SUPER SURGE

ELLIOT ZWIEBACH

Wal-Mart Supercenters is No. 1.

Only 13 years after Bentonville, Ark.-based Wal-Mart Stores opened its first supercenter, the operation has risen to the top of the food industry on SN's annual Top 75 list, achieving sales of approximately $57.2 billion -- easily outpacing No. 2 Kroger Co., Cincinnati, by $8 billion.

However, only about 30% of Wal-Mart Supercenter sales -- $17.2 billion -- consists of grocery and supermarket-style nonfood items. Each supercenter is also a discount store, as well as a supermarket, and discount store-style merchandise accounts for 70% -- $40 billion -- of total supercenter sales.

With sales of $17.2 billion, Wal-Mart would rank as No. 10 on SN's list, instead of No. 1.

But as the industry changes, comparisons between companies are becoming more difficult, analysts told SN.

Many supermarket companies are no longer pure food operators, Jonathan Ziegler, San Francisco-based managing director for Deutsche Banc Alex. Brown, New York, said, noting that Kroger operates department and jewelry stores (acquired in its purchase of Fred Meyer Inc. two years ago); Albertson's operates freestanding drug stores (Osco and Sav-on, acquired in its purchase of American Stores Co. two years ago); Ahold USA has expanded into food service; Meijer Inc. is a supercenter operator whose merchandise encompasses items similar to a Wal-Mart, Kmart or Target discount store; and many chains are using non-traditional general-merchandise items to drive sales.

"So there's a real blending of distribution channels as companies keep getting bigger," Ziegler said.

Gary Giblen, senior vice president and director of research for C L King Associates, New York, told SN he agreed there's more encroachment by each channel on the others, "and that will continue as supermarkets try to sell more pharmacy items, drug stores try to sell more food, convenience stores try to sell more fresh merchandise and Wal-Mart tries to sell more of everything, including food."

At the end of calendar 2000, Wal-Mart was operating 862 supercenters, compared with Kroger's 2,359 stores.

Wal-Mart's achievement of becoming the top-volume food retailer has been anticipated for several years, and with the company continuing to open 100 or more supercenters a year for the foreseeable future, it is likely to increase its lead over more traditional supermarket operators, observers said.

"Wal-Mart keeps adding more square footage at a faster pace than anyone else, so its lead in total sales will increase in the years ahead," Giblen said.

The only way for another retailer to catch up and possibly surpass it would be for a mega-merger of two or more of the industry's leading players, he added.

Meredith Adler, a securities analyst with Lehman Brothers, New York, acknowledged Wal-Mart's achievement but said she doesn't think it really means much. "Every industry observer has always known that Wal-Mart wanted to be a national company and that as it got closer to that goal it would become the biggest food retailer -- that was inevitable.

"But just because a company controls a lot of volume doesn't make it stronger. Look at A&P, which controls more than $10 billion but which is struggling on an individual market basis.

"Size certainly matters when it comes to purchasing clout, but supermarketing has always been a local business, and there are virtually no markets where Wal-Mart Supercenters are the market leader or control more than 20%, whereas there are plenty of markets where Safeway or Kroger has much more than 20%."

Analysts said they anticipate industry consolidation will continue, and possibly accelerate, over the next few years, in part as a reaction to Wal-Mart's continuing growth.

"Ongoing consolidation is unstoppable, mostly with the big chains buying up smaller operators, though there could be a few regionals that combine with other regionals in some very specific cases," Giblen said.

"But the consolidation beat goes on and pressure keeps building on independents to sell. And while there will be some really talented smaller operators that will prosper, consolidation is making it tougher and tougher, even for those independents, to make the all-star team.

"When you see an all-star like Genuardi's, a world-class independent, deciding to sell to Safeway, that tells you something about the future of even the best independents."

Commented Ziegler, "I think we'll see some of the marginal, less well-capitalized independents opting to sell -- those without active second- or third-generation family members interested in running the stores.

