More changes coming to Neighborhood Markets, ‘fresh’ tweaks likely

Neighborhood Markets have been the shining star among Walmart U.S. formats in recent years, though they pale in comparison to overall revenue generation of the supercenter format. Greg Foran wants them to be shinier and maybe reverse the pale comparison.

Foran, the new CEO of Walmart U.S., spoke during the retailer’s recent investors conference of big opportunities with the Neighborhood Market grocery format and said he’s eager to build on the successes of 50 consecutive months of positive same-store sales. He’s got the full backing of his boss Doug McMillon, CEO of Wal-Mart Stores Inc. 

“Customers like the convenience of the supermarket trip and we offer a great value in our neighborhood markets. … Now, as Greg moved into his role I like knowing how much passion and experience he has with fresh food,” McMillon told analysts at the Oct. 15 investor meeting in Rogers. 

McMillon also said he’s eager to see what Foran and his leadership team – Judith McKenna, Gisel Ruiz and Duncan Mac Naughton – can do with neighborhood markets.

“Greg’s got a strategic mindset. He builds strong teams. I really like how he's thinking about the division. It's been fun to watch him do it and I look forward to seeing what he's going to do with it,” McMillon said.

That was the primary reason McMillon gave for slowing the pace of new store openings for 2015 and 2016.

“I want us to be judicious about how many we grow next year because I'd like to give this team a chance to put their fingerprints on it,” McMillon said. “I think the Neighborhood Market could be even better. … Before we end up with thousands of them, I want to make sure that we've got that right.”

McKenna said Wal-Mart will open between 180 to 200 Neighborhood Market stores next year, on top of the 170 new stores coming online this year. She said 60% of the stores coming online this year will open between November and Jan. 31, 2015 – the  end of the retailer’s fourth quarter. Wal-Mart had originally planned to open about 200 Neighborhood Markets this year.

“Our focus will be on quality. We want to ensure we're in exactly the right location to allow us to maximize convenience for the customer. We'll be judicious and disciplined in our rollout plans. But we are still excited about the future of Neighborhood Markets and we're encouraged by the strong performance we continue to see,” McKenna said.

The top management group recently realigned the operational management team for smaller format grocery stores that range from 40,000 to 12,000 square feet. This move was done to give the Neighborhood Markets more individualized attention. Small store operations have previously been lumped in with supercenter formats.

Michael Moore, the new president for small formats, said the squeakiest wheels always get the most attention and it was hard for the Neighborhood Market stores at 400 or so to get the same level of oversight and operational direction when there are 4,000 plus supercenters. The supercenters generate 80% of Walmart U.S. sales.

McKenna said the management team’s focus for improving Neighborhood Markets includes four key objectives: 
• Improvements in fresh, particularly around bakery, produce and deli;
• Operational improvements that will introduce new store processes geared to driving efficiencies;
• More focus on customer services; and
• Doing a better job with store of the community that reflects the products and services geared to a particular neighborhood’s needs.

IMPROVING FRESH OPERATIONS
Foran did not mince words with his objectives on improving “fresh” products in Neighborhood Markets and supercenters. He said it’s not one or two things that could be done better, but more like four or five.

“I have seen in some of the initial stores that I went into that we were becoming too cluttered in fresh. I want to be able to walk in to the store and I want to be able to see what we want to sell to the customer. … If you're going there at the moment, you expect to see apples because it's the beginning of the apple season. I don't want to have to stumble over two pallets of Coca-Cola and three point of sale signs directing me to buy Halloween candy when I want to walk in to produce,” Foran said.

Secondly, he said the company does “a reasonable job with fruit but I do worry about our vegetables and particularly our green leaf vegetables. I think that is really a cue for many customers on freshness.” He said Wal-Mart can’t afford to let customers see brown lettuce because it has not been properly rotated in the store.

Foran also raised concern about the number of fresh produce items in the store saying it’s likely that Wal-Mart carries too much merchandise. 

“Many of our stores get seven-day deliveries,” he added, also noting that it is building up in the back of stores which is a huge problem for fresh items that must be quickly rotated through the store.

“We might be carrying one, two, three days too much inventory in produce,” Foran said.

He also addressed the million dollar labor question. Foran said he is making sure there is enough labor in the backroom and the store and that’s an ongoing discussion with his leadership team.

“I can tell you that when you're on an automated replenishment system, which we are in produce … If you don't get your perpetual inventory counts right, it ain't going to work,” Foran said. “I'm not convinced we have enough discipline around counting inventory in store either monthly or weekly to get that count right.”

WIth respect to fresh meats, Foran said most of the product in the meat cases comes from Cargill or Tyson Foods. He said the meat buyers have been in discussions with these two suppliers in recent weeks.

“I don't see the consistency in the cattle. I don't see the trim is good enough upon buying muscle meat as steak. I expect to see the same cut on that meat because when I take it home and fry it and season and I want it medium rare. I want it medium rare all the way through. I don't want it tailored off at the end,” Foran said.

He sees opportunities in meat procurement, as well as upstream and downstream opportunities in that supply chain.

“None of this is easy to get after but we do know how to do it. And you start one store at a time and you get on with it, you create a store of excellence,” Foran said.

Foran has provided details about possible changes to bakery and deli, but has said modifications in those areas are being considered.

OPERATIONAL/SERVICES IMPROVEMENTS
The new team designated to oversee day-to-day operations for Neighborhood Market is a giant step forward for the format, according to Moore. This grocery format has done quite well on its own, offering low prices, large assortments and convenient locations, with both fuel and pharmacy.

Moore said the new model of Neighborhood Market also will have more service offerings similar to those found in the supercenter and a new expanded services area at the front of the store. This modification was made in the recently opened Siloam Springs store.

He said location for new stores is also an area getting more scrutiny because having fuel pumps is a high priority for each of the new smaller formats planned, even the 12,000 square stores. Foran said fuel is important to Walmart customers and it’s a known traffic driver. He said Walmart wants fuel stations connected to stores and even pickup centers where it’s feasible.

A pharmacy is also a beneift for the Neighborhood Markets, which will now offer more services like insurance counseling, as well as immunizations and health information programs.