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Walmart to Go not necessarily a game changer for smaller stores

story by Ryan Saylor
rsaylor@thecitywire.com

Walmart to Go may have just opened its first location in Bentonville March 16, but industry insiders who spoke with The City Wire said what could become another competitor will not cause them to start making changes to the way they do business, at least not yet.

Brandon Richmond, owner of four Family Stops convenience stores in Fort Smith and Van Buren, said the market has already adjusted to other convenience store retailers who got into the convenience store game far sooner than Wal-Mart.

"As it sits, this isn't Wal-Mart's first foray into the convenience store. Now we're assuming they'll come in and blitz the market, but Wal-Mart doesn't concern me as much as Casey's (General Store), Kum and Go and Quick Trips, because they've been doing it a lot longer than Wal-Mart,” he said.

According to Richmond, while Wal-Mart may come in and be very similar to some of the larger competitors he mentioned, customers are primarily looking for customer service and the best price on specific items, such as tobacco.

"For the convenience store customer, price is very (important). When it comes down to cigarettes, that's where we get 70% of our top line revenue. Wal-Mart won't be able to beat us because of state minimums."

Even with the larger outfits that are already buying up land and building convenience stores at breakneck speed, Richmond said often the larger chains are purchasing from the same convenience suppliers as the little guys, meaning prices are nearly identical or even slightly higher.

TECHNOLOGY SUPPORT
Nick Glidewell, director of sales and information technology at Fort Smith-based Glidewell Distributing, said distributors like his are what keeps the playing field level for many of the convenience stores in business today and it is because of the changes that have already been taking place in the market.

"This could be a game changer,” Glidewell said of the Walmart to Go model. “But honestly our industry is changing so fast and the consolidation is just mind-blowing. But we've already been dealing with this for probably about 10 years now."

He said Glidewell Distributors has figured out that technology and smooth operations are what will help small operators compete with the big guys. To drive home the point of how technology is helping his company keep the playing field level for all of his clients while competing with other distributors at the same time, Glidewell pointed to a $740,000 piece of technology his company invested in following the acquisition of its chief rival some 10 years ago.

"One thing that comes to mind is when we went from 60 to 94 (employees following the acquisition of Southern Wholesale), we had people on top of people and mistakes were awful. We bought a computer module for $740,000 and it was just an add on for an existing module that we had. We had a consultant come in and run the numbers. ... That thing paid for itself, I think, in 10 months. It's automating the whole process for the orders coming in and going out for the stores. If we can automate without sacrificing quality or price, then we're doing that and have done so for about 10 years."

SIZE DOES MATTER
While technology has allowed Glidewell and its customers to stay competitive, Richmond said there are other things that simply can't be matched with a large corporation, such as Casey's General Store, with more than 1,800 locations nationwide. Among the benefits of having such a large footprint of stores is the ability to transport much of the company's own product using internal infrastructure, versus paying a shipper. He said companies like Casey's are also able to hedge on fuel, meaning they can often times acquire the same fuel that a competitor sells down the street at a cheaper wholesale price.

"Casey's has the ability to buy on the mass scale with fuel. They buy fuel credits and exercise those to get gas cheaper than I can buy it," Richmond said. "They pay themselves to haul it, where I pay a hauler. So they make 4 or 5 cents more per gallon. They make 5 cents a pop more than I am, even though we sell the same product."

What would be a game changer, he said, would be for Wal-Mart to take a similar approach and start transporting its own fuel, should the company expand to a large number of convenience stores.

Even so, the cost savings are not always there for large retailers like Wal-Mart, said Steve Ferren, executive vice president of the Arkansas Oil Marketers Association, a group that includes Kum and Go, as well as El Dorado-based Murphy Oil.

"It's not whether I pull my own product or not, it's my cost of delivery," he said. "If I can find someone to deliver it from a terminal to store cheaper than I can do it myself, it's about the cost of delivery."

He said groups, including Murphy, have been known to continue hiring a hauler even though they may have their own freight line.

"But if you watch, you'll see all sorts of common carriers pulling into Murphy Stores. One reason it is such large volume to do it yourself."

THE LOCATION SHIFT
While the cost of shipping fuel to the convenience stores may again even the playing field, convenience store owners are starting to think about what to do should Wal-Mart start encroaching on their market.

"If they open across the street, we won't go into a market that Wal-Mart is getting ready to flood," Richmond said.

Ferren said when it comes down to it, no matter how confident some convenience store retailers may be, or what kind of prices wholesalers can offer, competition like what could be coming is never welcome.

"No one wants to go head-to-head with Wal-Mart."

He said what is going to happen will be what Richmond alluded to, which is stores not going in across the street from a Wal-Mart.

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But another strategy he said could be seen is that large, urban and suburban areas keep the chain stores, with independent retailers going elsewhere. It's a change he said is already underway.

"The players may be new, but the process has been going on forever," he said. "I don't know that the number of (convenience stores) has changed, although the target market could have changed. If I know I have to compete with a Kum and Go in a larger town, maybe I'll go to a smaller town. ... So maybe it makes people choose locations differently."

As for anyone who may be looking for cheaper prices from Walmart to Go or any of the other large convenience store retailers, Richmond said consumers should not expect major discounts.

"Most single store owners are cheaper than Kum and Go and Casey's. They operate at a lot higher dollar and margin, but we buy from the same places they do. But they ... have the $3 million to build a store."

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