"But there will be some independents who will thrive and flourish -- companies that are serious about the business, with good cash flows and good operations -- who could work out mergers with other similar independents."

Adler said consolidation may take many forms, "but mainly you'll see high-quality regionals thinking about selling out to bigger players now that the environment has changed and valuations are up again.

"During the last year or so sellers were comparing valuations to the kinds of deals that were made a year earlier and found the offers less attractive. But now that valuations are up, that disconnect should disappear and make it easier for both sides to come to an agreement."

Adler also said she believes independents will continue to struggle and, while many will opt to sell, "independents with good locations -- who also spend money on their stores wisely, team up with good distribution partners and are sophisticated about technology -- will be around for a long time. Good locations make an independent's business very defendable."

Following Wal-Mart Supercenters and Kroger at the top of this year's rankings are Albertson's, Boise, Idaho, at No. 3 and Safeway, Pleasanton, Calif., at No. 4, the same rankings they had on last year's Top 75 list.

Ahold USA, Chantilly, Va. -- a division of the Netherlands-based Ahold -- moved into the No. 5 spot, based in large part on its expansion into food service, which provided the margin of volume to push it past Supervalu, Minneapolis, which fell to No. 6.

Fleming, Dallas, held steady at No. 7, but Winn-Dixie Stores, Jacksonville, Fla., moved up two notches to No. 8 despite closing 114 stores at mid-year and undertaking a major effort to improve efficiencies -- with its fortunes boosted at the end of the calendar year by the pending acquisition of 68 former Jitney Jungle stores, which are included in its store base on the Top 75 list.

Rounding out the top 10 were Loblaw Cos., Toronto, holding at No. 9, and Delhaize America, Salisbury, N.C., falling two places to No. 10 when its projected sales volume following its merger with Hannaford Bros. Co., Scarborough, Maine, was reduced after Hannaford was required to divest 51 stores in the Southeast to win approval for the merger from the Federal Trade Commission.

Three companies dropped off this year's Top 75 list: Grand Union, Wayne, N.J., which decided to liquidate after filing its third Chapter 11 bankruptcy in three years; Jitney-Jungle Stores of America, Jackson, Miss., which also opted to liquidate rather than restructure a year after filing Chapter 11; and Genuardi's Family Markets, Norristown, Pa., which was poised at year's end to be acquired by Safeway.

Replacing them on the list were three new entries: Haggen Inc., Bellingham, Wash., debuting at No. 72; Copps Corp., Stevens Point, Wis., at No. 73; and Ukrop's Super Markets, Richmond, Va., at No. 75.

Besides Wal-Mart Supercenters at the top of the Top 75 list, two other discounters who operate supercenters further reinforced the strength of the format: Kmart Corp., Troy, Mich., whose Super Kmart stores moved up one notch to No. 17 on the strength of two additional units; and Target Stores, Minneapolis, whose Super Target supercenters jumped to No. 61 from No. 74 a year ago, largely on the strength of four additional locations.

The inclusion of all three discounters encompasses sales of supermarket items only but excludes the kinds of general merchandise categories found exclusively at discount stores.

Other notable moves on this year's Top 75 list included the following:

Stater Bros. Markets, Colton, Calif., which showed the biggest gain of any company -- moving to No. 32 from No. 41 a year ago -- on the strength of its acquisition at the end of 1999 of 43 Albertson's locations in Southern California.

Bruno's Supermarkets, Birmingham, Ala., which emerged from Chapter 11 at the beginning of 2000 and moved up to No. 38 from No. 43 a year ago on the strength of a restructured balance sheet and a more aggressive store opening and acquisition effort, including the purchase of 19 former Jitney units at year's end.

Whole Foods Market, Austin, Texas, which solidified its position as the nation's natural foods leader with 13 additional store openings and a jump to No. 40 from No. 48 a year earlier.

