Skip navigation

NEW COMPETITION

The nature of competition in the retail food industry is poised to change for several fundamental reasons, including the shift to offering meal items, the ongoing wave of consolidation and the entry of Wal-Mart Stores with a conventional supermarket model.Among these change-drivers, it's the last that probably has received the least amount of comment, but which is likely to be nearly as important

The nature of competition in the retail food industry is poised to change for several fundamental reasons, including the shift to offering meal items, the ongoing wave of consolidation and the entry of Wal-Mart Stores with a conventional supermarket model.

Among these change-drivers, it's the last that probably has received the least amount of comment, but which is likely to be nearly as important as the other two in the long run. You'll find a lengthy discussion of these trends, and of many of others, in the news feature that starts on page 1. The feature is built around a roundtable SN hosted. SN editors invited several well-known securities analysts to the roundtable at SN's office in New York and asked them to field questions about what they think is next for food retailing. The news feature is the result of that discussion.

Perhaps one of the more provocative lines of discussion at the roundtable centered around Wal-Mart's move into conventional supermarket retailing.

Here's what Wal-Mart plans, as was extensively reported in SN June 15: Next month, Wal-Mart is to open the first of three experimental, 40,000-square-foot stores to be dubbed the "Wal-Mart Neighborhood Market." They are to offer consumers the high-velocity food and nonfood items that Wal-Mart has identified through its Supercenter experience. The stores also will include in-store pharmacies with drive-through service windows. One roundtable participant described the format as looking like a Food Lion with a Rite Aid bolted to the side. Doubtless, Wal-Mart sees these stores as catering to shoppers who find Supercenters just too big to shop conveniently, as many do. One indicator of the fact that shoppers find Supercenters cumbersome is that many conventional-supermarket operators with a Supercenter in the vicinity discover their sales volume goes down on weekends, as was said at the roundtable. This means shoppers patronize Supercenters when they have the time to do stock-up buying.

Since Wal-Mart now plans just three of the food stores, all of them in Arkansas, it will be a while before any widespread competitive effect will be felt. But if things run according to the course Wal-Mart generally follows, Wal-Mart will tinker with the three stores until they seem right, or until it decides the format won't work. And, by the way, Wal-Mart isn't reticent to decide a format is no good and just lop it off.

But assuming the experiment goes well, Wal-Mart will roll out a few more stores, testing them in several different areas. Then Wal-Mart will roll them out at an exponential rate. Roundtable participants predicted that Wal-Mart could have 200 to 300 of the food stores in a couple of years, although that seems improbably fast.

But roundtable participants pointed out Wal-Mart could move fast by converting now-dark discount stores -- and myriad spaces were left dark in the wake of Supercenter development -- and by converting Bud outlet stores.

What's more, Wal-Mart could very well decide the best way to expand rapidly is to join the retail-consolidation frenzy by buying regional supermarket chains for their real-estate, then converting them to the food format.

That would have the dual effect of removing traditional players from the industry and replacing them with Wal-Mart stores. Should Wal-Mart learn to be a better merchandiser in the process of perfecting its food format, the competitive threat posed to existing operators could be formidable.

Letters to the editor and other comments can be sent via the e-mail link at http://www.supermarketnews.com or to [email protected]. Letters also may be sent to the mailing address at the top of Page 4. Published letters may be edited for clarity and brevity. The web site also features weekly news updates, posted the Friday prior to SN's publication, plus classified advertising and information about Brand Marketing, the SN Trade Show Pavilion and the SN Archive.

TAGS: Walmart