Viewpoints

How Best to Compete With a Re-Energized Wal-Mart

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Wal-Mart went from retail juggernaut in the 1990s to stumbling giant a few years later. But now the Bentonville behemoth has regained its momentum and supermarkets need to take notice.

In its latest meeting with financial analysts, Wal-Mart executives demonstrated that the company's rebound is likely to have staying power. Not only is the retailer on target for this economy, it's increasingly well positioned for whatever comes next.

Among the strategies Wal-Mart outlined to analysts were smaller and more productive supercenter formats, accelerated store remodels, wider price gaps with conventional grocers, and a relaunch of the Great Value private label.

One modest positive for supermarkets was that Wal-Mart slightly downgraded the plan for new supercenter openings to a range of 125 to 140, compared to the previous projection of 140. But that doesn't fully soften the blow of Wal-Mart's more aggressive stance against competitors.

Meanwhile, as Wal-Mart pumps cap-ex dollars into remodels, some other food retailers may be forced to reduce store growth plans in light of a tight credit market.

Financial analysts I spoke to agree that Wal-Mart is on its game, although they don't all point to the same reasons. Gary Giblen, executive vice president at Goldsmith & Harris, New York, contends that Wal-Mart's focus on further separating its pricing from that of conventional grocers is the strategy that should most concern supermarkets. He said price-oriented retailers like Food Lion or Supervalu's Save-A-Lot have the most to lose.

Another analyst, Mark Wiltamuth, executive director at Morgan Stanley, New York, pointed to Wal-Mart's growing emphasis on private label as most important for supermarkets to track.

“Private label is an effective weapon to combat Wal-Mart's offerings now,” said Wiltamuth. He said Kroger stands out among supermarket companies that have used private label to stay competitive with Wal-Mart's pricing, based on a Morgan Stanley study of a few months ago.

What other battle plans can supermarkets employ against Wal-Mart?

Targeted formats that aim at specific customer segments are another effective competitive approach. A&P is steering clear of middle-market positioning by differentiating its stores into classifications including fresh, discount and price-impact.

Local marketing can likewise be effective in competing with a national player like Wal-Mart. One of the latest examples of local positioning is a newly revamped branding approach by Giant-Landover, a unit of Ahold.

The supermarket arsenal for battling Wal-Mart might also include a robust loyalty program that enables customized offers for shoppers and clustering of stores.

You may have noticed that the above competitive solutions don't represent new magic bullets, but rather proven strategies that have yet to be maximized by supermarkets. There's no time like the present.

Contributors

David Orgel

David Orgel is executive director, content & user engagement, of Supermarket News (SN) and its website, SupermarketNews.com. Orgel delivers his opinions on industry trends through a bi-weekly...

Jon Springer

Jon Springer has been writing about food, food retailers and food retailing for more than 10 years, and is in his second tour of duty with Supermarket News. His prior experience includes covering the...
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In their Viewpoints columns, SN editors give their perspectives on current industry issues.

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