It has taken Tesco to shake Wal-Mart into action in the US but with the country’s largest retailer planning to open its own local, small-format stores, it will be a testing time across the Atlantic for the UK retailer. Dean Best reports on why convenience could play a key role in shaping the US grocery landscape.
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Tesco’s US adventure has suddenly become a bit more serious.
Just a couple of months after the UK retailer opened its first Fresh & Easy stores in the US, Wal-Mart has decided to muscle in on the action.
This week, it emerged that Wal-Mart is drawing up plans to go head-to-head with Tesco’s Fresh & Easy business in Arizona. The company is said to have secured leases for four 20,000 sq ft outlets near Phoenix, in and around where Tesco is setting up its own stores.
Retail experts believe Tesco’s Fresh & Easy concept has created a niche in US retailing that will resonate with US consumers. Industry watchers believe that the company has found a gap between 2,500 sq feet “Cokes and smokes” stores and standard supermarket.
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By GlobalDataWal-Mart has been a little coy over its project for the so-called Marketside stores – which under the leaked plans would still be double the size of a Fresh & Easy outlet – saying only that it is always testing new ideas. However, should Wal-Mart’s tests crystallize into live stores, it would represent the company’s first new concept in the US for ten years and be a significant move on the country’s retail landscape.
Some observers believe Wal-Mart needs to shake up its domestic operations. Neil Sanders, of retail analysts Verdict Research, says Wal-Mart’s growth over the last 20 years has been largely based on its giant Supercenter stores, which are around ten times the size of the mooted Marketside outlets. Sanders argues that Wal-Mart’s Supercenters are “starting to run out of steam”.
“The opportunities to open more Supercenters are less than it once was, the opening rates of Supercenters are down and the growth that they give to Wal-Mart overall is down,” Sanders says. “The market is starting to change and big-box retailing is starting to become more saturated in some parts of the US. The logical next step is a smaller format.”
There is little doubt that Tesco’s Fresh & Easy venture has acted as a catalyst for Wal-Mart’s decision to draw up plans for its own smaller-store format. However, there have been other signs that Wal-Mart is looking to shake up its domestic operations. Last week, for instance, experienced UK retail executive Jack Sinclair took the reins of Wal-Mart’s US grocery business.
Furthermore, Sanders believes changes in US consumer behaviour suggest Wal-Mart’s move into Tesco’s territory was inevitable. “There has been a change in consumer sentiment,” he says. “They want stores closer to home and want more convenience than they used to. That’s partly driven by the economy and increasing gas prices. In the long run, it was an inevitable decision for Wal-Mart to focus on small-format. Tesco has chivvied them along a bit.”
Nevertheless, questions have been raised as to why Wal-Mart would look to open outlets smaller than its Neighborhood Market stores which, for some, have failed to really take off in the US. Launched in 1998, the Neighborhood Market business numbers over 100 stores, which at 40,000 sq ft are around twice the size of the planned Marketside outlets.
For Sanders, the Neighborhood Market stores are too big to meet consumers’ growing desire for more local outlets – and hence the Marketside concept. “The Neighborhood Market stores, despite the name, are more akin to a very large supermarket. Wal-Mart hasn’t focused on true neighbourhood or local stores, which would allow it into small catchment areas that are more densely populated.”
Wal-Mart’s Marketside idea may only be in its test stages but industry insiders believe the largest retailer in the US is set to make its first serious domestic move for a decade. And with signs that US shopping habits are changing, Wal-Mart may not be Tesco’s only rival in a gap in the market first identified by the UK retailer.
Indeed, Fresh & Easy marks a fresh attempt by a UK retailer to crack the US, which had been seen as a graveyard for the Brits after the failures of Marks & Spencer and Sainsbury’s in the 1980s and 1990s. Any move from the likes of Wal-Mart, or other large US retailers like Safeway, will be a test for Tesco.
