The Class of 1962

Walmart, Target and Kmart entered the retail scene 50 years ago and ultimately altered the way Americans shop for groceries. Important milestones in supermarket industry history: 1852:  Francis Wolle patents the paper bag machine. 1884:  National Cash Register introduces the first mechanical cash register. 1926: Clarence Birdseye invents the “Quick Freeze Machine” and the frozen foods industry. 1930: King Kullen Grocery Co. established as America’s first supermarket. 1937:  Sylvan Goldman and Fred Young invent the shopping cart. But those dates pale in comparison to 1962, the year Walmart, Target and Kmart were all established, changing forever how Americans shop retail in general, and for groceries in particular. “They changed our shopping behavior because they created the sense of one-stop shopping for all of your needs,” says Beth Ann Kaminkow, president and CEO of TracyLocke, a marketing agency headquartered in New York and Dallas. Each delivers on that concept differently, Kaminkow says. “Walmart plays off of everyday low pricing with big brands still in the mix, while Target is more about creative discovery and the inspiration piece of the puzzle,” she says. “Kmart is the one most struggling to figure out where it is in the mix. Their biggest issue has been how to diversify outside of lower-priced clothing, which oftentimes in our minds is equated to lower quality.” Jamie Bastian, a spokesperson for Minneapolis-based Target Corp., says the retailer plans to celebrate its 50th anniversary throughout the year and is using the milestone as an opportunity to thank its partners and team members. “At Target we put our guests first,” Bastian says. “This means delivering a great value, relevant offerings and a superior experience. We will continue to listen to our guests to understand their wants and needs and evolve our grocery strategy to meet these requests. We will continue to look for innovative solutions to provide our guests an exceptional, one-stop shopping experience and will continue to focus on owned brand products where we are able to add significant value for our guests, either by serving an un-met need or by helping guests save money on their favorite foods.” “Initially food was a very minor factor for Walmart, Target and Kmart,” notes retail analyst and consultant Walter Loeb, president of New York-based Loeb Associates. “It was only later on that they decided that in order to generate more frequent traffic in their stores that supermarkets, hypermarkets or ‘super stores’ would be beneficial to their growth.” Early roots While Target was an offshoot of Dayton’s, an upscale Minneapolis department store, Walmart and Kmart both had roots in the five-and-dime store sector. Walmart founder Sam Walton originally started out as a Ben Franklin franchisee. The first Kmart, which is still in operation, was started by S.S. Kresge Co. in Garden City, Mich. Other national retailers also entered the discount department store field in 1962, with F.W. Woolworth opening Woolco and J.C. Penney Co. starting The Treasury. Both banners are now defunct, as are other key players of the day including Two Guys, Great Eastern, Bradlees, Caldor, E.J. Korvette, Gemco, Turnstyle and J.M. Fields. Several were operated by supermarket chains, including Food Fair with J.M. Fields; Jewel Tea with Turnstyle; Lucky Stores with Gemco; and Stop & Shop Cos. with Bradlees. Hills Supermarkets often operated alongside Great Eastern stores. But it is Walmart, Target and Kmart that have survived and turned into national—and in Walmart’s case global—powerhouses. “Part of the picture of the success of these three chains is that they were riding the wave of American consumerism which has been going on since the early 1700s,” says Race Cowgill, a principal with Zenith Management Consulting, based in Albuquerque, N.M. “They also had great strategy, branding and marketing as well as logistics, distribution and real estate.” “To understand why these three began in 1962, one has to look at what was happening in pop culture and socio economics at that time, including the women’s movement,” says Nancy Leibig, executive vice president and general manager of the Chicago office of G2, a New York-based brand activation agency. “Part of their success was because they offered a one-stop convenient place to shop. The reality is that when you are time starved you have less time for specialty shopping trips.” Also freeways were carpeting the countryside and real estate was dirt cheap, affording easy expansion. “Many families got their first car during this time, so driving to the store became a shopping ritual,” Leibig says. Ahead of the growth curve Walmart, in particular, had a knack for building stores in rural areas and outer suburbs one step ahead of future subdivisions. “Where Walmart had a chance to gain momentum was by being out in the boonies, and people didn’t take them seriously for quite a while,” says Harold Lloyd, founder/principal of Virginia Beach, Va.