WAL-MART PURSUES FURTHER EFFICIENCIES IN FOOD DISTRIBUTION 2004-06-14 (1)

KATHERINE BOWERS

FAYETTEVILLE, Ark. -- Despite controversy and costly battles, Wal-Mart Stores is so wedded to food, it plans to increase supercenter openings next year as it introduces initiatives to make it an ever-more-efficient food distributor.

"In regard to supercenters, we're being even more ambitious [than last year]," noted Tom Schoewe, chief financial officer, at the company's annual shareholders' meeting, a five-hour marathon held June 4 in a stadium at the University of Arkansas here.

Schoewe did not specify how many more supercenters are being added or relocated other than to say 320 to 345 total new stores are slated this fiscal year.

Wal-Mart has reasons to be bullish. Its La Quinta, Calif., supercenter, which opened in February amid scrutiny and skepticism regarding Californians welcoming Wal-Mart, is running 35% ahead of projections, said Lee Scott, president and chief executive officer.

Wal-Mart continues to streamline and innovate in distribution. Projects range from testing alternative energy sources, such as soybean fuels for its truck fleet, to automating perishables replenishment.

A grocery distribution center automated this way can handle one-and-a-half times more freight than the typical center, said Rollin Ford, executive vice president, logistics and supply chain.

Wal-Mart is also working on "remix," a strategy that consolidates fast-moving goods, regardless of category, together on a pallet. It's then unloaded straight onto the store floor, without a delaying stop in the back room.

As part of a broad initiative to cut out middlemen, Wal-Mart is setting up more direct relationships with U.S. farmers and encouraging some of them to start servicing overseas stores.

Executives also shared tidbits about strong sellers and new launches at the shareholders' meeting and afterward at a meeting with financial analysts.

Doug Degn, executive vice president, food, consumables and general merchandise, said Sam's Club has hired its first product development manager to expand private-label food. A new line of Sam's Choice frozen entrees and deserts, hitting stores this fall, will be the first launch from the department.

Degn cited Swoops candies, sold for $1.50 a canister at Wal-Mart, and Hershey's caramel kisses, which he dubbed "one of the hottest-selling items out there," as two breakout new items.

Sales of Splenda are up 300% this year, giving the artificial sweetener favored by low-carb dieters a 60% market share in its category, said Mike Duke, president and CEO of the Wal-Mart Stores division.

The company has also been active overseas. In China, Wal-Mart has opened its Fresh Food Academy, designed to teach associates U.S. hygiene and food merchandising standards. The company also opened its first supercenter in Japan, where it owns a 46% stake in discounter Seiyu.

Much of the shareholders' meeting, however, was devoted to Wal-Mart's reputation, which suffered numerous blows last year from lawsuits and scandals involving illegal cleaning crews.