Walmart Market Format Back in Growth Mode

ELLIOT ZWIEBACH

AS WAL-MART STORES SHIFTS its thinking from big stores to small, Walmart Market — the rechristened and reimagined Neighborhood Market format — is going to be a big part of its expansion plans.

Wal-Mart Stores has seemed less interested in growing the food-and-drug format since its inception in 1998. However, observers expect the company to use Walmart Market to move into more urban as well as rural locations over the next few years, at the same time it is testing the smaller Walmart Express format.

“The plan is to be more aggressive than it's been with Neighborhood Market because the company is more interested in looking for growth with smaller footprints right now,” one analyst told SN.

“Both formats should work in both urban and rural locations,” the analyst said, “though urban markets would seem to offer the biggest opportunities.”

However, it's possible one of the two small formats could prove more desirable than the other, “so as time goes on, we'll get a clearer view of where each will land in terms of unit growth,” the analyst said.

In a talk at an analyst conference this month, Bill Simon, president and chief executive officer of Walmart U.S., outlined the chain's plans for Walmart Market, saying the company has approved sites for 180 locations, including between 90 and 100 set to open this year.

The company has 155 Neighborhood Markets in the U.S., plus 30 more operating under the Amigo banner in Puerto Rico, and it expects to have close to 300 in operation by the end of fiscal 2013, Simon said.

According to Simon, those stores had comparable-store sales gains of 4% during Wal-Mart's first quarter, “and the stores we are building are delivering a return at the same level as supercenters — and those returns are among the best in the industry.

“And we can move more quickly on them and increase penetration into areas where we don't have stores today, which has encouraged us to move faster with the Walmart Market expansion.

“What's also encouraging us,” he added, “is that the pipeline for these stores is one to two years, compared with up to seven years for a supercenter, so we can move them up more quickly.”

Wal-Mart plans to open its first two Walmart Markets in Chicago later this year — at about the same time it opens the first Express units in Chicago.

Walmart Market is a format that could range from 30,000 to 60,000 square feet — slightly larger than the top limit of 40,000 square feet for most Neighborhood Markets — with a limited supermarket assortment based on the needs of each specific market; a limited assortment of health and beauty care items; and a pharmacy.

The stores are also expected to serve as pickup points for items ordered from Walmart.com, industry observers said.

In a presentation earlier this year, Mike Duke, president and CEO of Wal-Mart Stores, said the Neighborhood Market “is already a proven winner, with very good results, and we've been very pleased with its performance over the last two or three years, so it is no longer a test.”

“That's why we're really expanding it and rolling it out faster. We've been pleased with the Neighborhood Market over the years, and we will be opening more of them. Though they are typically a 40,000-square-foot store, they could be a little larger, and we think there's an opportunity there for urban markets.”

When Wal-Mart began opening Neighborhood Markets 13 years ago, they were intended to bridge the geographic gap between supercenters — “to keep consumers from going to supermarkets for basics like milk and eggs,” one observer said.

“But there was no great effort to focus on Neighborhood Markets, and the company didn't always get the concept right.”

Once Wal-Mart realized it could open supercenters closer together than it had originally envisioned, Neighborhood Market went on the back burner.

“If you look back at to the late 1990s, there was a lot of talk about the ability of Neighborhood Market to penetrate urban locations where supercenters wouldn't work,” Natalie Berg, an analyst with Planet Retail, London, told SN. “Things didn't develop that way, but that's the strategy Wal-Mart is pursuing now [with the Walmart Market format].”

Wal-Mart will be cautious about growing the format, Berg added, “until it knows it can get the performance it needs.”

She said she doesn't rule out an acquisition for expanding Walmart Market, though there could be problems getting approval from the Federal Trade Commission.