Wal-Mart's Best Strategy to Combat Tesco's Fresh & Easy

Wal-Mart plans on extending its retail presence into smaller, neighborhood friendly stores under the name 'Marketside' (source) in a direct effort to combat Tesco's attempt to enter the U.S. market with their Fresh & Easy stores.

Tesco's strategy in the U.S. is to enter the grocery market with small, local stores specializing in organic and ready to eat meals. The market is dominated by Trader Joe's, who, with roughly 300 in the Southwest, has an average store size of about 10,000 square feet per store. Trader Joe's has had a successful run in California, a place where Wal-Mart's big box retail locations have been met with opposition and little success.

Entering the market with store roll out plan of 100 stores to be developed over the next 5 years and investing around $500 million, Tesco's strategy is a bold one. Known for aggressive tactics in Europe, Tesco is planning on focusing on low-income and poverty stricken locations usually abandoned by larger grocery chains that average anywhere from 40,000 to 55,000 square feet per store. By focusing on these "deserts," as Tesco calls them, Tesco will attempt to gain a foothold within the U.S. market. If Tesco can become successful in building a chain of 100 stores within the Southwest U.S. market, the company can expect to see gross profits of approximately $600 million per year and sales nearing $2 billion.

Whole Foods, which recently acquired Wild Oats, is the next closest competitor to Trader Joe's. Whole Foods' stores average 34,000 square feet and specialize in a similar assortment to the proposed Fresh & Easy product offering, mainly perishable, healthy grocery and nutritional food products. As compared to Trader Joe's, which stocks roughly 2,500 private label products - approximately 85% of its total offering, Whole Foods' private label program accounts for 16% of grocery and nutritional sales for the chain. While Trader Joe's is a privately held company, Whole Foods, a publicly traded company, has grown in average store size by over 50% in the last 10 years and its current store development program contains 88 new stores through 2010 with an average of 56,000 square feet per store (62% larger than existing store size). The proposed development strategy will bring the average store size to over 41,000 square feet.

Though because Trader Joe's is a privately held company it is difficult to grasp the growth of its average store size, but its most recent store development plans appear to involve store sizes greater than 12,000 square feet and could indicate a growth in the average store size for the future of the company.

The trend of developing larger store sizes could lay the groundwork for Tesco increasing its average store size to compete with the typical grocery retail channel; Wal-Mart has been attempting to enter the grocery retail market for many years and sees the grocery store segment as viable competitor to its big box style of retail.

Wal-Mart's plan to enter the local grocery store market includes store sizes roughly 20,000 square feet in size and it appears, by looking at their recent Trade Mark applications, that it will enter the market with a heavy dose of private label product offerings - similar to the tactics employed by Trader Joe's.

Looking at the long term outcomes for Wal-Mart and Tesco, Wal-Mart clearly sees the writing on the wall if Tesco were to enter into the U.S. market with any success. If Tesco were to gain a foot hold within the U.S. market, it appears the average store size would gradually grow and, most likely with additional acquisitions, Tesco would compete with Wal-Mart within the typical grocery store market and look to eat away at Wal-Mart's market size. Wal-Mart's options to combat Tesco are very clear and point to one direction, compete with Tesco head on.

With this scenario, there are only two likely outcomes; both Tesco and Wal-Mart succeed or both will fail. The outcomes are limited and universally the same because both companies are taking similar approaches and employing similar tactics that if one succeeds, the same will be true for the competition. It will be very unlikely that one company will succeed while the other fails.

This appears to be a strategic move on Wal-Mart's behalf in an attempt to keep Tesco out of the U.S. Market. Strategically, it is worth the $500 million investment to flood the market with an additional local, fresh grocery store to dilute the market place, confuse consumers and see Tesco fail in its attempt to enter in the U.S. market. On the other hand, if both companies were to be successful within the local, fresh grocery store market, Wal-Mart's investment will pay dividends in a market that currently only has three large players; Tesco, Wal-Mart and Trader Joe's.

Untapped Potential: Energizer Limits Brand Extension Opportunity in Automotive Battery Category

Energizer has had a licensing agreement with Johnson Controls for an unknown number of years (at least since 2001) for auto and marine batteries. This is a strong move for Energizer and shows the potential of licensing agreements for products within seemingly core categories. Johnson Controls is one of the world's largest automotive battery makers and this partnership is a strong move for both parties. This agreement is a big opportunity to spread the Energizer brand and increase the number of Energizer consumers and amount spent by those buying energizer batteries.

