The conventional food-distribution industry "reacts to Wal-Mart as if it's paralyzed," says one trade observer. He's quoted in the news feature that anchors this week's issue-wide coverage of Wal-Mart Stores. But should that be the case?
In a way, that question is the underlying theme cutting across this Wal-Mart issue of SN. But before we get to that question, let's take a look at why this is a special time for Wal-Mart. It was 20 years ago that the discounter opened its first membership club, Sam's Club; it was 15 years ago that it opened its first supercenter, then known as Hypermart USA; and it's now entering its fifth year with the Neighborhood Market format.
Let's take a look at each of these food-oriented formats with a view to determining how daunting each is as a competitor to conventional supermarkets. Much more detail about Wal-Mart as a competitor can be found throughout this issue. (Incidentally, this entire issue was prepared without Wal-Mart's cooperation.)
Sam's Club: Perhaps the least challenging to the conventional retailing industry is the membership-club format. That's relative, of course. Any chain with a top line of some $30 billion can't be entirely ignored. But unlike other Wal-Mart formats, Sam's Clubs clearly lag their chief competitor, Costco. Indeed, Sam's is said to have posted slim-to-declining same-store sales in recent months. Sam's is now being retooled with a view to going back to its roots of supplying small businesses.
Supercenters: This is the format that causes all the anxiety to conventional retailers. Supercenters are little less than machines driven by Wal-Mart's formidable distribution capacity. That capacity equates to unbeatable retail price points. Wal-Mart benefits by having come late to the food-retailing party, since it now employs the latest technology planted in new distribution centers unencumbered by a heritage of operational and buying inefficiency.
Neighborhood Markets: Perhaps this is the format that should be most worrisome to conventional retailers since it is a conventional supermarket. These stores can be planted anywhere, although the strategy seems to be to ring them around supercenters to offer shoppers a convenience choice. The format has been slow to build, but many observers anticipate a quickening rollout rate before long. These formats aside, it's predicted that Wal-Mart will tinker with up to 10 more retail concepts in the future, including drive-through supermarkets, a convenience-apparel combination, a dollar store, auto sales and even a conventional department store.
What's likely to slow the juggernaut's roll? There are negatives: Wal-Mart is viewed by large numbers of consumers as drawing the life from small-town America. Others blame it for offering paltry wage rates and crippling organized labor, to the detriment of America's middle class. It's even seen as sowing the seeds of ruinous deflation. It can't be foretold whether these negatives will slow the discounter, but recall that A&P Stores was once seen as an unstoppable juggernaut, too.
