Wal-Mart Changes the Neighborhood

Since launching its first Neighborhood Market grocery store a year ago, Wal-Mart Stores Inc. has tweaked the concept until it has come up with a “blueprint” for rolling out the stores nationwide.

Competitors and retail analysts are watching closely to see how well the Neighborhood Markets are received by customers. With annual sales of $117 billion, what the world’s largest retailer does in its own backyard could change retailing across the globe.

At a grand opening ceremony Nov. 3, Wal-Mart CEO David Glass declared the Fayetteville store to be the prototype for a nation of 40,000-SF Neighborhood Market stores.

“What we see in the Fayetteville store is what we consider the blueprint to be built in other parts of the country,” says John Bisio, a spokesman for Wal-Mart. “And the other stores will be changed to fit that blueprint.”

Wal-Mart opened the first Neighborhood Market store in Bentonville on Oct. 7, 1998. The grocery stores are the size of 1970’s era supermarkets and each contains a drive-through pharmacy. They are geared for a quick-stop for shoppers who don’t have time to navigate

the parking lot or caverns of Wal-Mart’s gigantic Supercenters.

Since opening the Bentonville Neighborhood Market, Wal-Mart has opened the stores in four other Arkansas cities: Fayetteville, Springdale, Fort Smith and Sherwood. Two Neighborhood Market stores are scheduled to open in Oklahoma City in January, and another two are planned for next year in the Dallas/Fort Worth area.

Bisio says Wal-Mart “plans to expand the test concept by five to 10 stores by the end of the next fiscal year.”

Changes

Many of the changes initiated by Wal-Mart appear to be cost-cutting efforts.

The Fayetteville store and others to be built differ from the first Neighborhood Market in several ways.

• The pharmacy area appears smaller, but Bisio says that’s because non-consumable items such as laundry detergent and paper towels that were previously displayed in the pharmacy section are now displayed in aisles throughout the store.

Instead of stocking the rear of the pharmacy with those items, that area is now home to magazines, gift cards and a smattering of compact discs.

Wal-Mart said last year that consumables — food items — took up about 60 percent of the floor space at the first Neighborhood Market. Last year, Wal-Mart said the Neighborhood Market stores carried 20,000 to 25,000 items that are best-sellers at the company’s Supercenters. Those giant stores range from 109,000 to 202,000 SF in size and stock some 100,000 different items.

Without giving any specific numbers, Bisio says he doesn’t think the overall mix of consumables and non-consumables has changed, nor has the number of items being stocked at the Neighborhood Market stores.

• Some items have been discontinued, such as power drills in the hardware section. At the unveiling of the first Neighborhood Market, Wal-Mart executives bragged that the stores stocked everything from diapers to power drills. Apparently, shoppers looking for power drills are more likely to go to a Wal-Mart Supercenter. The Neighborhood Markets still carry some hardware, but it’s “everyday items like light bulbs,” Bisio says.

• Gone is some of the “retail-tainment.” The first Neighborhood Market store had several television monitors that broadcast Wal-Mart commercials and information about missing children. The monitors have been replaced by a Wal-Mart radio broadcast instead.

“We wanted to cut back on some of those things we didn’t think enhanced the shopping experience or that our customers got that much out of,” Bisio says.

Electric trains that run atop the water display are still there, but swirling Tropicana lights that projected juice advertisements on the floor are gone. The stores still provide free coffee and have a kiddie ride in the front entryway.

• The ceiling of the Fayetteville store is unpainted and has skylights.

“This, of course, provides us a cost savings and doesn’t detract from the appearance of the store,” Bisio says.

• The tile floor of the Bentonville store has been replaced by stained concrete, which will also save money for Wal-Mart and be easier to maintain. The floor and ceiling changes, however, make the Neighborhood Markets look a bit like small warehouse stores, such as Sam’s Club.

• The logo has changed to emphasize Wal-Mart, Bisio says. Previously, the words “Neighborhood Market” were more prominent on the logo, and “Wal-Mart” was in “fine print,” he says.

Aisles of Right

All three stores in northwest Arkansas have 12 check-out lanes. The Bentonville and Fayetteville stores each have 14 aisles running from the front to the back of the store, with the pharmacy aisles running perpendicular to them and taking up about 20 percent of the floor space.

The Springdale store has only 12 aisles running from front to back, but has a larger pharmacy section with more non-consumables in the back of that section. It will apparently be changed to mirror the Fayetteville design.