-based Harold Lloyd Presents, and author of Am I the Leader I Need to Be? “Walmart made retail a science. They studied distribution. They studied cost control. They were magicians when it came to working and knowing the numbers, and respecting the vendors and working with the vendors to drive down expenses, and not pocket the extra advertising monies or slotting allowances,” he says. “With Walmart so much of the explanation of their business comes from geographic strategy,” says Richard Hastings, macro and consumer strategist, in the Charlotte, N.C. office of New Orleans-based Global Hunter Securities. Walmart often built stores in semi-rural locales five to seven years ahead of suburban sprawl, he says, allowing them to quickly draw from both a suburban and rural 10-mile radius. “With an almost military-like strategy, Walmart really took advantage of an interesting opportunity based on geography,” he says. That strategy helped fuel Walmart’s growth in the supermarket business, Hastings says. “While Walmart always had the shelf-durable groceries like canned goods and salty snacks, over time they saw that it was pretty easy to expand that a little bit,” he says. “There really weren’t as many national or semi-national supermarket chains willing to go out into the further reaches of the suburbs and rural areas. Walmart zeroed in on that and it made it easy for them to go into the full-blown supermarket business as well.” For the most part, the discounters were also nonunion, giving them a competitive edge when it came to wages and benefits. “Typically there would be two or three supermarkets in a community all fundamentally represented by the same unions and buying from the same dairies,” says Bill Bishop, chairman of Barrington, Ill.-based Willard Bishop Consulting. “There wasn’t much price resistance and that was the supermarkets’ vulnerability.” Hyper over hypermarkets Most observers say today Kmart is the weakest player when it comes to food. “Kmart isn’t a top tier retailer for the grocery folks I work with,” says G2’s Leibig. But ironically it was Kmart that initially pushed a large foray into grocery, first with Kmart Foods, a chain of supermarkets it opened in the 1960s. It later leased grocery space in its stores to other operators and in 1989 entered into a short-lived venture with Birmingham, Ala.-based Bruno’s to operate the American Fare chain of hypermarkets—giant combination food/general merchandise stores so big that associates had to wear roller skates to assist customers. In the 1980s Walmart developed , 220,000-square-foot stores that were a joint venture with Dallas-based Cullum Cos., then the operator of the Tom Thumb chain. While Hypermart USA was a failure, it gave rise to the smaller Walmart Supercenters, which is the company’s dominant format today. “Europe was way ahead of us with hypermarkets,” says Lloyd. “I remember my dad going to Europe and seeing stores with escalators with grooved tracks to take shopping carts to the second floor.” Harold Lloyd’s stepfather was Ed Lloyd, the founder of Lloyd’s Shopping Centers, a retail legend in New York’s Hudson Valley, and operator of two supercenters, two conventional supermarkets, three Big Al’s deep discount drug and 10 convenience stores with gasoline. Lloyd’s is gone now, having gone belly up in the 1990s. Harold Lloyd says it is because the company lost its focus and overexpanded its offerings. “If Walmart is not making money with a new test format they just shut it down,” he says. “Others keep adding and pretty soon your ship is sinking. Supermarkets should focus on their core and then slowly reach out to experiment in a scientific way like Walmart, versus an emotional or egotistical way.” But by concentrating on selling canned goods and other staples at rock bottom prices, today’s supercenters are literally eating the supermarkets’ lunch. “To survive, supermarkets have gone in two simultaneous directions,” says Hastings of Global Hunter, “towards private label price driven models, and also towards gourmet, premium and organics. The big driver in the business between supermarkets and the mass merchandisers is the emphasis on the quality of fresh produce and perishables.” “The supermarket’s problem is that it is undifferentiated, in the sense that all of the growth is happening on the high end or the low end of the business, says Bishop. However, some argue the mass merchandisers have made supermarket industry stronger. “The mass merchandisers have made the supermarket industry better by forcing them to look at themselves a little differently,” says Richard J. George, Ph.D., chair and professor of food marketing, Gerald E. Peck Fellow, Haub School of Business, at Saint Joseph’s University in Philadelphia. “They’ve obviously had an impact on Center Store. We know that. But they allowed the supermarket industry to recognize that our point of differentiation is the perimeter. Some would say that these guys are Darth Vaders because as they have moved on the food side they have attacked Center Store, but it also gives us a chance to ask how can we use Center Store to differentiate ourselves.” “What these mass discounters did was create a whole different value proposition around groceries and they forced traditional grocery retailers to think not only about their value or price propositions, but to actually go beyond what I would call the basic delivery of what’s for dinner tonight,” says Wendy Liebmann, CEO of New York-based WSL Strategic Retail. But supercenters are facing threats of their own, in the form of dollar stores and limited assortment stores that are undercutting them on basic groceries and nonfoods in easier-to-shop smaller format—and low overhead—stores, raising the question: Will the supercenter go the way of the eight-story downtown department store?