Thirteen months after Tesco invaded the US west coast with their Fresh & Easy concept, everyone¹s favorite retail commentator Burt Flickinger calls Wal-Mart¹s worst nightmare.
The Businessweek article in which Flickinger comments highlights a key competitive difference between the two retail giants: the use of knowledge, and how the way that knowledge is used may determine who will ultimately be king of the retail landscape, writes Seth Cargiuolo, vice president and chief knowledge officer for The Saint Consulting Group.
Both firms ensure that their stores have the right amount and mix of product at the right price, but Tesco masters was Wal-Mart has always found difficult — managing multiple store formats with the right-sized, right-shaped, right-themed store for customers in the area. Businessweek also points out that Tesco’s house brands account for 60% of sales, while Wal-Mart manages only about 35% at best. That’s a pretty convincing demonstration of knowing what you know, and more importantly, knowing how to use it.
Tesco and Wal-Mart are both masters of enterprise knowledge management, especially as relates to their POS (point-of-sale) data. The two firms leverage the same skills – data mining & analysis – to drive their success, but use the skill in slightly different ways.
Wal-Mart focuses on enterprise-wide POS data primarily as it relates to supply chain and value delivery, and they have set the gold standard in that realm. Their obsession with cost-cutting and streamlined delivery of product & service across the enterprise have pushed Wal-Mart to amazing heights of gross sales and net profit.
Tesco, of course, uses their POS data for similar purposes, but also focuses on their data as relates to the creation, management and delivery of multiple store formats. Both firms ensure that their stores have the right amount and mix of product at the right price, but Tesco takes it one step further by ensuring that they are in the right place with the right-sized, right-shaped, right-themed store for the customers in the area.
Wal-Mart has yet to have much success with anything other than the traditional big-box format. They have tried to make smaller big boxes, such as the “urban 99” concept, to squeeze into the smaller spaces common in cities. They have also tried to use the Neighborhood Market concept to get into the spaces between Supercenters, selling nothing but groceries in a 30K-40K square foot box. Neither of these ideas were total flops, but neither of them have taken off, either. Even the Sam’s Club format has lagged in performance compared to competitors like Costco. This clearly demonstrates that Wal-Mart has much to learn about the successful delivery of multiple formats. Wal-Mart’s primary focus has long been about value through superior supply chain management, to the almost total exclusion of all other concerns – and while it’s worked well for a long time, this is going to be a central theme in Wal-Mart’s Tesco Nightmare.
Tesco’s emphasis on store format is the key differentiator between the two firms and it is what will allow Tesco to deal Wal-Mart a potentially crippling blow. When combined with Tesco’s edge in lucrative house brand sales – Tesco averages 60% of sales from house brands, Wal-Mart is estimated to only get 35%, says Flickinger – it’s hard to see how Wal-Mart will be able to compete effectively with Tesco in urban areas. With suburban and exurban Supercenters beginning to cannibalize each other, and supercenter growth slowing, where is Wal-Mart to go?
What we’ll all be watching for is to see what Wal-Mart has learned about managing different formats from their experiments with Neighborhood Market, and how they will use this experience to fight Tesco’s Fresh & Easy with their new urban “Marketside” concept. It’s going to be an interesting fight.