Wal-Mart?s Other Neighborhood Market

LONDON — At first glance, the Asda Fresh store in Tilehurst, England, looks a lot like Wal-Mart’s Neighborhood Market stores in Arkansas.

The 25,385-SF store has a greeter at the door and “Price Rollback” signs throughout the store.

“David Glass thinks we’re more like Wal-Mart than Wal-Mart,” says Allan Leighton, Asda’s CEO.

The store in Tilehurst — a “village” in Berkshire, about 40 miles west of London — has caught the attention of the retailing world. It’s the first Asda Fresh store. And any time Wal-Mart tests a new concept, the retail world pays attention.

In June, Wal-Mart Stores Inc. of Bentonville bought Asda Group Plc., Great Britain’s third-largest supermarket chain, for $10.8 billion. The move gave Wal-Mart 229 stores in the United Kingdom and a launching pad for further expansion into Europe. Asda now has 232 stores.

In November, Asda announced plans to spend $121.3 million to open up to 50 Asda Fresh stores in the next five years, five of them by the end of 2000.

Wal-Mart has saturated the United States with 200,000-SF superstores and 100,000-SF “discount cities.” Now, the world’s largest retailer seems to be thinking small (with five 40,000-SF Neighborhood Markets in Arkansas) and looking to expand across the globe. Analysts expected Asda to step up its UK expansion after the Wal-Mart takeover.

Wal-Mart hopes that 30 percent of its earnings growth will come from profits in the international division by 2004. In 1998, 20 percent to 25 percent of the earnings growth came from international.

Most Asda stores are in the 45,000- to 55,000-SF range. Asda’s largest store — located in Bristol, England — is 78,000 SF. That store, along with 20 other large stores, are considered “hypermarts,” the European equivalent of Wal-Mart’s supercenters.

The Asda Fresh concept is designed for stores up to 30,000 SF in size. The Asda Fresh stores are basically grocery stores, carrying the most popular items from Asda’s larger stores and specializing in fresh produce and ready-made, semi-prepared meals.

Considered a test, the Tilehurst store cost about $4 million to remodel from a previous Asda store that one employee referred to as “run-down.” Remodeling future stores should be considerably less expensive, about $1 million each, says Rachel Fellows, a spokeswoman for Asda.

The second Asda Fresh — planned for a March opening in Kingshill (Kent), England — is being built from the ground up for about $20 million, Leighton says. (Land prices in England are considerably higher than in the United States.)

Asda appears to be following the lead of Tesco Plc. (Britain’s leading supermarket chain) with smaller stores that can more easily be placed in city centers where land is expensive and planning laws make larger stores almost impossible.

In England, Tesco’s Metro and J Sainsbury Plc’s Local stores offer convenience and superstore prices in a smaller size with less selection. Asda currently has 13 stores in London suburbs but none in the city’s center where Tesco and Sainsbury’s have already opened Metro and Local stores.

Leighton up

The Asda Fresh stores were already planned when Wal-Mart bought Asda, Leighton says. With the Neighborhood Market stores already open in Arkansas, it seemed natural to continue with the Asda Fresh venture in Great Britain.

Wal-Mart executives liked Asda from the beginning because the British company operated much like Wal-Mart.

“David [Glass] has always accused us of stealing ideas,” Leighton says. “Sam Walton said ‘Copy shamelessly.'”

Leighton says both Wal-Mart and Asda are built on the main idea of creating a brand — “which is, how to do retail in detail.”

Leighton, 45, is in charge of Wal-Mart’s operations in the United Kingdom and Germany, where Wal-Mart has 95 stores that were acquired when Wal-Mart bought the Wertkauf and Interspar chains in 1997.

Leighton grew up in Hereford, England, near that country’s border with Wales. From 1974 to 1992, he worked for M&M/Mars, serving as vice president for sales over the pet food division just before his departure for Asda. He has been CEO of Asda since 1996.