With only a few brands within the automotive battery segment, in addition to the fact that consumer purchasing cycle for batteries has to be very long (3+ years) cycle, a prominent consumer brand such as Energizer could pull consumers to the Energizer branded auto battery when compared to the competition. In fact, a majority of auto battery brand are actually private label brands, such as Die Hard (Sears) and Duralast (AutoZone).

The problem here lies with the execution and oversight of the licensing agreement. Many companies face similar problems, a viable opportunity, but a lack of resources and personnel. Lack of attention spent on managing brand extensions and partnership opportunities because of insufficient resources leads failed ventures and negative impressions with consumers. The licensing arrangement is seen almost as an easy revenue stream and then set aside. This appears to be the case with Energizer’s auto battery.

With such a large potential in this category, it is a shame to see Johnson Controls sell the batteries exclusively at the Pep Boys automotive store. Johnson Controls has an exclusive supplier arrangement with Pep Boys and seems to lack incentive to sell the Energizer branded car and marine batteries elsewhere. This is where competent oversight of the program could lead to increased revenue and consumer brand impressions.

With Pep Boys’ ~550 (and shrinking) store count, Energizer has essentially limited themselves to a small percent of the auto category footprint. Because the Eveready company has given the control of the Energizer brand with a lack of oversight to the licensee, they have given up control of one of their most valuable assets. Understanding that the auto battery category is very competitive and commoditized, including a large dominance of private label brands, one has to view the opportunity for Energizer within the auto battery as an opportunity to build brand strength first and a financial opportunity second.

Business Decisions and Branding Strategy

The old school train of thought surrounding branding strategy is to keep a brand within a single category to ensure keeping the brand strength high and the category recall by consumers even stronger.

By taking lessons learned from Strategic Theory we can see how to make such decisions and the effects that they will have on the strength of the brand and revenue generated or lost by such decisions.

There are several keys to ensuring the right decisions. The factors to consider when making such a shift include: revenue, markets, brand impressions, consumer perception and current position protection.

After considering such factors and identifying possible outcomes, one can use strategic theory to anticipate what the competition’s move will be and to identify a company’s best move.

By taking a look at the decision by both Energizer and Duracell, we can identify the each company’s best strategic decision and how they came to the decision to extend their brand into the rechargeable battery category.

When looking at the new category, there three strategies that the companies could employ. The first and most obvious is doing nothing, keep the status quo. The next two are similar, but the execution varies and is the main difference between the two. The companies could choose to enter the new category by launching a new brand or by launching a brand extension into the new category. (Acquisition is also a possibility, but is very similar to launching a new brand and in this case, there is no viable brand on the market for acquisition.)

Energizer and Duracell have both analyzed the decision to extend their brands into the rechargeable battery category and both have similar decisions to make as the affects of such a decision will have similar impact on both companies. Revenue is one of the heaviest factors for these two companies and when looking into the revenue, the companies need to look at their current market size, the growth of the current category as well as the size and growth of the new category.

Both companies have invested large amounts of their budgets to advertising and branding efforts and because of this, launching a new, a co-branded or even a sub-branded brand within the new category will be very costly. There is such a large overlap between the new category and old, that the launch of a new brand would be too costly and the return too small.

Looking at the situation where a company A launches a new brand, while company B extends their brand into the new category. By choosing to launch a new brand, Company A must incur a large advertising loss for a successful launch of the new product, because they are launching a new brand, the canabalization of Company A’s brand is lessoned, but because of the lack of awareness of and trust in the new brand, market success tips in favor of Company B who extended the brand rather than launched a new brand.



For both companies, the strategy of the Status Quo is Dominated by the two Expand strategies. And because it is in Company B’s best interest to move into the new category, Company A should expect Company B to do just that, planning accordingly and vice versa. Both companies can essentially remove the ‘Do Nothing’ strategy from the matrix and identify the best plan moving forward.



Both companies now have a best strategy to launch a brand extension into the new category.

Time for a Family of YouTube Brands?

With the WGA on strike YouTube, and other online video sites, have an opportunity to capitalize on the lack of choice of shows with new content by viewers.

The best strategy for YouTube in the upcoming year is to create dedicated channels of content geared around specific categories and themes. In essence, YouTube would be similar to a cable operator as well as the content producers such as MTVN and ESPN. By creating a network of channels for the site, YouTube would be able to create new, specialized channels that could cater to specific and more niche user groups.

