Is Neighborhood Market the answer to Walmart's discount challenges?

Visiting Walmart’s latest Neighborhood Market prototype in Fayetteville, Ark., earlier this month, it struck me how compelling a proposition the format is becoming, and how it could be a powerful element of the retailer’s strategy to compete with growing competition from hard discounters such as Aldi and Lidl.

Leading growth format for Walmart
At 41,000 square feet — the “sweet spot” for the format — the typical Neighborhood Market is not small, but provides its Supercenter shoppers with an alternative destination for grocery shopping. Here in the U.S. it is Walmart’s primary driver of new space and sales growth remains strong, with comp store sales up 7.1% in the last quarter. While it has been a relative success story for Walmart for a number of years, significant improvements are evident in the latest iteration of the format.

Evolving the format with a different look and feel
The new prototype has a very different look and feel, with eye-catching navigational signage and graphics adding personality to the store. Fresh foods have been re-worked, with a new market-style produce department, the addition of bakery and deli counters, lower fixtures which open up lines of sight across the department and a new made-to-order pizza program. It also features a new-look pharmacy along with an in-store pickup desk and drive-thru options for online orders. All of this is delivered with a low price proposition, with prices matching those at its Supercenters.

Growing capabilities in fresh food retailing
The senior leadership has been instrumental in driving the development of this prototype. CEO Greg Foran is an experienced grocery retailer who “likes fresh food” and knows the important role it can play in driving store traffic. Walmart’s COO, Judith McKenna, brings extensive experience in the category from Asda-Walmart in the U.K., while others from that business have transferred across to the U.S. to help re-engineer in-store processes to simplify the model. This is enabling it to operate with EDLP principles while also delivering a highly compelling shopping experience. The recent addition of Walmart Pay is also revolutionizing the checkout experience, significantly speeding up front-end service.

A powerful combination
And this is what makes it really interesting. It’s not a discount supermarket, and neither is it a full-service supermarket. It’s a hybrid that operates somewhere in between, and with the expected ramp-up in private brands and price investment of “several billions over several years,” it will be a key element of the retailer’s strategy as it faces increased competition from hard discounters such as Aldi and Lidl. Against these retailers it ticks a number of boxes: low prices, a good mix of branded and private label products, a fast and convenient shop, while also offering a contemporary store environment, online shopping, pharmacy services, and in some locations, fuel. It’s a powerful combination that has been developed by two leaders who have seen the impact that discounters can make in other markets.

Do you think the new prototype, along with the investments that are happening with pricing and private brands, will be enough to help Walmart counteract Aldi’s continued expansion and Lidl’s market entry?