SUPERCENTERS BITE INTO SUPERMARKET BUSINESS

DAVID ORGEL

Supermarkets faced new pressures in 1999 from supercenters, club stores and other formats intent on making market-share inroads.

The biggest threat came from supercenters, with Wal-Mart, Bentonville, Ark., by far the dominant force. In fact, Wal-Mart said in November that its supercenters are outperforming its broader business on both the food and nonfood sides. Wal-Mart operates more than 600 U.S. supercenters and, by some estimates, will have about 1,400 by 2005. Wal-Mart's supercenter operation may be on track to surpass the volume of number one supermarket operator Kroger this year.

Despite Wal-Mart's gains, rival discounter Kmart made some major strides in its food retail operations in the past year. The Troy, Mich.-based company said it would outsource its food distribution needs to wholesalers Supervalu, Minneapolis, and Fleming, Oklahoma City. That move followed Kmart's attempts to find a grocery partner to boost the company's business.

Kmart also said it was accelerating its expansion plan, with 400 stores set for the next five years, including 200 supercenters. The company was also converting 1,840 Kmart discount stores to the chain's Big Kmart format, which has expanded food offerings.

Kmart restructured its executive hierarchy to accomplish its new goals, including the appointment of Brent C. Scott as vice president of grocery operations for supercenters.

Meanwhile, Minneapolis-based Dayton Hudson reportedly will accelerate openings of its Target supercenters. According to reports, it will unveil 15 units next year, five more than previously planned. The company would not comment on the report. But the long-term goal is more ambitious: the company confirmed it will open 200 SuperTargets over the next decade.

If the supercenter is Wal-Mart's high-profile, established growth vehicle, then Neighborhood Market might be considered its newest format with growth potential. But there are also lots of question marks. A new prototype for this conventional grocery store with drive-through pharmacy shows that Wal-Mart is still tinkering before deciding on a major rollout of Neighborhood Market. The new look marks the company's fifth unit, which opened in November in Fayetville, Ark. New elements make the store look more like a conventional supermarket, in both product assortment and design.

Early next year the company will bring the concept to Oklahoma City, its first urban market, and will open in Dallas-Fort Worth later next year. Overall, the company expects to open five to 10 units next year and 15 to 20 in 2001.

Membership warehouse club stores continued to pursue growth strategies in 1999, including a new prototype from Sam's Club, a unit of Wal-Mart, geared to metropolitan markets. The new unit incorporates expanded perishables and grocery products. A 127,000-square-foot club that opened in March in Chandler, Ariz., was the first to feature the new look, but many new stores and remodels this year were adopting parts of the new design.

Meanwhile, Costco, Issaquah, Wash., was completing a remodeling and retrofitting program and building on its Executive Membership program. The latter concept offers added services including long-distance telephone and business printing. During the first quarter of fiscal 1999, Costco launched a new on-line shopping service that offered more than 400 products.