CSP Magazine

Wal-Mart's Multiformat Gamble

Pickup With Fuel isn’t just about going small or digital—it’s a sign of our omnichannel future

Wal-Mart is expanding its buy online, pick up in-store efforts and recently shook the retail industry with the opening of two Wal-Mart Pickup With Fuel locations, a combination of  a convenience store, gas station and click-and-collect location.

CSP investigates the world's largest retailer's efforts, its goals and how likely it is to succeed as it goes head to head with digital retail giant Amazon—and convenience stores—to capture the last mile of retailing.

Table of Contents

Big Ideas

The Fearless Tester

The ABCs of Pick Up

A Multiformat Future

A Tour of Wal-Mart's Small Formats

Click-and Collect, Step by Step

Inside Wal-Mart Pickup With Fuel

A wise man once said, “Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”

That man, Jeff Bezos, founder, chairman and CEO of Amazon, has a name synonymous with retail disruption. He poses his company’s “outsized returns”—$107 billion in sales, according to Forbes—as the result of betting against conventional wisdom.

Most recently, this includes the idea that an e-commerce retailer doesn’t translate into brick and mortar.

He countered that claim with Amazon Go, an 1,800-square-foot c-store that offers food, grocery and the ability to pay without a checkout line, currently in test in Seattle [CSP—Feb.’17, p. 28].

For traditional brick-and-mortar retailers, news of Amazon Go—and rumors of 2,000 other small-format stores in the works—must feel reminiscent of that famous scene from the horror film “The Ring,” when the malevolent long-haired girl climbs out of the TV. Not only is Amazon defining the shopping experience online—and resetting customers’ expectations along the way—but now it’s attempting to do so on the street. And with each move, it is driving to become the truest convenience retailer, meeting consumers wherever they want to buy and with the fastest transaction.

“There have been retailers in the past that have tried to steer consumers into certain solutions that were easier and more profitable to execute,” says Carol Spieckerman, president of Spieckerman Retail, a Bentonville, Ark.-based retail consultancy.

Amazon has blown this up by deferring to the consumer. “Now [retailers are] realizing if they don’t offer convenient choices, they can be left behind or shoppers will go elsewhere.”

This includes the world’s largest retailer, Wal-Mart Stores Corp. With $482.1 billion in worldwide sales, the Bentonville, Ark.-based chain of 5,000 U.S. stores dwarfs Amazon in sheer size. But with only 2.8% share of e-commerce sales, according to eMarketer, Wal-Mart is a very distant second to Amazon online, which commands more than 74% share.

And increasingly, when asked to choose where to shop, consumers are picking online—and they’re picking Amazon.

“[Amazon’s] taking trips out of shoppers’ portfolios,” says Laura Kennedy, director of retail insights for Boston-based Kantar Retail. Half of Amazon Prime members shop with Amazon before another retailer, according to Kantar Retail. And based on the firm’s penetration data, Amazon is about to pass Wal-Mart as the most shopped retailer in the United States.

It’s forcing Wal-Mart to question its differentiation, which can no longer be just about everyday low price. “What is Wal-Mart’s unique role with shoppers?” Kennedy says.

Of course, Wal-Mart did not get to be the largest retailer in the world by playing it safe. To broaden its online presence, it has been acquiring e-commerce players such as Jet.com and Shoebuy.com. And to make shopping more convenient, Wal-Mart has been expanding its buy online, pick up in-store (BOPIS) efforts, most recently with Wal-Mart Pickup With Fuel, a combination c-store, gas station and click-and-collect location, currently in test.

As these two giants duke it out, other retailers need to be ready to learn, and to ride the wave.

“Wal-Mart is in a very dynamic mode, and they’re making some big, big bets,” says Spieckerman. “When Wal-Mart does that, it always creates disruption.”

Continued: Meat the Fearless Tester

THE FEARLESS TESTER

Bezos may seem boldly willing to fail, but Wal-Mart’s way ahead of him. It has cycled through more than a half-dozen medium- and small-format concepts in the past two decades. It is quick to drop those that fail to meet its goals—such as Wal-Mart Marketside and Wal-Mart Express—and to invest in those that do, such as Wal-Mart Neighborhood Market, with more than 650 locations. (See sidebar, p. 34.)

