By Michael Bergdahl
Imade a presentation at the National Association of Convenience Stores’ 2004 annual conference in Las Vegas last October. My speech centered around my book, What I Learned from Sam Walton: How to Compete and Thrive in a Wal-Mart World. I am already booked to speak at several other industry groups this year, including the National Convenience Store Advisory Group’s Supply Chain Summit in March.
So why are convenience stores and their associations so interested in hearing about how to compete and thrive in a Wal-Mart world today, when just a few years ago Wal-Mart wasn’t even considered a direct competitor? The answer: gasoline.
“[Wal-Mart] has tested convenience store formats at its Supercenters in the past, and likes the business, but has never made the commitment to roll the concept out,” announced a May 2003 article in the magazine
Retail Merchandiser. It seems strange to me that Wal-Mart hasn’t aggressively moved into the c-store business. If you think about it from Wal-Mart’s perspective, the reasons for entering the business are compelling.
1. Prime real estate. Wal-Mart has prime real-estate across the country and around the world where a c-store would fit nicely. The chain has already proven that customers are willing to stop and buy gas at its big box stores. It also has the technology to know what percentage of those gasbuying customers are also shopping inside their existing stores while there, and what percentage are simply buying gas and leaving. Therein lies the opportunity for Wal-Mart to increase its units per transaction out at the pumps by offering additional items to “on the go” customers.
2. Complex supply chain. Wal-Mart has the most sophisticated supply chain on the planet already in place with the ability to provide products from Harlem to Hong Kong. There are logistical issues with smaller product volumes that Wal-Mart will have to solve first, but these issues would be relatively easy to overcome if the convenience store was on Wal-Mart’s lot.
3. On-the-go sales. The c-store business isn’t going to cannibalize existing sales from Wal-Mart or Sam’s Club. Wal-Mart’s Supercenters supply the shelves at home, and convenience stores meet the needs of immediate-consumption customers.
4. Existing infrastructure. Wal-Mart can leverage its existing infrastructure of people, technology, innovation, culture, real estate, store operations, buying and marketingeverything is already in place. All Wal-Mart has to do is “pull the switch” and it’s in business.
5. Diminishing space. Entering the convenience store business fits into Wal-Mart’s strategy of invading major metropolitan urban areas across the USA and Europe, where large parcels of land simply aren’t available for a big box store.
6. Unrivaled buying power. Wal-Mart’s size allows it to buy gasoline at the lowest possible cost and, using discount cards, provides customers with additional cents off an already low retail price. Its market share for gas is already being driven by its legendary low prices. The double whammy for competitors is that Wal-Mart is already successfully stealing market share and customer traffic using two of the convenience store industry’s primary traffic and profit drivers: gasoline and cigarettes.
7. Pricing advantage. Thanks to its incredible purchasing clout, Wal-Mart could use its everyday low price strategy in convenience stores and still have potential for higher marginswhich would more than offset any concerns about lower product volumes.
8. Familiar ground. Wal-Mart already has purchasing muscle in the top 10 convenience store items. Through a combination of branded products and its own privatelabel offerings, Wal-Mart will be able to squeeze prices for gas and the products inside the store to the point that some competitors will “cry uncle” and suffocate.
9. Competitive forces. Other retailers may inadvertently contribute to the problem, since many mom-and-pop store operators buy at least some of their inventory from Wal-Mart division Sam’s Club. Some buy directly from Wal-Mart because they can get those products cheaper there than they can from their own supplier network. Imagine the cost at which Wal-Mart can buy products for its own c-stores.
10. Strong alliances. Wal-Mart’s international expansion, out of cultural necessity, now includes strategic alliances and partnerships with existing retailers in the countries it has entered. There are plenty of convenience store “partners” for Wal-Mart to choose from across the globe who already have an established brand and a toehold in existing markets.
If gasoline prices continue to rise, Wal-Mart will revisit the idea of entering the convenience store business. Last time I checked the price of regular gas was above $2 per gallon in some areas. It’s no longer a question of whether the world’s largest retailer will become a convenience retaileronly a question of when.
Business coach Michael “Bird Dawg” Bergdahl once worked with Sam Walton at Wal-Mart’s headquarters in Bentonville, AR. He will provide the keynote address at the National Convenience Store Advisory Group’s spring conference, March 18-20 in Dallas (www.ncsag.org). He can be reached at 412-635-2638, or at www.michaelbergdahl.net