Leighton says the consolidation of Asda into the Wal-Mart culture has been smooth because of the similarities between the two companies.

“Everybody feels at ease,” he says. “That’s why this is working so well. As far as the integration goes, we’re way ahead of where we should be.

“It’s a bit like having the key to the chocolate factory. Before, I had to look in the window. Now, I can go into the shop.”

Leighton says he has made several trips to Wal-Mart’s headquarters in Bentonville.

“We’re all the same, really,” Leighton says. “We’re pretty ordinary. We just have big jobs.”

Getting Fresh

Asda was formed in the late 1960s as a merger between Asquith Butchers and Associated Dairies. The merger resulted in Great Britain’s first superstores. Previously, the Asquith retail stores were called Farm Stores.

Both the Asquith family and the Stockdell family (which owned Associated Dairies) still have stock in Asda.

The Asda Fresh store in Tilehurst differs from a Neighborhood Market store primarily because it doesn’t have a pharmacy. Laws in England make it more difficult to open a pharmacy, Leighton says, but some of the Asda stores may lease space to pharmacists for their customers’ convenience.

The Tilehurst store has 11 aisles, a 1,500-SF beer and wine section and a bakery. The first thing customers see upon entering is the bakery and fresh produce section.

Stuffed monkey dolls swing from a vine over tropical fruit in the produce section.

Simon Andrews, the store manager, says the monkeys are about the extent of the store’s “retail-tainment,” a term that has come to mean retail as entertainment. Wal-Mart touted retail-tainment when it opened the first Neighborhood Market store, but the company seems to have scaled back on the idea in an effort to cut overhead costs.

Andrews says the store will be among Asda’s top 10 in 2000 for sales per SF. The store currently has 19,000 customers per week. The amount of money spent by each customer has increased by 26 percent since November, he says. Andrews says the store will bring in 25 percent more in revenue in 2000 than it did in its previous full year of operation.

“We’re outperforming the company’s target by 16 percent,” Andrews says. “Bread sales have tripled and produce sales have doubled since the redesign. What we’ve done is we’ve reopened the store and made it look new and fresh. The store was very run down [before the remodeling]. Some customers went elsewhere.”

Leighton says a large Asda store will bring in about $1.6 million a week in sales. He says the Asda Fresh stores bring in about $1 million per week in sales.

Andrews notes that other small changes contribute to the new look of the store. Shopping carts are equipped with a special basket so fresh produce won’t be squashed by other goods.

In addition to groceries, the store also carries a smattering of household goods, beauty supplies and toiletries. Greeting cards and the Top 40 compact discs and videos are also available.

With land at a premium in Great Britain, Asda has to do more with its space than Wal-Mart stores in the United States.

“Our stores, on average, are one-fifth the size of Wal-Mart, but take in twice as much in sales,” Leighton says.

Asda has been successful with its clothing line in larger stores after launching the brand George, named after George Davies, who founded Next, a popular chain in England that carries merchandise similar to The Gap.

Although the Asda Fresh stores don’t carry clothing, Leighton says Wal-Mart plans to move the George line to its stores in Germany and the United States.

About 15 percent of the floor space in Asda’s large stores is devoted to clothing, he says.

Leighton says one of the best things about working for Wal-Mart is that the company doesn’t inundate employees with unnecessary information.

“You don’t have to work your way through what you can use and what you can’t use,” he says.

Leighton says Wal-Mart has basically had a hands-off approach to Asda.

“The Wal-Mart approach has been to let them get on with it,” he says. “We learned everything about Wal-Mart, and they didn’t teach us a thing.”

Leighton says Wal-Mart is developing into a “global business.” Since he’s now in charge of the company’s operation in Germany as well, Leighton says he’ll see what works there and won’t try to force what works in the UK or the United States on Germany.

“There is a big difference between Arkansas and Aberytwh, and New Orleans and Northampton,” he says. “Think globally, act locally. I think we might have found our way.”