Convenience Store Shoot-Out
Just like popular TV hit, "Extreme Home Makeover", the West Coast is also experiencing an interior/exterior renaissance only played out in the convenience store sector. The much needed image overhaul, however, could quickly turn the West Coast convenience store landscape into the anything-goes mentality of the Wild West, with competition among industry stalwarts and newcomers heating up like never before. While the ringleader appears to be U.K. food group Tesco, which opens the first of its new stores on the West Coast next year, other international retailers also have roll-out plans for the region.
All in the Family
Family Mart, one of Japan's biggest convenience store chains for instance, has already opened a handful of stores which it hopes to grow into a chain of 250 premium convenience stores in California by 2009. Don't let the friendly name fool you -- Family Mart has every intention to pursue the same demographic identified by Tesco.
Family Mart operates convenience stores across Asia, with more than 6,000 stores in Japan, and more than 5,000 in Taiwan, China, Korea and Thailand. Its U.S. offspring, dubbed Famima, describes itself as a premium grocer crossed with a quick-service restaurant and a traditional convenience store. With about 4,000 square feet including 3,000 square feet of selling space, plus seating areas and toilets, Famima locations are larger than the average U.S. convenience store. They carry a similar range of products but present them in a much more stylish atmosphere.
Competition Heats Up
Famima says it welcomes Tesco's West Coast plans for a convenience format, because it believes it will strengthen industry strides to change the overall image of convenience stores. While this may be true, Tesco's entry into the United States also serves notice to all incumbent C-Stores, and of course, Wal-Mart, which has been toying with "neighborhood markets" for years. Assuming that Tesco can adjust to the store delivery challenges associated with the larger geography of the United States versus the U.K., it will use its advanced loyalty program to its advantage. "7-Eleven has been running hard to improve their technologies, and has turned over a lot of its top management, but Tesco's is way ahead in the race," says Paula Rosenblaum, vice president, retail research, Aberdeen Group. "I'm not sure that 7-Eleven's owners have a deep understanding of the U.S. market." Rosenblum also notes that there are more differences between U.S. and Japanese consumers than there are between U.S. and the U.K. customers. "Of course, supermarkets also still have a lot to lose, as they have lost market share to C-Stores along with mass merchants over the past 10 years. Once Tesco has established its brand with C-Stores, superstores will not be far behind, which can only spell trouble for Wal-Mart and others."
In Tesco's Favor
By all accounts, it appears that Tesco looks to turn not only the C-store environment upside down but also the superstore environment as the company has a lot of firepower in its arsenal. As the U.K.'s largest grocery retailer and the fifth largest retailer in the world, the company's total revenue is approaching $60 billion. Tesco also has allocated nearly $500 million in capital to fund its West Coast effort, based on its Express store concept, a thriving format with more than 800 current locations operating in five countries It plans on chasing down the U.S. grocery market as a whole, which it sees as worth more than $600 billion today, with 40 percent projected growth over the next five years. Tesco has been monitoring the U.S. market for many years, most recently noted by its investigation of the potential acquisition of key parts of the Albertsons grocery chain. It all adds up to some pretty eye-opening scenarios, according to a recent AMR Research Report, "Tesco's Coming to America: Why U.S. Retailers Should Be Shaking in their Boots." The report cites areas where Tesco really shines, including:
Private label - The depth of private-label merchandise that Tesco stocks in its stores can be as much as four to five times higher (in percentage terms) than that of a typical U.S. grocer. Tesco house brands are well entrenched in minds and wallets of regular shoppers, and customer satisfaction is very high.
Store execution - Tesco is well known in retail IT circles for being an early adopter of leading innovations like demand-driven assortment-to-space planning, perishables management and universal supplier collaborative demand planning. Supply chain prowess - Wal-Mart steals the headlines, but Tesco is focused and ruthless in its efficiency in managing its global supply chain-a major reason it ranked No. 9 on the AMR Research Supply Chain Top 25 for 2005.
"Regardless of the spin that retailers in the States will place on this news, the internal reaction among most affected retailers will be strategically equivalent to if Wal-Mart was opening across the street from all of their stores," the AMR report concludes. "For now, what will be simply intriguing to consumers is clearly a new wrench in the complex ecosystem of U.S. grocery retail."