One of Walmart’s biggest announcements last week was a total gas.
Walmart announced last week that it is expanding its push into the gas and convenience store business.
On Wednesday, Walmart opened a new gas and convenience store in Plano, TX that it is calling a Walmart Fuel Station. The store is just shy of 3,000 square feet and offers numerous gas pumps and the food and beverage fare typical of a convenience store. Walmart plans to open up three similar stores in the parking lots of supercenters in the Dallas-Forth Worth area by the end of the year.
While Walmart has bloated the PR headlines recently, with odd announcements like Hollywood Hills VR galas and digitally-enabled concierge services for the upper crust of Manhattan, this announcement is indeed substantive.
Walmart is dead right to go after this business. It is another strong move under Doug McMillon’s leadership.
Walmart, like every company, must focus on three things:
Growing The Business — i.e. getting more out of the opportunities afforded from the current business model. Improving The Business — i.e. expanding the margins of the current business model. Transforming The Business — i.e. devising new ways to disrupt itself and to discover new business model economics in order to survive any competitive threat that might arise.
How much of an emphasis or how many resources a given company puts towards any of these three buckets depends upon the current health or strength of its given business model and the likelihood of a competitive threat.
Walmart right now is clearly under threat from Amazon, so it behooves Walmart to accomplish tracks one and two with as much efficiency as possible so that it can generate quick returns on its current model, limit distractions, and ultimately shift resources to the transformational work Walmart will need to accomplish over the long haul.
Walmart expanding its company owned convenience store presence fits these guidelines. It is a low risk move that falls clearly into the "grow the business" designation and one that does not jeopardize focus on any other current moves or any other longer-term transformational initiatives. It is a move Walmart should undertake and can undertake with little, if any, distraction.
Convenience stores within Walmart parking lots make tremendous sense for the following reasons:
Convenience Stores Will Generate Higher Returns On Walmart Real Estate Without Touching The Store Footprint
The beauty of this move is that placing convenience stores/gas stations in Walmart parking lots does not impact store operations one bit. Workstreams inside the large corporate entity probably do not even need to intersect all that much.
In addition, convenience stores are a shrewd way to improve asset utilization.
Any parcel of land atop which a Walmart supercenter sits is essentially a box. Generally the term "big box" refers to the shape and design of an actual physical store, but in this case the term is well-suited to describe the full footprint on which both a Walmart store and its parking lot sit as well.
Inside a a retail store, retailers always tinker with their "mix" inside the box — i.e. the allocation of certain product categories or experiences within a store’s walls — to generate the highest return on the in-store real estate that they can. Parking lot asset utilization is no different of an exercise, just "the box" includes the outside of the store as well. Walmart is just looking at its "mix" across its in-store and out-of-store real estate footprint in this instance.
Driving traffic to physical retail locations is a tough game. Reports released on Monday, 7/16 indicate e-commerce is driving most of retail’s top-line sales performance right now, with sectors like department stores also struggling. Less traffic to physical stores means less traffic to parking lots, which means that stores are not the only physical structures that will shrink over time — parking lots will need to shrink in size too.
Walmart appears to be trying to get out in front of these trends.
Convenience Stores Are Big Business
Seeing that the need for parking spaces at retail stores is shrinking and desiring to repurpose theses assets is one thing, but deciding what do with theses spaces is another effort entirely.
Convenience stores are big business. According to Statista, U.S. convenience stores are a $616 billion business annually. Everyone’s favorite statistic too — convenience store hot dispensed beverages alone generate a whopping $7.6 billion in sales per year. That is a hell of a lot of gas station coffee.
Walmart has the real estate and the brand to grab market share in this big business and thereby give itself an earnings shot in the arm. In contrast, other U.S. retailers’ parking lots may be too small to pull this off to the same degree, and, for many, convenience stores don’t mesh with their brand images either.
Gas by Macy’s just doesn’t feel right, for example.
Conveniences Stores Are A Different Trip Type
The beauty of Walmart’s strategy, if correctly executed, is that 1 + 1 could actually equal 3.
Gas is a different trip psychology than a traditional supercenter or grocery trip. It is a quick trip – a trip consumers have to make whenever they need to make it. The consequences of running out of gas are the stuff of B movie legends.
Convenience stores will not likely cannibalize supercenter trips, and, more importantly, the strategic net Walmart is casting may even catch a few unplanned trips, by enticing customers into a supercenter that had not planned to make a go inside a Walmart before they stopped to get gas. But, once such customers are in the parking lot, checking out that new TV or deciding to go in for groceries now versus later could easily become a reality for a good many people.
This additional and also potentially serendipitous trip is just a competitively priced gallon of gas away for many of Walmart’s and its competitors’ customers.
And, you know Walmart will have great prices on gas too.
Amazon Doesn’t Do Convenience Stores (Yet)
The last thing that is great about a potential push into conveniences stores is that Amazon does not sell gas . . . yet.
Amazon, with Amazon Go, is itself going after the convenience store business, likely for reason number two outlined above — it is big business. But, selling gas at physical locations still remains mostly out of Amazon’s purview for the time being. Amazon Go, thus far, has been more of an urban play. The suburban and Middle America appeal of the concept is not well-understood at this point.
Existing physical footprints, in this case then, are not the traditional albatrosses around the necks of retailers that they are in so many other cases. They may give Walmart the time and the nice, little extra cash flow to run its own Go-like experiments within the convenience store space.
Ultimately, Walmart still needs to show the industry its tranformative ideas, but this push into convenience stores could be a great way for Walmart not only to make money from gas in the short-term but also to begin cooking with gas over the long-term as well.