|
Steve Kapinus
Wal-Mart Analytics, ACNielsen Consumer Segmentation & Targeting
When you think of organic food, sushi and high end coffee, does Wal-Mart come to mind? Based on the new upscale strategy Wal-Mart is advancing, you may not be surprised to see yourself (or your consumer) ordering a gourmet coffee while enjoying a Spicy Tuna Roll at Wal-Mart in the near future.
The introduction of Wal-Mart's Plano, Texas, affluent supercenter marked Wal-Mart's first step toward catering to a well-heeled consumer. With a new focus comes new opportunities for those manufacturers whose products appeal to the mid-to-upscale consumer. Quantifying the opportunity and understanding the impact of this new strategy will be critical for manufacturers looking to position themselves as strategic partners with Wal-Mart on this initiative.
Can it work?
It is an interesting concept, but is Wal-Mart's Plano, Texas, store a concept that can really be rolled out to stores across the country that want to accommodate a more upscale shopper? Wal-Mart's management says it can be, and an analysis of their stores' Consumer Trade Areas™ supports their proposition. Just as consumers are not identical, neither are Wal-Mart's stores.
Through an examination of who Wal-Mart is currently reaching with their every day low price methods, and who their shopper could be based on their existing locations, it can be determined where else this format should also be successful.
Plano, Texas—Only the beginning
The new store, geared toward a higher-end shopper, highlights Wal-Mart's emphasis on tailoring stores to their shoppers. The new layout would be foreign to the core Wal-Mart shopper, as the departments are optimized to match the consumer in the affluent Plano, Texas, shopping area. For example, where most Wal-Marts may contain either a McDonald's, Blimpie Sub, or Dunkin Donut's, the new supercenter offers Kicks, a coffee shop that reportedly looks and feels like a Starbucks. John Fleming, Chief Marketing Officer at Wal-Mart, said “This store will function as an active laboratory for testing a range of new ideas...When an innovation resonates with our customers, we will consider introducing it in other stores.”
Wal-Mart's more affluent focus was directly addressed during the Emerging Trends in Retailing Conference in Fayetteville, Arkansas. Wal-Mart CEO Lee Scott said, “Consumers with less income shop a greater percent of the store. As income goes up, the percent of the store shopped decreases. This is Wal-Mart's focus for growth with better goods.” The new Plano, Texas, location may serve as a delivery method for the higher-end of these better goods. While Wal-Mart is not shifting their focus from traditional every day low price, they are increasing their offerings in key departments in order to further cater to their shoppers.
Profiling Wal-Mart's shopper
So, who is this new upscale Wal-Mart shopper and how do they differ from the traditional Wal-Mart shopper? Utilizing Spectra's Consumer Trade Areas, estimated shoppers for every Wal-Mart store in the United States were profiled and then compared to the average U.S .shopper. The Consumer Trade Areas are derived from a consumer choice model that estimates how block-group-level, merchandise-line expenditures flow to nearby stores. The likelihood and extent to which households within a block group spend their dollars at a given store is based on drive time to the store, the number of cross-channel choices available to the household, chain equity, and other factors. This identifies who potentially would be drawn to a given store.
A store trade area for the Plano, Texas, location was created, and the resulting discovery was a polar opposite of the traditional Wal-Mart store in nearly every way.
Income differences
Since Wal-Mart is known for their every day low price format, it is no surprise that the typical Wal-Mart shopper's income is between $10,000 and $50,000, or slightly below the U.S. median income. This income range represents 54% of Wal-Mart's Store Consumer Trade Areas. However, you may be surprised to find that 26% of their stores' Consumer Trade Areas include potential shoppers with an income of $75,000 or more. This fact alone indicates that Wal-Mart is already poised for accommodating the more affluent consumer.
Unlike the traditional Wal-Mart store, 46% of the potential shoppers in the new Plano store's Consumer Trade Area have an income greater than $75,000. This is over 76% higher than the Wal-Mart income average. The under $50,000 segment that has traditionally formed the core Wal-Mart shopper represents only 35%. When comparing this to the 54% concentration found in an average Wal-Mart store, you can realize the magnitude of this shift.
Education differences
When examining the education level of the traditional Wal-Mart shopper, it was found that approximately 20% of the potential shoppers for Wal-Mart do not have a high school diploma, 57% have their diploma and possibly some college, with the remaining 23% possessing a college degree. Overall, this is lower than the U.S. education average. However, a store-level analysis revealed the level for possessing a college degree ranged from 7% to 62%.
Containing over 48% college-educated individuals, the education level within the new Plano Consumer Trade Area is high by most education standards. Furthermore, there are an additional 42% of shoppers that have at least a high school diploma or some college. The one-in-five ratio of core Wal-Mart shoppers that do not have a high school education is now reduced to one in 11.