In Bentonville, the pharmacy is located on the left side. In Fayetteville and Springdale, the pharmacy takes up space at the far right of the store. The drive-through pharmacy window had to be on the right side of the Fayetteville store because it’s attached on the other side to a strip mall. The other two stores in northwest Arkansas are free-standing. Bisio says the location of the pharmacy within the store will depend on the particular Neighborhood Market being built.

The Bentonville store stocked some more exotic items that weren’t on hand at the other two stores. In the produce section were plantain and red bananas. Bisio says that’s because Bentonville has a larger Hispanic community than other cities in northwest Arkansas, and those customers have requested those items. The Bentonville store also stocks food items from India because several immigrants from that country work at Wal-Mart’s headquarters in Bentonville, Bisio says.

“This is no different than any other test that Wal-Mart does,” says John Lawrence, a retail analyst with Morgan Keegan of Memphis. “It falls within the parameters. Open a few, make changes.”

Lawrence says Wal-Mart tends to refer to anything new as a “test” long after it has rolled out a large number of new stores.

“After 20 or 25, there will probably be another revision of some sort,” he says.

A de-emphasis of the pharmacy may be an effort to distinguish the Neighborhood Markets from the competition, Lawrence says. Other major chains, such as Walgreen’s, are primarily drug stores that carry a few other retail items. Wal-Mart’s expertise is in the basic retail items, so the Neighborhood Markets may be evolving into grocery stores with an attached pharmacy, rather than half and half as the original store appeared to be.

“The whole idea here is value and convenience,” Lawrence says. “A one-stop shop is the idea.”

Once the concept is nailed down, Lawrence says, Wal-Mart can build hundreds of the stores nationwide.

“We think it’s a very viable concept,” he says. “We think the management team will figure it out. That’s their strength, to do a number of different prototypes and decide which is the most productive.”

Gerald Harp, who operates a chain of 42 Harps Food Stores in the area, says he doesn’t believe Wal-Mart is targeting his stores, even though some of the Neighborhood Markets have been constructed directly across the street from Harps stores.

“It’s a chore,” he said in 1998 about competing with the retail giant. “They’re not much different than keeping up with those other big chains.”

Wal-Mart first entered the grocery business in 1987 with the opening of four Wal-Mart Hypermart USA stores. Although that experiment failed, another Wal-Mart venture succeeded. In 1988, the company opened its first Supercenter, selling groceries and other items. Now, Wal-Mart has 1,803 Wal-Mart stores, 682 Supercenters, and 456 Sam’s Clubs in the United States. Wal-Mart has 984 international stores.

Harp says he’s confused by Wal-Mart’s strategy. “Wal-Mart has a tendency to put stores in where they’re not needed and make them work,” he says.

Other Conveniences

Wal-Mart appears to be promoting the one-hour photo sections of the Neighborhood Market stores. Signs along the driveways encourage shoppers to use the photo service and remind them on the way out that they may have missed that opportunity.

Upon entering, the three driveway signs read: “Got film?” “In a hurry?” and “Leave your film at the pharmacy drive-up window.” When leaving via the driveway, the signs read: “Did you remember the film?” and “Return it for 1-hour developing.”

At a small service desk near the front doors, employees sell everything from postage stamps to hunting and fishing licenses.

Sections common in most Wal-Mart stores but items missing from the Neighborhood Markets include clothing, appliances, automotive, sporting goods, bedding and bath, and most of the hardware section.

“We’re concentrating on food and drugs,” Bisio says.

At Wal-Mart’s annual shareholders’ meeting last year, Glass called the Neighborhood Market stores an “experiment.” He said they have gotten more media attention than they deserve.

UK Market Stores

Asda, the British supermarket chain Wal-Mart bought last year, plans to spend $121.3 million to open up to 50 smaller stores in the next five years.

The new 25,000-SF Asda Fresh stores will sell fresh food, ready-made and semi-prepared meals.

The first Asda Fresh opened in November in Tilehurst, Berkshire, in southern England, with a second planned for Kingshill, Kent, in March and a total of five by the end of 2000.

The Asda Fresh stores are half the size of an Asda superstore but will stock a wide range of products, including beers, wines and spirits, frozen foods, household goods, beauty supplies and toiletries, plus greeting cards and the top 40 compact discs and videos.

Asda, Britain’s third-largest supermarket group, is following rivals Tesco Plc and J. Sainsbury Plc back into town centers with smaller stores. Asda was expected to step up U.K. expansion after being taken over by Wal-Mart, but planning laws there make it hard to find large sites.

However, the British news agency Reuters reported that Wal-Mart is considering trying a non-food hypermarket comparable to Wal-Mart stores in the United States and may be negotiating to purchase the Dublin, Ireland-based Dunnes Stores, which sell food and clothing.