Walmart US: developing a path towards multi-channel retailing

Date : 09 May 2011
Walmart US: developing a path towards multi-channel retailing

Walmart intends to position itself as a multi-channel retailer in the US, thereby becoming less dependent on its large format hypermarkets. What are the drivers behind this and what could the implications be for the broader grocery industry?

Developing multiple formats

It was back in October 2010 that Walmart started to articulate a new multi-format approach, suggesting that the retailer was making a step-change in the way in which it would develop its US stores in the future. Although the retailer already had a number of different formats, including small format Marketside, Walmart Neighbourhood Market and the Supercentre, expansion strategies up to that point had continued to focus on its largest formats.

Walmart has a number of different small formats - the Marketside concept being one of them

However, Walmart has identified a need to re-define this format strategy, in part to drive expansion in urban markets and small towns, but also to fill in gaps in existing markets. Having found it difficult to make a break-through in urban markets like Los Angeles and New York, the retailer is finding that its multi-format approach is gaining favour, not least because provides job opportunities.

Having announced a five year plan to create 12,000 jobs in Chicago as part of a long-term initiative called the 'Chicago Community Investment Partnership' in 2010, the retailer aims to open large, medium and small format stores within the city under the Supercentre, Market and Express banners.

Walmart Express could develop quickly

Walmart Express is one of the most exciting developments. It is a totally new format for the retailer and will be at the forefront of Walmart’s push to open smaller format stores. At around 15,000 sq ft, the format will be adapted for both urban and rural catchments, both with and without a pharmacy.

Walmart could also go even smaller. In 2011, it opened its first 'Walmart on Campus' store, with initial results proving to be highly encouraging. At around 3,000 sq ft, the store features a pharmacy, student essentials and top-up based grocery and fresh food ranges, and could potentially be adapted for a more mainstream location.

Testing online grocery

Building on this new multi-format approach, the retailer has also tested 'Walmart To Go', its online grocery shopping proposition. Although the retailer has offered home shopping for many years, it was mainly restricted to its non-food ranges, health and beauty, and a very limited range of grocery products. Walmart To Go incorporates both dry grocery and fresh food products.

Online grocery has only been partially successful in the US, with established operators such as Safeway and Ahold’s Peapod service being the most notable among the major grocers, while Amazon Fresh and Fresh Direct have developed online-only propositions. Retailers including Supervalu and Publix have withdrawn their services while Webvan continues to be noted as one of the largest failures of the boom.

Walmart believes that to be successful it must blend its retail stores and its online capability. The retailer has started to do this highly effectively with general merchandise, launching services such as ‘Site-to-Store’ and ‘Pick up today’ and partnering with FedEx to offer its shoppers even greater flexibility in terms of delivery options. These services have enabled the retailer to use its existing assets even more effectively, mirroring the ‘drive’ hypermarket concepts in Europe, and the retailer could potentially utilise a network of smaller format stores for the delivery of online groceries.

Leveraging international best practice

These are not totally new areas of development for Walmart. It has operated similar smaller format store internationally for many years, including Todo Dia in Brazil and the Bodega formats in Mexico. From an online grocery standpoint, Walmart has highly successful operations in the UK and Mexico. Collating and utilising best practice from these markets will be important as the retailer focuses on becoming a multi-channel operator in the US.

Seizing on broader industry trends

Higher fuel prices could also drive stronger demand for locally based shopping through smaller formats

Where Walmart leads, others often follow, and its evolution towards becoming a truly multi-channel retailer is likely to be replicated by others. The shift towards smaller formats in the US is undoubtedly underway as retailers seek to develop stores in more urban and densely populated areas. Retailers such as Aldi and Fresh & Easy are carving out a niche for themselves in the sub 10,000 sq ft sector, while dollar and drug stores are developing enhanced food ranges.

Although online grocery shopping has a chequered history in the US, limited to an extent by geography, rising fuel prices may see a greater number of consumers seeking to ‘outsource’ the collection or delivery of their products. Higher fuel prices could also drive stronger demand for local shopping through smaller formats.

The technological developments and the ease and convenience, is also likely to increase shopper demand for online shopping. Walmart’s acquisition of Kosmix, could also be an important catalyst in combining social media insight with online channels.

Challenging conditions for suppliers

The goal of the multi-channel strategy is to provide shoppers with access to the most relevant products for their unique needs within each channel. This creates the challenge of increased complexity for suppliers. Shoppers’ purchasing behaviour varies significantly across different formats, particularly online. Shopper missions will be very different, requiring different product assortments and different pack sizes.

The strategies adopted to engage with shoppers will also need careful consideration, given that time spent in a convenience store versus a hypermarket or online varies significantly. Tailoring the offer at both the channel and local level will be critical, but equally understanding the variations in shopper behaviour will be important in unlocking many of these new opportunities.

Planning for the longer term

For Walmart, these initiatives come at an important point in the retailer’s development in the US. While a number of measures have been put in place to restore growth over the short and medium term, its multi-channel strategy is driven by a need to ensure that Walmart's offer remains relevant over the longer term. Walamrt needs to remain accessible as shopping patterns and format preferences change, and as technology developments change how consumers and brands interact.

However, the real strength and key to success will be in how Walmart integrates these new initiatives into its existing operations, leveraging its supply chain capability, supplier relationships and extensive store network.