“Wal-Mart’s main challenge is that they have yet to come up with a model that provides the returns of a Supercenter. All of these efforts are part of this,” says Neil Stern, senior partner with retail consultancy McMillanDoolittle LLP, Chicago. This challenge has only grown as Wal-Mart’s efforts to expand Supercenters into urban markets have met with fierce local resistance. “It is critical that they solve the puzzle of urban locations and nontraditional locations if they are to continue to find growth.”

Ben Bienvenu, a research analyst for Stephens Inc., Little Rock, Ark., sees Wal-Mart Pickup With Fuel as an outgrowth of the chain’s February 2016 decision to end its partnership with Murphy USA on new fueling locations. Up until then, Murphy had built 1,100 gas stations on Wal-Mart Supercenter lots, with about 50 left to build. Wal-Mart has about 200 of its own private-branded gas stations today [CSP—May ’16, p. 28].

“Wal-Mart wanted to have flexibility,” says Bienvenu. “They recognize fuel is essential to complete the basket and drive traffic and loyalty, and it has been a big success factor for Kroger. So they’re trying to find the right balance.”

Wal-Mart Pickup With Fuel’s very name suggests the retailer is making an effort to find a winning e-commerce/brick-and-mortar combination—and with it, satisfy the modern consumer’s every desire. The company opened its first location in Madison, Ala., in April 2016, with the second following in November in Thornton, Colo.

In a recent visit to the Colorado location, CSP saw a c-store design as modern as any of the best-known chains in the industry. The 4,000-square-foot store features the bold Wal-Mart blue and gold color scheme, and an open, lofty layout that puts foodservice right near the front door. Colorful graphics above the cooler and foodservice areas invite customers to “Chill” and “Enjoy.” The store capitalizes on Wal-Mart’s price-matching policy, which guarantees the lowest price or else it will match the competition’s.

The low-price promise is front and center, with all sizes of fountain drinks and coffee priced at 88 cents, a 20-ounce Gatorade at $1.68 and frozen burritos available for 38 cents each. Private-label products such as flavored sparkling waters for 50 cents and 98-cent fresh doughnuts further drive home the value theme.

At the eight-pump fuel island, signage promotes foodservice offerings such as $3.98 salads, sandwiches and wraps, and $1.28 roller-grill products.

At least one customer, who spoke to CSP during his visit, was won over.

“This is the best idea Wal-Mart has ever done,” says customer Aaron Cherry. Living within a mile of the store, Cherry says he watched the construction of the site progress and was excited when he saw the Wal-Mart brand go on the store.

“It’s the prices,” he says. “It’s got all the stuff you usually see in a [convenience store], but they’ve maintained Wal-Mart prices. That’s huge.”

Continued: Driving More Pick Ups

PICK IT UP

But what makes this concept different from the company’s earlier c-store concepts is the ability to pick up orders from Walmart.com. The pickup area is defined by an orange canopied section and reserved parking spaces at the side of the store. (For a tour of Wal-Mart Pickup With Fuel, see cspdailynews.com/walmart-pickup.)

Customers place an order—including anything from groceries to TVs—at Walmart.com and select the Wal-Mart Pickup With Fuel site for pickup.Personal shoppers at the nearby Wal-Mart Supercenter fill the orders, which are placed into delivery trucks (refrigerated if necessary) to send to the c-store three times per day.

Customers get a phone call when their order is ready for pickup. The service is free and is available from 8 a.m. to 8 p.m. (The c-store is open from 5 a.m. to 11 p.m.)

Gina Kretoski, e-commerce market coach for Wal-Mart, says combining grocery pickup with c-stores was an obvious move for the retailer.

“Customers are evolving and grocery is evolving,” she tells CSP. “Anything we can do to improve work-life balance, we’ll try it.”

This is not Wal-Mart’s first foray into BOPIS; its Asda division in the United Kingdom has offered a click-and-collect service for the past few years at its locations, including c-stores. But the American consumer is just becoming comfortable with the concept.

