It's always a good idea to take a look at Wal-Mart Stores from time to time to see what it's up to on the food-retailing front. The reasons are obvious for the most part: In addition to being the world's largest retailer -- and so one that swings a lot of weight no matter what the trade channel it enters -- it is also making an increasing splash in the pond of food retailing. Wal-Mart continues to ramp up its supercenter presence and continues its slow rollout of Neighborhood Markets.
What's easy to overlook in that process is what forms of growth those food-driven formats really represent: The supercenter is largely a backfilling activity. As Wal-Mart approached market saturation with its discount stores, it struck on the concept of seeking growth by retrofitting existing discount-store locations as supercenters. As the supercenters bumped up against consumer resistance on account of their daunting footprint, which can go up to 200,000 square feet, the Neighborhood Market concept was formed. The idea was that shoppers might do the weekly shopping trip at a supercenter and fill-in buying at a Neighborhood Market, which is no more than a bare-bones conventional unit of about 40,000 square feet.
Now let's move to a more general observation: There are two basic means of obtaining growth. The safest is to grow by acquisition. The more risky is organic growth, the process of entering a new market with a new banner, spreading stores into the new market and developing distribution capacity at the same time. Since the organic-growth strategy contains within it the risk of punishing failure, it has been virtually abandoned at the current time; abandoned, that is, by all but Wal-Mart with its Neighborhood Market.
So, with that backdrop, let's take a closer look at what Wal-Mart is doing with its two food-retailing formats. I'll draw on some information that has appeared in several recent issues of SN.
Wal-Mart plans to have 16 Neighborhood Markets up and running by the time its fiscal year closes on Jan. 31. The company plans to open 15 to 20 more the following year, with much of the growth taking place in the Dallas-Forth Worth region. Look to Wal-Mart to experiment with the concept some in that market by opening larger units and adding services, such as expanded pharmacy, fuel stations and maybe a more venturesome perishable offering.
Now, what of Wal-Mart's fill-in supercenter activities? Clearly, the pace of rollouts is on the upswing. Wal-Mart operates more than 800 supercenter locations, with 30 more to open in January. (Wal-Mart often heightens the drama by staging a burst of openings toward the end of its fiscal year.) Counting the upcoming openings, Wal-Mart will have opened some 160 locations this fiscal year. Something approaching 200 may be opened next fiscal year, a large majority of which will represent refurbished or replacement units forged from existing discount locations.
As for backstage support, Wal-Mart plans to add a couple more distribution centers to its current roster of 14 during the upcoming year. The company also operates two fresh-only centers. The latter count is expected to increase by four during 2002. In all, by 2005, Wal-Mart expects to have 41 distribution centers and 14 fresh centers running.
It's not difficult to do the math and see how many supercenters and Neighborhood Markets could be supported by that kind of distribution capacity, nor how it may dominate food retailing in time.