CENTERED ON THE FUTURE 1997-08-11 (1)

The company also operated 29 supercenters outside the United States--21 in Mexico, three in Argentina, two each in Brazil and Indonesia and one in China--under the direction of Wal-Marts international division.

tion is located on either the left or right side of the store, with bakery, produce and meat along one wall and the deli on the same wall wrapping around onto the back wall, adjacent to an in-store restaurant (Wal-Mart's own Radio Grill or space leased to either McDonald's or Taco Bell); frozen food in the front half of the section; and dry groceries in the rear.

Separating food from the discount store side are items commonly associated with supermarkets, including paper goods, pet foods, housewares, candy, greeting cards and stationery.

About 75% of Wal-Mart Supercenters have opened in discount stores that were expanded or relocated to accommodate food, while the other 25% are newly built units, White said--a ratio he said the company expects to maintain.

Store sizes vary considerably, he pointed out. "We build stores to fit the markets, although there is no best size. Of the stores we have planned, there is no single likely scenario."

He said that about 310 supercenters in converted Wal-Mart discount stores are either 188,000 square feet or 167,000 square feet, while around 65-newly built supercenters fall into the 136,000-square-foot prototype.

Wal-Mart also has 10 supercenters of 200,000 to 220,000 square feet, "which require a lost of land for a very large building in a very large market to give us the kind of volume we need," White said; and 11 units of 109,000 square feet, geared to areas with smaller propulations.

Wal-Mart has previously disclosed plans to build its eighth food distribution center next year in Bedford, Pa. White said plans for grocery warehouses have not gone beyond that facility, but since each location services about 100 stores, "clearly, if we continue to open 100 supercenters per year, we will have to open additional warehouse facilities," he said.

Wal-Mart expanded supercenters this year into Maryland (Potomoke City); Iowa (Muscatine and West Burlington); Ohio (Ottawa), and Wisconsin (Beloit), with one more Iowa supercenter scheduled to open next year in Fort Dodge and two more Ohio locations due--in Alliance in the fall and Bucyrus next year--the company said.

White said Wal-Mart plans to open its first Minnesota supercenter--a 200,000-square foot store in Apple Valley, a Minneapolis suburb--in mid-1988.

However, despite industry speculation to the contrary, White said supercenter expansion is unlikely in New England and on the West Coast in the short-term, "because those are relatively new areas for Wal-Mart discount stores, and our growth in those two areas will still be largely in that segment.

Ziegler told SN he believes next year's expansion into Minneapolis may be part of a test by Wal-Mart to see if its supercenter concept can work as well in a more urban location as it does in the mostly rural markets where its existing stores are located.

"Going into more densely populated areas has worked for the other supercenter operators--Fred Meyer Inc., Meijer, Target Stores and Kmart, but Wal-Mart's real estate philosophy for the last few years has been to open discount stores in rural areas with enough property land-banked next door so the store can be expanded to a supercenter site.

"But Minneapolis seems like a good metropolitan area for Wal-Mart to move into because it features an assortment of strong gegional operators and not strong national players. So while Wal-Mart may be testing the waters, it doesn't appear to be a test that can be rolled out to densely populated markets with major chain competition."

Giblen said he agreed that Minneapolis may not be a typical metropolitan marketing area.

He said he sees Wal-Mart's move into Minneapolis as a "possible preemptive strike aimed at Target," which is based in Minneapolis--"to keep its supercenters out of the Twin Cities."

Giblen also said he thinks Wal-Marts decision to open a supercenter there "is designed to test the mettle of Cub Stores," whose corporate owner and franchiser, Supervalue, is based there. Cub operates a franchised unit in Apple Valley.

White said Wal-Mart regards the nation's 34,000 traditional supermarkets as the biggest challenge--and the biggest source of education--for its supercenter ambitions.

"Any retailer that sells groceries is competition for supercenters," he said, but clearly, the grocery industry is our main competition.

"As we expand our supercenters, we run into new competitors in each area of the country, and we have to analyze each one's strengths and weaknesses to learn exactly what we're up against before we open stores."

"That means we have to learn about a lot of regional or local companies, and that's a big difference from the discount store industry, where Kmart and Target are virtually our only competitors.

"But whether we're competing with national chains like Kroger Co., Winn-Dixie Stores or Safeway or major regional operators, we're learning from them all. And if the competition is particularly tough, then the challenge is a big one -- but the learning experience is very helpful."

One of Wal-Mart's latest challenges, White said, is learning about the HMR business by observing Ukrop's Super Markets, Richmond, Va., whose expertise has made it an acknowledged industry leader in HMR.

"Each market creates a new competitive challenge," White said, "and since we entered Richmond with three stores last spring, we're still learning how to compete there.

"Ukrop's is a unique upscale operator that's very HMR-oriented, which has prompted us to evaluate our whole HMR program -- not so much to compete with them item-for-item, but to see what opportunities lie there for us.

"Prior to moving into Richmond, we had not given HMR the concentration and effort we are currently giving it, but we believe HMR can be more than frozen goods, though it doesn't necessarily have to be prepared meals. Richmond has heightened our awareness of HMR and caused us to look at the category in more detail and evaluate more clearly what our goals are."

He said Wal-Mart has expanded its selection of HMR items at the Richmond stores and started displaying them in a multitiered case. That approach is "just a test at this point, and what feels good will be expanded to other stores, and what doesn't work won't be," White added.

Ziegler said HMR is likely to have a hard time succeeding in a store the size of a Wal-Mart Supercenter because of the lack of in-and-out convenience. "And operating mainly in rural areas, the stores tend to be a bit more out of the way, so there's likely to be less consumer traffic and less time pressure on shoppers than in urban markets."

He said Wal-Mart's entry into Minneapolis could give it a chance to test HMR in a more urban context, "but I doubt they will be able to execute it as well as other, smaller operators, though they obviously will pick up some business."

Giblen said consumers usually associate HMR items with high quality, "whereas they associate Wal-Mart with cheap, so it seems to be fractured logic to test a remerchandised HMR selection in the same city as Ukrop's, which has one of the best HMR sections in the world.

"Rather than observing Ukrop's and then trying to upgrade HMR in a less-competitive market, Wal-Mart may simply be testing its own capabilities, because if it can make HMR work where it competes with Ukrop's, it can make it work anywhere. But my opinion is that Wal-Mart is setting itself up to fail."

White said one of the supermarket operators from whom Wal-Mart learned a lot in the formative years of its supercenter development was H.E. Butt Grocery Co., San Antonio. "In our eagerness to expand our supercenter program, we identified H-E-B early on as one of the best regional operators in the United States, and we put many of our first stores in H-E-B marketing areas so we could learn how to compete with them," he said.

"Much of our current operations evolved as a result of that competition.

"For example, one of the things we learned from H-E-B was the fresh feel they give to produce and especially meat. We would like to believe we have mirrored their perishables image in our supercenters."

Another lesson Wal-Mart learned from H-E-B, White said, "was the manner in which they price goods, both on sensitive and nonsensitive items. There are certainly categories that H-E-B excels in, and we would like to think we are using that approach to grow our business in the same fashion."