Previously a store manager in Colorado, Kretoski in 2013 led one of the first Supercenters to offer online ordering and pickup. Colorado would go on to be Wal-Mart’s biggest market for BOPIS, with 40 stores offering the service. Providing it in a c-store format is an attempt to further amplify the convenience aspect.

“Wal-Mart basically piloted online ordering in Colorado, so this is something customers in this area are accustomed to,” Kretoski says. “Building a convenience store that serves that purpose is just one more step to move the pickup closer to customers’ homes.”

In Alabama, where the first Wal-Mart Pickup With Fuel opened, at least one c-store retailer is circumspect about the site’s chances.

J. Spencer is CEO of The Spencer Cos. Inc., Huntsville, Ala., which operates 31 c-stores under the MinitMan name. He describes his market as one of the fastest-growing in the state. The local Wal-Mart Pickup With Fuel is located halfway between two Wal-Mart Supercenters, where traffic on the nearby highway is “incredibly stagnant” during rush hour.

The new concept may give drivers a way to buy groceries from Wal-Mart without having to fight traffic to the Supercenters, neither of which have fuel, Spencer says. “I have heard many women state they like being able to pull up and have the groceries loaded into the car without shopping,” he says.

But Spencer does not expect Wal-Mart to build large numbers of the stores because of the reliance on Supercenters for supply.

Wal-Mart has more than 3,400 across the country. “I doubt they can support too many destinations this way,” he says.

“I wouldn’t get too excited about them,” says Kennedy of Kantar Retail, pointing out that two stores among Wal-Mart’s 5,000 is “a drop in the bucket.”

“This is a retailer geared to drive big trucks of big pallets to big stores,” she says. “Everything they’re doing now”—home delivery, small formats and click-and-collect—“it’s really all in service to figuring out how to do it.”

Continued: A Multiformat Future

MULTIFORMAT FUTURE

Kennedy considers Wal-Mart Pickup With Fuel a sign that the retailer is willing to test and learn—and it would likely agree.

Wal-Mart executives are quick to emphasize that Pickup With Fuel sites are strictly ways to determine the best way to serve customers as it evolves into a multiformat retailer.

“We are testing different things with the goal of providing customers convenient ways of getting what they need, how and when they want to get it,” says spokesperson Anne Hatfield. “This holds true for everything we do, be it online, mobile, large stores, smaller  stores or convenience offerings. We are listening to our customers and driving value to them.”

She would not comment on Amazon Go, except to say “competition is good because it makes us all better, and in the end, the customer wins.”

Amazon, as much as it seems to be in the driver’s seat, is also trying to figure out this evolution from single-format to multiformat, says Spieckerman. “When Amazon opens stores, people tend to portray it as them encroaching and being innovative,” she says. “But you can also look at it as their realization that not everything can be perfectly executed and all potentials realized in a single channel, even if that channel is digital.”

For c-store retailers watching these two behemoths’ moves into multiple channels, consider it not so much a competitive threat as an opportunity to learn and innovate.

“If Wal-Mart were to open 2,000 Pickup With Fuel locations, sure it could be a threat to c-stores. But I find that extremely unlikely,” says Kennedy. She also believes c-stores can teach the retail behemoth a thing or two.

“Wal-Mart has a lot to learn … about the kinds of things people look for on a quick trip,” she says. “Wal-Mart is moving ahead on this initiative, but it’s not like c-stores are standing pat.”

Spieckerman urges c-stores to take a page from retailers such as 7-Eleven and Plaid Pantry and partner with an online retailer such as Amazon or Wal-Mart by offering pickup points for their orders. “C-store operators don’t have online business or relevance; they’re truly there for physical convenience,” she says. “But many have tremendous scale.

“Wal-Mart’s Pickup With Fuel concept is a signal for them to explore this,” she continues. “Even if they don’t have their own online operations or a compelling proposition online, they can absolutely partner with those who do.”

Or, to take advice from Bezos of Amazon, “Given a 10% chance of a 100 times payoff, you should take that bet every time.”

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