Marketside, before the hype

As Wal-Mart’s newest domestic store concept, rumored to be called Marketside, comes closer to fruition (the blogger community is citing mid-summer as the projected launch time) the drama behind this highly anticipated development will surely make Wal-Mart the retail story of the summer.

And for good reason. One of its closest rivals on the global retailing scene, British-run Tesco, recently launched a bold new small-format concept of its own in the United States and plenty of industry analysts (many within the pages of Retailing Today) have called the small-format value-based retail concept—i.e. Aldi, Save-A-Lot, Fresh & Easy—one of the great new growth vehicles in U.S. retailing.

It’s only natural, therefore, that when the world’s largest retailer is getting in on the game, rumors, alone, generate front page news.

At this point, however, no one knows exactly what this new concept is, but I can tell you what the arrival of a new Wal-Mart concept store will not be. It will not be what many invariably are going to call a radical change to the U.S. retail landscape. Despite what surely will be attempts to characterize a new Wal-Mart small-format store as a sign of the retailer’s failing supercenter growth strategy, desperately in need of salvation, Marketside is hardly a sign of desperation.

Rather, the addition of a small-footprint, grocery-based concept to Wal-Mart’s U.S. store portfolio is the natural evolution of many years of R&D. For one, the company has a decade’s worth of trial and error right here in the United States with its Neighborhood Market concept, which now numbers more than 130 units across several states. Second, and perhaps more significant, Wal-Mart has racked up nearly 13 years of experience running small-format, convenience-based grocery concepts in Central and South America. And given Wal-Mart’s penchant for importing best practices and top talent from international operations (especially The Americas) it wouldn’t surprise many food retailing experts if the new small stores resembled, say, Todo Dia or one of the similar banners from the Bompreco group. (See related story by Mike Troy on p. 3.)

But if Marketside is not going to be the savior of an allegedly ailing supercenter business, what is Marketside? Or more to the point, why is it? Why is Wal-Mart pursuing a small format at all? And why now?

To begin to understand any of those questions, you have to start by asking, why not? The Wal-Mart cash cow over the past 20 years has been the all and mighty supercenter. And unless you’re Rip Van Winkle, and have been asleep since Reagan left office, you too have watched the Wal-Mart supercenter become one of the healthiest, most profitable and most enviable store concepts ever known to retailing.

But for Wal-Mart to do to small-format food stores what it did to supercenters will take nothing short of a miracle. And frankly, I don’t think it has any intentions of trying. For starters, the low-margin business of a small food format (where high-ticket, high-margin general merchandise goods are conspicuously absent) runs contrary to the company’s recent announcement that it plans to prioritize and pursue only the most profitable pieces of its business. What’s more, in the more densely populated markets where such small-format stores stand the greatest chance of survival, the need for premium real estate is only outdone by the daunting volume of cut-throat competition, including restaurant, convenience and drug-store chains.

In spite of all these things, Marketplace, like the larger Neighborhood Market concept that preceded it, will surely have a place in the U.S. market. However, instead of blanketing the country from coast to coast, a more likely scenario is one where Marketside plays an important—albeit secondary, even tertiary—role as a fill-in format. And considering that Wal-Mart has only operated four formats in earnest after 46 years, having a new footprint in the mix—even if only a fill-in—should be received as a welcome, if somewhat overdue, addition to the Wal-Mart empire.