From Wal-Mart to Dollar Stores, Changing Perceptions About The Most-Feared Retail Competitors

We all know alternative retail channels are the arch-enemies of supermarket Center Store sales, right? But which of these types of retailers are the most dangerous competitors?

We’ve asked that question of retailers annually as part of our Center Store Outlook survey, and the new version was just released. The results point to the acceleration of a multi-year trend in which Wal-Mart is declining as a feared competitor, while dollar stores are advancing. This reflects the shifting perceptions of retailers and the ongoing impact of the challenging economy.

Once again food retailers taking the survey were asked, “During the past year, which alternative channel has posed the biggest threat to Center Store sales in supermarkets?”

In 2009, 64% put Wal-Mart as the No. 1 threat. That percentage fell to 50% in 2010, and further to 45.3% last year.

In the latest survey, Wal-Mart’s total plunged again, this time to 34%, a remarkable fall.

Meanwhile, dollar stores advanced as feared competitors, although they aren’t yet at Wal-Mart’s level. In the two prior surveys, some 17% of retailers said dollar stores were the biggest threat. This year that figure jumped to 22.6%, so while this channel still ranked No. 2, it moved closer to striking range of Wal-Mart.

What’s going on here? First, it’s clear that in tough economic times value- oriented retailers like Wal-Mart and dollar stores are seen as most threatening, especially when you consider that two other value-oriented formats, club stores and limited assortment discounters, came in third and fourth.

Wal-Mart’s sharp decline is surprising when you consider recent price investments being made by that company. However, the slide over a period of years indicates supermarket retailers feel they have increasingly identified Wal-Mart’s vulnerabilities, including with pricing and variety. In contrast, supermarkets are still trying to figure out how to battle some other value players, including dollar stores and limited assortment formats.

Retailer respondents pointed to private label and price as the top strategies to battle alternate formats.

Most retailers will probably pursue individual competitive strategies based on local markets, and one survey respondent in particular gets the prize for honesty. Asked to list other ways to battle these competitors, this person said: “I don’t know, that’s where I need help.”