walmart is paying attention to how consumers use the store, which is something I haven’t seen from it in the past."
Discussion Questions
Do assortments have to be “wildly different” at Neighborhood Market versus Walmart’s Supercenter format? In what ways does Neighborhood Market have to shift away from being a mini-supercenter that best leverages Walmart’s buying power?
While it is a big risk, Walmart needs to take Neighborhood Market back to being a low-price leader in the supermarket space, reducing the number of GM products and increasing variety in the grocery space. They need to improve the deli offerings and add both bakeries and pharmacies. The Supercenters are also doing better with food and drug offerings and Neighborhood Markets can leverage the buying power. Let Neighborhood Markets be the low-price leader for food and let all others continue to offer good prices and better service. Price will win!
The success of neighborhood stores has always been their ability to know their consumers well and make products those consumers want available to them. The challenge for Walmart is how to do that and still leverage buying power and have a highly efficient logistics operation. Their ability to use a highly-efficient inventory management and communication system will help. However, neighborhood stores push the boundary of balancing efficient with localized assortment. If they manage the paradox well, this could be highly effective for Walmart.
On the assortment question, ask Aldi, or Trader Joe’s or lots of convenience stores.
So if it’s a question of if Neighborhood Markets have to be “wildly different” from a Supercenter to be effective, the answer is clearly no, or at the very least, not necessarily.
Cookie cutters, after all, exist in part because they facilitate the production and distribution of cookies.
That said the question might be better put, “Would the Neighborhood Market concept be more effective if the stores were operated under a retail philosophy more akin to independent markets than a mega-chain?” And the answer to that question is probably yes.
The challenge to this approach is not whether or not Walmart has the corporate smarts to run small units, but rather whether their business model is flexible enough to tolerate disparate results from disparate formats.
In a world where analysts—and RetailWire contributors—judge and punish Walmart on the basis of comp sales, sales per store, labor productivity, sales per employee, sales per square foot, gross margin and all the other medieval retail accounting standards, it’s hard to understand both how Walmart is supposed to operate under a double performance standard and why these questions keep getting asked.
I’ve shopped (and actually purchased items) at the Neighborhood Market in eight different cities. Those stores have had similar merchandising plans, with some smaller exceptions. The stores represented housing stock around them from $200,000 to $2,000,000-plus.
Walmart was doing well in all of those locations. The stores have been consistently clean, very well stocked, produce looked very good and associates have been positive and helpful each time. At the same time, the stores offer the Walmart value, as well as convenient location advantages. Quality has been higher than Walmart Supercenters, but it is also equal to or better than many local grocers.
Little wonder that the Neighborhood Market is up an impressive 5.5 percent. If you haven’t shopped the stores, do so. You’ll be impressed.
First, don’t go looking at stores that are near a corporate headquarters to get an idea of what they are really like. It’s like looking at the model home in a low-income housing project. Of course that one will look good. It’s for show and tell. One of my good friends described Walmart Neighborhood Market perfectly, “a Food Lion and a Walgreens under one roof.”
No, the assortments don’t have to be “wildly different.” The purpose of the Neighborhood Market is to take pressure off of the Supercenters and to increase competitive square footage in order to drive competitors out of business.
Having visited and even shopped at several Neighborhood Markets, I was certainly satisfied that the basics of grocery needs were on hand at a good price. However, much of the attraction of Walmart to many shoppers is the mix of great prices with wide and deep departmental selection across the range of food, drug and mass categories.
With the Neighborhood Market, that attraction is missing. Consequently, Neighborhood Markets are currently positioned to be very much in line with other traditional supermarkets touting deals and specials that often match or beat Walmart’s EDLP pricing.
Certainly assortment and category breadth must be reduced in a down-sized version of Walmart. The key will be the ability to smartly offer the right combination of non-grocery and grocery categories, special sales, in-store technology and a convenience-driven layout. This will allow the Neighborhood Market to develop a more defined point of difference from other traditional supermarkets beyond just Walmart pricing.
In my view, they have not yet found that combination.
I can see a smaller store with a core assortment of most wanted products at lowest prices, but I can’t see a larger format that is not in a reasonable fashion tuned to the local market. All the years of consumer-driven statistics, localization, category management and consumer research can’t be wrong. Wildly different no, but well-tuned yes.
I don’t know. But I find the hyper limited nature of selections at Walmart’s Supercenters precludes me from having much interest in buying my food there (there is one 3/4 mile from where I live). Judicious shopping elsewhere allows me to still save money.
WRT the comment about localization, HEB aside, I don’t think that is so much the issue as is the provision of a broader range of products and specialty products. E.g., companies such as Walmart and Giant (Landover) have done SKU rationalization to drive price improvements. But WRT Giant, that means they stopped carrying a lot of specific products (e.g., Edy’s Cappuccino Chip frozen yogurt) that I really like. If I want to get those products, I must shop elsewhere, which I do, which reduces by at least once/month the number of times I shop at Giant. (Good thing they have the best price around, $2/package cheaper than Safeway, for turkey sausage, which keeps me coming back.)
The issue becomes why will people choose to shop at Neighborhood Market? Is it for cheap prices? Frankly, Walmart on produce gets beaten decisively by Aldi most of the time. For convenience? Or because they have a good range of items at good prices?
Walmart has a lot of capacity to do just about anything they put their mind to, but in a way it reminds me of Kmart in the early to mid 1980s when they created subchains like Designer Depot (their own version of TJMaxx), bought Borders, etc.
What they did with Designer Depot was make it look like Kmart, not TJMaxx. So there wasn’t much of a reason to buy there.
For all the talk of how experiential marketing is the rage for retail especially grocery shopping, there is nothing “fun” and exciting about shopping at Walmart. It makes shopping grim. If they want to succeed, they need to not extend that level of quality of experience to the Neighborhood Market banner.