Wal-Mart's Rollback
After retreating from Germany, the giant retailer makes a last stand in Britain
Success, however, won't come cheaply. Asda faces strong competition in Britain, mainly from the well-respected Tesco. "Tesco is a very, very, very good business run by exceptional people," Hyman says. The low-pricing strategy works best for the market leader, but Asda is nowhere near that level. Tesco has 31 percent of the market. Asda's share is 16.6 percent, and Sainsbury is close behind at 16 percent. Moreover, most major chains in the U.K. have also successfully adopted the everyday low-price concept, and Tesco has been particularly adept at it. Asda also faces a squeeze from German chains Aldi and Lidl. They've been aggressively expanding into the U.K., brandishing cut-rate prices.
With good prices a given here, the Wal-Mart pricing formula isn't the competitive cudgel it was a few years ago. British consumers have become more sophisticated over the past decade; Tesco estimates that its customers split their purchases fifty-fifty between value goods and premium products. Premium brands, ready-to-eat meals, and organic foods have become increasingly popular, yet Asda has lagged behind rivals in adding them to its shelves.
Super Tesco. Though CEO Bond has pledged to rectify that omission, Wal-Mart's retailing heritage is in general merchandise, not groceries. Asda pioneered the concept of big supercenters that sell food and higher-profit nonfood goods under the same roof. But that lunch you see Tesco eating is Asda's. When it comes to moving general merchandise, "they [Tesco] are doing the same thing and doing it better," Wallace says. Tesco's half-year results, released last week, showed its nonfood sales in the U.K. were up 12.6 percent. Asda's clothing line, George, was such a hit that Wal-Mart imported it to the States. But now Asda is feeling increased heat from several highly successful budget clothing chains, including Primark, H&M,and New Look. In response, it has opened 10 stand-alone George outlets and six Asda Living housewares shops. But "the outlook is not good-they've stalled the rollout of both of them," says Ben Perkins, senior retail analyst at Mintel International. Asda spokeswoman Jennifer England says the company is pleased with their performance.
Bond has admitted that Asda needs to improve its once highly touted customer service and to upgrade its online operation, another area that has proved fruitful to Tesco (tesco.com sales were up 28.7 percent in the half year). And both Tesco and Sainsbury have carved out more market share by opening convenience stores. Asda has opened just two. A heavy amount of executive turnover hasn't helped, either. Bond's well-regarded predecessor, Tony DeNunzio, left in March 2005, amid speculation that he tired of interference from Arkansas. "There's been a revolving door," Hyman says. "People find it difficult to work with Bentonville."
Not true, says Wyatt, who denies that Wal-Mart keeps foreign executives on too short a leash. "Decentralization is key," she says, because local executives "know their markets best." Certainly, cultural differences in the executive suite were a factor in Wal-Mart's German sturm und drang. But Bain's Rigby says Wal-Mart learned from that experience and now gives local executives more autonomy. In Britain, however, "it hasn't happened as much as it needs to."
Wal-Mart once seemed eager to spread farther into Europe. That seems less likely now, given its debacle in Germany. Also, it would probably incur high costs as well as animosity from anticompetition regulators in some western countries. And Tesco is already firmly entrenched in much of the East.
The developing markets of Asia-Wyatt says it's looking at India-and South America are the most promising foreign outposts for Wal-Mart. Of course, other big players, including Tesco and France's Carrefour, are also pouring into Asia. But at least in those markets, Wal-Mart has a fighting chance of becoming market leader.
That's a dream deferred in the U.K. Nevertheless, Rigby says, "Wal-Mart could learn to live with being in second place if sales continued to grow and profitability turned around." And it sure beats divorce court.
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