Sponsored By

UPDATING SUPERCENTERS

Every now and then it's good to do a little reality check about Wal-Mart Stores, with a special look at how the supercenter project is coming along. As it happens, there is no better time than right now to take a fresh look at the world's largest retailer, since there's good reason to think its supercenter strategy is changing.But first, an update on just how big the Bentonville behemoth has grown

David Merrefield

February 27, 1995

4 Min Read
Supermarket News logo in a gray background | Supermarket News

David Merrefield

Every now and then it's good to do a little reality check about Wal-Mart Stores, with a special look at how the supercenter project is coming along. As it happens, there is no better time than right now to take a fresh look at the world's largest retailer, since there's good reason to think its supercenter strategy is changing.

But first, an update on just how big the Bentonville behemoth has grown to be lately. Wal-Mart's fiscal year ended late last month, and the news is that the company's top line has risen to $82.5 billion -- a gain of about 21%. To put that in context, Wal-Mart's sales exceed by more than three and a half times those of Kroger Co., the conventional supermarket industry's biggest player. As recently as 1988 the two were roughly on par, with Kroger's volume at $19.1 billion and Wal-Mart's at $20.8 billion. Kroger's current sales weigh in at about $23 billion.

But what of Wal-Mart's ability to roll out a competent food format? In a way, the numbers are all that need be noted about the horsepower it could put against the project any time it likes. But still, up to now, the conventional food industry could take some comfort in two key weaknesses in Wal-Mart's supercenter approach. · First, the food side of most Wal-Mart supercenters is supplied by conventional food wholesalers, meaning that short of a considerable subsidy from the nonfood side, no huge price advantage over conventional operators could be obtained. And, in any case, certainly no great margin advantage would be available.

· Second, Wal-Mart has confined supercenters mostly to rural areas, lessening overall damage to the conventional industry.

Recent developments clearly indicate that those comforting factors are declining in importance.

Here's why: As a news article on Page 11 of this issue shows, Wal-Mart is stirring when it comes to self-distribution. Wal-Mart will open three new distribution centers this year, and it projects a need for at least 4 million square feet of additional warehouse space annually for the next four years. That's something like opening 1 million square feet of distribution center every three months.

And Wal-Mart is developing a prototype distribution center that promises to "change the way this industry does business," a Wal-Mart executive quoted in the article says.

That reference -- along with most of the distribution activity planned -- is mostly about nonfood distribution, of course. But Wal-Mart does plan to open its third grocery warehouse in London, Ky., this fall. Other food distribution centers are in Texas and Arkansas. Also, Wal-Mart insiders explained to me last week that the great change in "the way this industry does business" may add up to little more than incremental changes such as more cross-docking and more direct store delivery. But the point is that to the degree Wal-Mart continues to develop depth and expertise in food distribution -- and perhaps apply lessons learned in nonfood distribution to the food side -- its food retail price points are likely to drop and its margins are likely to grow.

As for Wal-Mart's supercenter location strategy, that too is changing in a grand way.

Here's how: In a big power play, Wal-Mart opened no fewer than 23 supercenters in a single day last month.

The newly opened supercenters were spread around a 13-state area stretching from upstate New York to Florida to Texas and up into Nebraska. Three states where supercenters opened that day -- New York, Pennsylvania and Virginia -- represented brand-new territory for Wal-Mart supercenters. Wal-Mart's supercenter explosion formed the basis of a Page 1 article in Supermarket News' Feb. 13 issue.

The rapidity of the openings gives ample substance for the conventional food industry to contemplate, but there's more: In its January rollout, the company opened four brand-new supercenters. In the past, Wal-Mart has concentrated mainly on converting older discount stores to supercenters, or on shutting down an existing discount store entirely and relocating operations to a new supercenter facility in the same region, often in the same parking lot.

Wal-Mart's opening of new territory, plus its new-store program, show that it has increasing confidence in the food format. That means it is now far more likely to edge supercenters toward more heavily populated areas.

So, with these several subtle but significant changes in mind, now is a fine time to take a new look at Wal-Mart supercenters and their ability to punish the conventional industry.

Stay up-to-date on the latest food retail news and trends
Subscribe to free eNewsletters from Supermarket News

You May Also Like