There are two options for YouTube in creating these channels. The first is to utilize a YouTube Master Brand with a Descriptor Brand strategy (aka Family Branding), naming the channels YouTube Sports or YouTube Reality. This strategy would clearly identify the different channels and clearly label the different offerings by YouTube, but long the long term potential would be weakened and would allow for increased competition by Weeds (new competition within a category that was able to grow because of poor brand and category defense by leading brands within that category). The second and more effective strategy would be to utilize an Authentication Brand naming strategy, creating a new channel brand and authenticating it with the YouTube brand, such as Competition by YouTube (Sports) or TruLife YouTube (Reality). This strategy is more dominant strategy for the long term because the category, online video, is still in its infancy. Creating new brands with the support of the YouTube brand allows YouTube to cater to the niche categories with brands geared towards those groups.

This Authentication method will be more difficult to execute, however, the longterm outcome will be more beneficial to YouTube than building channels with the Master Brand strategy. YouTube can then target niche consumer segments with individual channels that contain content related to a specific theme, all the time allowing those same consumers to .view content in other categories

Ciroc Vodka Taking New Approach

Ciroc Vodka announced a partnership with PDiddy, giving up branding and marketing controls to Puffy in an effort to align the Vodka with on of the biggest names in Hip-Hop and differentiate the brand from the stiff competition (no pun intended) within the hard alcohol category. The partnership gives partial ownership to PDiddy (possibly 50%) in a deal structure similar to 50 Cent's arrangement with Glaceau's Vitamin Water that left the rapper cashing in after Glaceau was sold to Coca-Cola.

This type of deal structure is a great opportunity for the brand and the celebrity to build on the strengths of the celebrity with not having to create a new brand, utilize previous brand recognition and established distribution. As compared to Trump branded Vodka, this partnership will allow those who don't associated with PDiddy to still resonate with the brand and enjoy the vodka, while at the same time, the association with PDiddy will strengthen the brands presence within the party/club lifestyle.

Unfortunately, Ciroc also gave up marketing and branding control to PDiddy, which has been disastrous at best with his last attempt.

These types of partnerships are becoming more common place, the afore mentioned 50 Cent deal as well as David Beckham not resigning with Gillette because he wanted more than just an endorsement deal, i.e. partial ownership or revenue sharing. I am surprised that Ciroc gave up 50% ownership in the Vodka, but I would expect to see more partnership arrangements like this one in the future.

Unforgivable Women Commercial is, well, Unforgivable

With the success of his mens fragrance, Unforgivable, rapper, Puffy, PDiddy, Puff Daddy, Sean John, Puff the Magic Dragon has released his newest scent, Unforgivable Women - a new fragrence for women. The release of the new perfume has been aided with a racy commercial that is too provocative for TV, even limited to airing after 9pm on one of PDiddy's most valuable avenue to reach consumers. The commercial stars and was directed by PDiddy himself and lacks class and sophistication.



The :30 spot seen above (also in :20 and :60 spots) depicts PDiddy meeting and having a sensual encounter with a young lady in the stairwell of a hotel. Despite its sexual nature, its a wonder that anyone at Estee Lauder allowed this commercial air. Puffy himself seems a little upset that the suits are censoring his commercial. "I feel strongly that this movie needs to be viewed and judged by the public rather than by executives," Combs said. "Some people may be uncomfortable with the sensuality and sexual content, but it is important for them to make that decision personally." source First off, its a commercial, not a movie. Second, it sounds like he needs to take some advice instead of thinking he is bigger than life

I would hope that after this poor display of marketing talent would keep PDiddy from directing any future commercials that end up on TV. Unfortunately, this 'scent' will probably do rather well at retail, and Puff John will claim success, leading to more abominations.

Ditech's Up Hill Battle

In a difficult and last ditch effort to remain afloat, Ditech home mortgages is attempting to move up the brand ladder and position itself as a mid-level mortgage company. In a market that almost evaporated overnight, the sub-prime mortgage market has been the target of many scathing reports on unethical practices and over-zealous business people.

It could be said that this is a move that will lead to certain failure, or at least a waste of money, as Ditech would fail to move up to a mid-tier brand in the mind of consumers. However, Ditech is facing a bleak future and is in a market that may take years to recover, if it ever does. This may be a last ditch effort of a dying company to stay relevant in a market that is no longer. Who knows, Ditech may be a brand brought back to ‘life’ it 10 or 15 years as many brand owners have done recently.