Spartan Stores, Grand Rapids, Mich., which moved up three spots to No. 23 following its acquisition of Seaway Food Town, Maumee, Ohio.

Eagle Food Centers, Milan, Ill., which dropped seven spots to No. 60 after closing 20 stores as part of its Chapter 11 restructuring.

Furr's Supermarkets, Albuquerque, N.M., which fell to No. 68 from No. 64 a year ago following a series of moves to reposition itself in the face of increasing competition from Wal-Mart Supercenters.

It was another year of change for the food industry, as a timeline of events in 2000 helps recall.

January

Bruno's, Birmingham, Ala., emerges from Chapter 11 bankruptcy.

Nash Finch Co., Minneapolis, agrees to acquire Hinky Dinky Supermarkets, Omaha, Neb.

February

Eagle Food Centers, Milan, Ill., files for Chapter 11 protection.

Homeland Stores, Oklahoma City, buys three Bowes Price Chopper units, Oklahoma City.

March

Ahold, Zaandam, Netherlands, agrees to acquire U.S. Foodservice, Columbia, Md.

April

Ahold acquires 51% of Internet grocer Peapod, Chicago.

Ahold acquires two convenience store/fueling stations chains: Sugar Creek Convenience Stores and Fuel, Rochester, N.Y., and Golden Gallon, Chattanooga, Tenn.

Spartan Stores, Grand Rapids, Mich., agrees to acquire Seaway Food Town, Maumee, Ohio.

May

Fleming, Dallas, announces plans to sell conventional chains to concentrate on price-impact stores.

Winn-Dixie Stores, Jacksonville, Fla., announces plans to close 114 unprofitable stores and eliminate 11,000 positions in an effort to improve efficiency and its competitive position.

Marsh Supermarkets, Indianapolis, agrees to purchase five-unit Ross Supermarkets, Muncie, Ind.

Ahold discloses plans to convert 75 Edwards Super Food Stores in New York and New Jersey to Stop & Shop banner by year's end.

June

Hannaford Bros. Co., Scarborough, Maine, agrees to sell or close 51 stores in the Southeast to win Federal Trade Commission approval for its acquisition by Delhaize America, Salisbury, N.C.

Pathmark files prepackaged Chapter 11.

FTC blocks Kroger Co., Cincinnati, from buying 74 Winn-Dixie stores in Texas and Oklahoma; in an unrelated move, Winn-Dixie agrees to acquire Gooding's Supermarkets,

a nine-unit operator based in Apopka, Fla.

July

Webvan Group, Foster City, Calif., merges with HomeGrocer.com, Kirkland, Wash.

URM Stores, Spokane, Wash., completes acquisition of Rosauer's Supermarkets, Spokane.

August

Eagle Food Centers emerges from Chapter 11 after closing 20 underperforming stores.

Spartan becomes a public company after completing acquisition of Seaway Food Town.

Delhaize completes acquisition of Hannaford Bros.

September

Pathmark emerges from Chapter 11 as a debt-free, public company.

Peapod, Chicago, agrees to purchase Washington and Chicago operations of Streamline.com, Westwood, Mass.; Streamline keeps Boston and New Jersey operations.

October

Grand Union files for Chapter 11.

Priceline.com's WebHouse Club shuts down.

November

Streamline.com ceases operations.

C&S Wholesale Grocers, Brattleboro, Vt., buys 185 of Grand Union's 197 stores at bankruptcy auction.

December

Jitney Jungle auctions off 112 of 137 stores to Winn-Dixie, Bruno's and others.

Big V Supermarkets, Florida, N.Y., files Chapter 11 bankruptcy petition, discloses plans to leave Wakefern Food Corp., Elizabeth, N.J.

Kroger Co., Cincinnati, agrees to acquire 16-unit Baker's Supermarkets, Omaha, Neb., from Fleming.

Safeway, Pleasanton, Calif., agrees to acquire Genuardi's Family Markets, Norristown, Pa.