Late last month, Wal-Mart Stores broached what seemed to be some good news for conventional supermarket operators, namely that its torrid rollout pace was destined to slow a bit.
Yet, as was mentioned on this page at the time (SN, Oct. 30), unmitigated glee might not be totally warranted. To be sure, Wal-Mart asserted that it would reduce its domestic expansion plans, focus more on international growth and become more cautious in its new-store development in a bid to limit self-cannibalization. Specifically, Wal-Mart's capital expenditures are to decline in the next fiscal year to 2% to 4%, as compared to 15% to 20% this fiscal year. That could still yield more than 250 supercenters next year, which, if anything, would be no more than slightly fewer than this year's development rate. More than a score each of Neighborhood Markets and Sam's Clubs are also slated.
In short, then, while the pace of activity may slow a bit at Wal-Mart, there is still a lot going on. Moreover, the fallout from Wal-Mart's presence in the market continues to be palpable. Let's take a look at several recent developments that have ties to competing with Wal-Mart. All were reported earlier in SN:
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Brown & Cole: This regional operator of 27 stores filed for Chapter 11 bankruptcy in Seattle earlier this month. In connection with the filing, the chain's president asserted that the action was made necessary by “the new realities of today's business climate.” That means difficulties associated with competing with Wal-Mart's 44 stores in Washington state, which sop up a large proportion of shoppers' food spending.
The filing isn't good news for Associated Grocers, Seattle, either. That wholesaler derived more than 12% of its sales volume from Brown & Cole.
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Sweetbay: This Florida-based chain is the product of Delhaize's conversions of its outdated Kash n' Karry units. To date about 70 have been converted with the remaining 30 to follow. The idea behind Sweetbay is to develop a more upscale banner featuring improved quality, service and selection. The store conversions seem to generate immediate customer trial, but don't retain patronage in the long term. Delhaize officials acknowledge that Sweetbay is viewed by customers as too high in price. Clearly, Sweetbay is being pummeled from one side by Wal-Mart's low-price offer and from the other by Publix, which long ago staked out the territory Sweetbay seeks to occupy.
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Whole Foods: It can't be argued that there's anything much wrong with Whole Foods Market's financial performance, although in its most recent quarterly report its comparable-store sales slipped from double-digit gains to single-digit gains. Whole Foods had produced double digits for five consecutive quarters. Whole Foods' executives seemed a little puzzled about what's going on, but did cite cannibalization and stronger competition as possible reasons. There's no doubt that the Whole Foods model is being emulated by many competitors, including some locations of Wal-Mart. So, despite the gulf that separates shoppers that favor Whole Foods from those that like Wal-Mart, the possibility that Whole Foods is feeling some heat from Wal-Mart can't be ruled out.
One further consideration: Both Wal-Mart and Whole Foods cited self-cannibalization in connection with their slowdowns.
