Has Wal-Mart Found Better Neighborhood Markets?

When Wal-Mart's Neighborhood Market was launched in the late 1990s, some observers predicted big problems for supermarkets from this 40,000-square-foot grocery competitor.

“It's going to become significantly more difficult for regional and independent chains to survive using a traditional approach to marketing,” said one observer in 1999, who anticipated some 350 units by 2005.

The big rollout never happened. Today there are 146 Neighborhood Market outlets, and recently Wal-Mart decided it will convert two of them to a new Hispanic format called Supermercado de Walmart (click on "Wal-Mart's 'Supermercado' Reflects New Focus" for the story). That follows other recent Wal-Mart attempts to build its presence in ethnic markets, including plans for a Hispanic-oriented Sam's Club, called Mas Club, expected to launch later this year in Houston.

The conversions to a Hispanic concept make sense. What could be more neighborhood-market-oriented than an ethnic food store? But this forces the question of what is the future for the Neighborhood Market operation? It was intended to showcase conventional supermarket assortments at discount prices in a moderate-sized outlet, and it has improved its strategy over the years. However, the concept never really excited Wal-Mart in the way supercenters did. The financial potential, including food-nonfood synergies, was never as robust.

The new Wal-Mart team, including chief executive Mike Duke, will make the ultimate decisions. However, it's logical to think Wal-Mart is at least considering alternative uses for more of these Neighborhood Markets. After all, Wal-Mart has learned to think more flexibly about small footprints now that it's launched the tiny Marketside format.

One observer believes Wal-Mart may decide to convert the bulk of Neighborhood Markets to other uses. Bill Bishop, chairman, Willard Bishop, Barrington, Ill., said: “My guess is the financial people have concluded they'll look for next uses for the majority.”

You have to think that Wal-Mart will at least watch how these two conversions go and then decide accordingly.

Bishop sees in the conversions a “sobering thought” for supermarkets because “Wal-Mart has enough choices and freedom so that they don't need to be in the traditional supermarket business.”

Not that he's casting a negative light on supermarkets, but rather on those who look at the business only in a traditional way. He considers Wal-Mart's move a wake-up call for supermarket operators, who “need to continue to reinvent around customer-centric to be more relevant to a subset or to all shoppers.”

That seems like good advice. Still, we shouldn't assume Wal-Mart has found a magic bullet with Supermercado or any other possible successors to Neighborhood Market. Supermercado, after all, will face formidable ethnic-store competitors.

So just because the world's largest retailer has announced a new strategy, it doesn't mean it will work right away, or ever. Isn't that, after all, one of the lessons of the Neighborhood Market saga?

Respond to SN's Viewpoints online at supermarketnews.com