Neighborhood differences
Wal-Mart's predominant lifestyle is, not surprisingly, rural. Closer analysis revealed that Wal-Mart has locations that range from Affluent Country Living to Mid-Scale Fringe Towns to Moderate Blue Collar Towns to Backroad Living—all within rural areas. The vast majority of these households have two or more people in the household (75%) and they are more likely to own their home (72%).
The Plano store boasts a very non-rural, suburban lifestyle. This is far removed from the backcountry road or working town rural neighborhoods. Wal-Mart has situated this store in neighborhoods that may sound foreign to the traditional Wal-Mart banner: Cosmopolitan Suburbs (24%), Prosperous Suburbs (13%), Affluent Minipolitian Sprawl (17%) and Suburban Aristocrats (15%). Unlike the core Wal-Mart shopper, this consumer is more likely than average to live alone (29%) and more likely to rent their dwelling (44%).
Brand preferences
How do these differing lifestyles translate into product preferences? To determine the brand preference of the core Wal-Mart shopper, the estimated shoppers were compared to ACNielsen Homescan panel respondents. The pairing of the Spectra Consumer Trade Areas and ACNielsen's Homescan panel allows us to determine the fit of items based on demographic similarity and also enables us to have a view into the purchasing behaviors of the shoppers in the focus account.
Upon analysis, the traditional Wal-Mart consumer's preference for cereal is Private Label or Malt-O-Meal bagged; Folgers and Maxwell House for coffee; Tony's Frozen Pizzas and Patio frozen entrees for prepared frozen food. Wal-Mart has been incredibly successful catering to this consumer's needs, and now is looking to expand their scope.
Conversely, the Plano Wal-Mart consumer's product preferences are different. They skew high for cereal that is health-oriented, like Kashi or branded grain cereals; Starbucks and Millstone for coffee; California Pizza Kitchen Frozen Pizzas and Amys Organic frozen entrees for prepared frozen food. As Wal-Mart caters to the more affluent consumer, the shelves will look different as well, especially with their organic focus—which will greatly appeal to this consumer. And in case you are wondering, sushi is also a strong match.
Leisure—lifestyle differences
The behavior and activities of the focus stores were analyzed and compared to MRI's survey panel. This provided a more detailed consumer picture of their daily life events. It also outlined what potential categories may be included and omitted when catering to the more affluent consumer.
The leisure activities of the traditional Wal-Mart consumer were analyzed. Country music is king here with almost 30% penetration. This is followed by watching auto racing (17%), fishing (17%), tending their garden (43%), camping (19%) and driving versus flying when traveling (40%).
The more affluent Wal-Mart consumer is more prone to listening to talk or news radio (34% aggregated), followed by adult contemporary hits (25%). Thirty-six percent possess a passport and 34% took a foreign trip with it. Their travel is focused on destinations—trips to the zoo (18%), visiting a museum (21%), and visiting theme parks (32%). Also noteworthy, 46% claim to recycle and 20% attended live theatre in the last year.
Retail impact
Wal-Mart is catering to a more affluent consumer, and if you believe you will have to wait until they build more upscale stores before the shift occurs, think again. A store level match found that 238 current Wal-Mart stores share a similar income match to the Plano, Texas, location, and within that group, there were 60 supercenters. In fact, there are stores with Consumer Trade Areas that are more affluent than the area the Plano store currently serves. Interestingly, there is a current Wal-Mart location that boasts 54% of the Consumer Trade Area with an income greater than $100,000. It is currently operating under the traditional format, but Wal-Mart is already positioned to revamp the store's format to potentially draw a more affluent consumer without a lease or real estate purchase.
The retail impact was further measured utilizing Spectra's Relative Threat Index, and the impact of Wal-Mart's new format was quantified. The measurement identified which stores are likely to have the highest competition due to overlapping merchandising lines and the similarity of stores' Consumer Trade Areas. Not surprisingly, due to their affluent positioning, Target Stores would feel the majority of the impact, with 28% of the contested dollars if just the Wal-Mart supercenters were converted to a more affluent format. A very surprisingly close second would be the Costco club chain with 27% of the contested dollars, with Kroger (6%) and Meijer (5%) rounding out the top four.
What this means to you
Wal-Mart has demonstrated they understand their consumer base and they appear to be concentrating on the correct strategy to cater to their more affluent shoppers. They have picked the right initial location and are accenting their core format with products that more affluent consumers purchase.
Therefore, now more than ever, manufacturers are in a unique position to offer valuable insights to Wal-Mart. Both manufacturers with upscale products and those without can:
- Maximize product and category sales by focusing distribution and merchandising in the “right stores.”
- Improve the effectiveness of your meeting with the Wal-Mart buyer by leveraging consumer-centric insights against Wal-Mart's Upscale Shopper objectives.
- Deliver extraordinary ROI by promoting distribution in the right retail stores.
|
