GHQ Cover Story 08/05: The Target at the Top
By George Anderson
Through special arrangement with Grocery Headquarters magazine, we present these opportunities to discuss the subjects of GHQ’s monthly cover stories.
Is Wal-Mart vulnerable? Will we begin to see grocery stores recapturing market share previously
lost to the world’s largest retailer?
Wishful thinking, perhaps, but as Grocery Headquarters‘ August 2005 cover story, The Target at the Top, tells it, “There is a growing feeling among some grocery operators that if they develop a good merchandising and marketing strategy they can turn the tables on the giant retailer that has been grabbing market share from them for nearly a generation.”
Beating Wal-Mart in the competition for shopper dollars comes down, say experts, to delivering where Lee Scott and company are weak — product assortment, customer service and the shopping experience.
An unidentified food sales and marketing agency (food broker) representative operating in the southern U.S. told GHQ, “Wal-Mart will be its own worst enemy. They’re saturating the market. They’re on every corner. They lack service; especially in perishables, the service is terrible. Pricewise, on hardcore groceries, you cannot beat them, but on customer service they are poor.”
While most who have tried to compete on price have failed, some operators such as Aldi and dollar stores have found ways to attract the price-sensitive shoppers who make up the core customer group at Wal-Mart.
The sales representative noted that consumers, such as his wife, are going to dollar stores to buy certain categories of goods they see as more affordable than what Wal-Mart sells. “Dollar General is Wal-Mart’s biggest competitor coming up,” he says. “They are like Wal-Mart in years past. They are small establishments and just carry the staples, but they are much cheaper,” he said.
Candace Corlett, a principal in WSL Strategic Retail, agrees dollar stores are a threat. “One can’t overlook the growing presence of food in Family Dollar and Dollar General,” she said. “I am blown away by the aisles of food and the national brands presented in Family Dollar now.”
Even with the apparent chinks in its armor, the rep pointed out the enormity of the task for any company looking to displace Wal-Mart in this part of the country. “Most of the people down here worship Wal-Mart,” he said. “On Sunday they’ll go to Wal-Mart, go to church, then go back to Wal-Mart. It’s that kind of mentality.”
Wal-Mart is not blind to its own areas of weakness and the retailer has begun to make changes. For example, Wal-Mart is upgrading product quality in categories such as household goods and apparel in an attempt to get more affluent bargain hunters who typically buy “center store” goods at its stores to also purchase items from higher margin departments. Some wonder, however, if by going more upscale, Wal-Mart may distance itself from its core consumer.
“Wal-Mart has realized their vulnerability by having such a single-minded focus on low-income shoppers. I think they are going to stumble terribly as they launch more upscale brands because, for all of the consultants they are hiring, they don’t have the passion for merchandising–and that’s cultural.”
Moderator’s Comment: Have grocery retailers as the Grocery Headquarters‘ article suggests, found ways to “turn the tables” on Wal-Mart? What will
Wal-Mart’s strategic response be to the competitors who are looking to push it from its perch on the top of the retailing mountain?
– George Anderson – Moderator
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10 Comments on "GHQ Cover Story 08/05: The Target at the Top"
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There was an interesting thought regarding the consolidation of grocery retailing. Will bigger be better? Sure, in terms of logistics and efficiencies…but not so in terms of feeling, being, and acting local. The national grocery chains have virtually abandoned that sense of community their businesses were built on…except for those that are succeeding. Whole Foods has built their own community and HEB is linked forever with theirs. Will Albertson’s and Kroger ever learn?
As for whether it will work or not, let’s watch as Federated and Macy’s rolls across the country on former May Co. stores. We may just find that national grocery and department formats are both ‘dinostores,’ no matter how much window dressing you put on them.
Although WM sells more groceries than anyone, many industry sources would opine that they are not grocers. WM is shelving, and their current objective is to run shoppers by as many feet of shelving as possible, selling whatever they can. Food is very personal and intimate. It’s also romantic and social, from purchase to consumption. So, what’s personal, intimate, romantic, and social about WM? Nada.
WM will always be around selling their Chinese imports. They’re a major player in a global economy and a significant contributor to this country’s global business presence. Thanks, WM. But, they’re clearly supply-oriented rather than merchant-oriented. As regional grocers get past the panic stage and realize this truth, they’ll crank up the personal, intimate, romantic, and social elements of their businesses — the stuff that got them to where they are today — and continue being successful grocer merchants.
I disagree that Wal-Mart has saturated the market. They have so many more places to go with both their large and small supercenter formats. I also expect to see more Neighborhood Market format opportunities as conventional chains like Winn-Dixie and A&P continue to downsize.
Personally, I don’t see any established chains coming up with any effective new ideas on how to battle Wal-Mart. Those who have held their own and grown were already winners before Sam Walton’s hair turned grey. The only new ideas I have seen are only recycled ideas from the past that look good on paper but are never executed with success.
I also don’t see the dollars stores as much of a threat to Wal-Mart. The sales these dollar stores do in a week, Wal-Mart turns in a couple of hours. Obviously Wal-Mart cannot be all things to all people. But they have such a big lead that, even if they blink or look back, there is no one else in sight.
Wal-Mart may be more in danger from trying to move its product and customer focus upscale than from other retailers. How many times have we seen a large company unsuccessfully react to a threat by changing focus? This may be why so few business achieve the success they saw under their founder when new management takes over.
Wal-Mart can take on anyone in the world when it comes to operational efficiency and price to consumers. They should focus on this and not try to become something they aren’t.
I am willing to pay more to shop in a pleasant environment and have fresh produce. I cannot imagine a scenario in which Wal-Mart could get my business.
I am not an expert on logistics and distribution, but it seems as though there should be a way for the smaller chain stores and independent operations to combine efforts to minimize cost. I hope it is possible. Time is of the essence.
Anyone who’s at the top is the target. But retailers are starting to see the chinks in Wal-Mart’s armor. They are realizing that this is not an invincible force and that they don’t have to suffer Wal-Mart’s slings and arrows.
Wal-Mart is an outstanding operator in many respects. But they are still not expanding into other formats fast enough. They can’t do the supercenter forever. They need the Neighborhood Market — and variations on it. And why hasn’t the company gotten into the convenience store business?
However, the rest of retailing can’t just sit back and wait for Wal-Mart to fall on its face. You need to focus on your own creativity — to create in-store events and interest that will make customers realize they have more to offer than just a few cents off on commodities.