MARKETS MORE IMMUNE TO SATURATION THAN IS EXPECTED 2004-10-18 (2)

David Merrefield

A curious thing happened to Wal-Mart Stores on its way to rolling out Neighborhood Markets, the discounter's format closest to a conventional supermarket: The rollout never really took hold with the speed that might have been anticipated.

Now, it develops, the rollout of Neighborhood Markets will continue to be comparatively sluggish. During its next fiscal year, which starts in February, Wal-Mart intends to open perhaps fewer than 30 of the small-format stores against about 250 sizable supercenters. The reason one executive stated for the slower pace of small-format openings is that the smaller stores don't produce high financial returns and -- here's the instructive part -- supercenters can be built closer together than had been realized without undue cannibalization. See Page 30.

Here's a summary of supercenter performance in one unidentified market that resulted when a supercenter was opened within four miles of an existing supercenter: The existing supercenter was generating annual sales of $131 million. When the second store was opened, a sales drop of 13% at the original store was seen for a year. Yet for the following year, sales at the original store started to increase. Aggregate sales during the second year for the two stores rose to $240 million. So each store ended up producing $120 million per year, on average.

Little wonder Wal-Mart is opting more for supercenters than for Neighborhood Markets. Indeed, the Wal-Mart experience calls into question the entire notion of sales cannibalization. The idea that it's unwise for a retailer to open stores in close proximity has been challenged by real-world experience in several ways. One was that when membership clubs were being rolled out at a rapid pace several years ago, it was discovered that market saturation didn't occur as rapidly as had been anticipated. Another is that if an incumbent retailer doesn't fill in a viable market, competitors will do so. So better to risk a sales downturn that may prove temporary than to surrender sales to a competitor.

FOOD FOR ALL

Now let's turn our attention to a different topic, Food For All. As you'll see on Page 41, this week's SN includes a special report about Food For All, the food industry's anti-hunger nonprofit. The occasion for the report is that Food For All is approaching an important milestone, its 20th anniversary. Food For All was previously known as Food Industry Crusade Against Hunger, or FICAH.

The report about Food For All, of which I'm a director, includes a number of interviews with FICAH founders who vividly recall how the organization was started. Other interviews offer recollections about the separate founding of Food For All, and yet another traces how the two organizations were merged to yield the present-day Food For All. Over the years, the organization has raised some $40 million that has benefited many charitable projects overseas and domestically.

History is interesting, but how an organization plans to move into the future is more so. That's why the lead feature in the section is an interview with Larry McCurry, Food For All's chairman, on that very matter.