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More Thoughts About
Wal-Mart’s Marketside

After visiting Phoenix to see the launch of Wal-Mart’s Marketside concept, we wrote a Special Report which we entitled, A Triumph inPhoenix — Wal-Mart’s Marketside Hits The Trifecta… One Open Question:Do Suburban Consumers Want Small Grocery Stores?

Now that we had a chance to sleep on it, a few additional thoughts come to mind:

  1. The enormous power of brands. It is not just a matter of the appeal to consumers of the brand. It is a matter of getting all manner of muscle vested in the retailer’s success. Sara Lee/Bill Mar was at Marketside grilling hot dogs and giving them away, Stemilt had people distributing apple and pear samples and Dietz & Watson practically ran the service delis for Marketside. And Marketside was lucky to have them as they did so excellently with highly experienced manpower. It actually is kind of ironic because Dietz & Watson always refused to sell the Wal-Mart supercenters but obviously was persuaded that the Marketside concept was appropriate for the brand.
  2. We’ve been in many, many Fresh & Easy stores but do think that visiting the Marketside concept crystallized why Fresh & Easy has struggled so. The Fresh & Easy concept is simply so foreign, so insistent on doing things its own way that it is asking a great deal of a consumer. We had written early on about Fresh & Easy’s unwillingness to accept American Express cards when other supermarkets do accept them. Eventually they changed policy and started accepting them.

    Basic Marketside policies — accepting checks, accepting manufacturer’s coupons, etc. — are interesting to contrast with Fresh & Easy simply because Marketside policies are so normal for America. Almost all supermarkets accept checks, and almost all supermarkets accept manufacturer’s coupons. We know that these things cost money, but Fresh & Easy knew it was going to lose money initially anyway. One would have thought it would have made sense for Tesco to introduce Fresh & Easy with as much of these details being comfortable to American shoppers as possible. Then, in three years it could always change policy after it had a dedicated customer base.

  3. Bakery is the weakest department in Marketside. We understand it had some staff changes midway through the launch and just recently brought on a bakery person with experience at Whole Foods. This is the one category we felt needed to be fixed pronto.
  4. One of the nice things about Safeway’s “the market by Von’s,” which we profiled here, was it had some outdoor seating. In Phoenix, Marketside’s seating might be better in-store and air-conditioned. There seemed to be sufficient space to have a little counter or even experiment with a wine bar. It also fits with Hispanic shopping patterns where in-store eating is common. We think it is worth a try.

  5. There seemed to be a bit of disruption caused by the fact that the offices for the whole Marketside operation were, mid-launch, moved to Phoenix from the Bay Area. Seems that someone at Bentonville decided… A) It would be cheaper, B) As the launch city, it was important to get the Phoenix stores right so the executives should be on-site, and C) With its high percentage of elderly and high percentage of Hispanic consumers, Phoenix is, in fact, a lot what America will look like in the future.
  6. After the Phoenix launch, the next city up is San Diego. Interesting contrast: Wal-Mart is very strong in Phoenix — the number two grocer — but Wal-Mart has almost no presence in San Diego. Seems like the thought process must be to try both extremes and see if it plays in Peoria.
  7. Nobody — Marketside, Fresh & Easy, etc. — does a good job of displaying and promoting fresh prepared foods, especially items such as curry dishes that are loose. The prepared food items look good enough when laying flat in their trays, but when tilted up to let consumers see when walking by with a shopping cart, the lose items fall to the bottom while streaking against the front of the package. In the end, it is just not very appetizing. They probably should do as the Japanese do and make wax representations of each item and use that for the tilted display.
  8. The decision to do a promotion on prepared foods — 6 cents for a $6 entree — was courageous but probably a mistake. It was too difficult to stay stocked on the full assortment. Although the stores never ran out of $6 entrees, the store lost a chance to show off its full array of product.
  9. The big challenge with this format is to get consumers to shop it as something other than a convenience store. Fresh & Easy offers $5-off-$20-purchase coupons exactly because it wants to push the basket size up. Our guess is none of these stores will make it if they can’t get a ring of $20, and really it is a $30 ring that would make them stellar performers. If we were designing promotions, we think we would give away a prepared food entrée with each $20 purchase.
  10. More than a few consumers came into the Marketside store carrying those famous Fresh & Easy $5 off $20 coupons and asking if the store would accept them. The decision seemed to be NO, but they would give the consumer a $6 prepared food entrée instead. We asked one retail expert what he would advise:

“…it all depends on what you say you are. And if the philosophy is that it is completely non-promotional EDLP, then my answer would be no. But if you have an “ad match” program, then my answer is yes. If you position yourself as a complement to Wal-Mart, then my answer is yes. If you don’t have any overt connection to Wal-Mart, then my answer is no. If it says “Low Prices Always” on the building, then my answer is yes. And so on and so on…”

But if your marketing position is one thing, then you do something else, I say “ who cares?”!!

Marketside has committed to always have the lowest prices in the market on five basic items — milk, bread, etc. Branded groceries are priced exactly the same as in a Wal-Mart supercenter — so the price gap with local convenience stores is enormous. Produce, which is different from the produce in the supercenter, and the fresh prepared foods seem to have their own price list.

Our thought is if you are Wal-Mart and you go to war, you make sure you win. We would accept all coupons and probably double manufacturers’ coupons to contrast with Fresh & Easy’s private label offer.

It is very expensive to do this but the losses on these four stores are inconsequential. Even losses on 40 little stores are inconsequential. Teaching competitors that they should realize that if they come into Wal-Mart country and try to steal Wal-Mart’s customers, they will never make a dime. That is a lesson that could save Wal-Mart many billions in the years to come.

Marketside is a little store but the stakes may be huge.

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