Neighborhood Market caps year with round of new market entries - Wal-Mart's expansion plans are discussed; pharmacy becomes more important part of stores

DSN Retailing Today, Jan 27, 2003 by Mike Troy

BENTONVILLE, ARK. -- Although a large-scale expansion of Wal-Mart's Neighborhood Market is not expected for several more years, recent developments suggest that an eventual rollout will follow a different pattern than the retailer used with supercenters and discount stores.

Those concepts expanded outward from Arkansas into contiguous states so they could be efficiently supported by distribution centers. Neighborhood Market followed that pattern early on with the introduction of the concept in October 1998 in Arkansas, followed by entry into Oklahoma and Texas in 2000 and 2001. However, Wal-Mart broke from that pattern this month with the opening of 10 new Neighborhood Markets, including its first stores in Utah, Florida and Alabama. Seven of the stores opened on Jan. 15, including units in the Salt Lake City suburb of West Valley, Utah; the Orlando suburb of Oviedo, Fla.; Mobile and Center Point, Ala.; and El Paso, Dallas and Allen, Texas. Three additional openings are scheduled for Jan. 29 in Tulsa, Okla., and Houston and Dallas.

The addition of 10 Neighborhood Markets during the last month of the fiscal year ending Jan. 31, brings to 19 the total number of stores opened during the year and gives WalMart a year-end total of 50 units, half of which are located in Texas. An additional 20 to 25 stores are planned for the fiscal year beginning Feb. 1.

The location of those stores has not been disclosed, but if recent openings are any indication they could be almost anywhere Wal-Mart operates supercenters, including states in which it has a limited track record of selling food. That was the case in Utah, where Wal-Mart began selling food in July 2000 when it opened three supercenters on the same day in Vernal, Ephraim and Tooele. Additional supercenters have opened since then, but Wal-Mart is hardly the state's dominant food chain, with just 15 supercenters in operation at the end of the year.

Just as Wal-Mart leapfrogged Arizona and Colorado to open a Neighborhood Market in Utah, it passed over Louisiana and Mississippi to open Neighborhood Markets in Mobile and Center Point, Ala., before skipping over Georgia to open a store in Florida.

In addition to the new market entries and their implications for Wal-Mart's potential expansion strategy it is apparent from store visits to new units in Oviedo and Dallas and features contained in other stores that Wal-Mart is not done experimenting with the concept. The prototype Neighborhood Market store Wal-Mart opened a year ago in Rogers, Ark., was lauded as an improvement over earlier versions because of its reduced construction and operating costs and improved merchandising. And most aspects of the store design, construction materials, product mix and service offerings remain intact. For example, the Dallas and Oviedo stores retained the industrial appearance of the Rogers prototype, including bare concrete floors, exposed and unpainted ceilings and galvanized refrigerated fixtures. They also offer one-hour photo processing, a drive through pharmacy and the unique Grab 'n Go department inside the store's entrance where customers pay for coffee, doughnuts and newspapers on the honor system.

The most noticeable difference at the stores relates to the position of the pharmacy in the front corner of the store and the positioning of nearby gondolas containing health and beauty care products. In the Rogers prototype those fixtures ran perpendicular to the pharmacy, whereas in the Dallas and Oviedo stores they run they same direction as the stores' other fixtures.

The Dallas location also contains a home entertainment department that is also present in other Dallas-area stores. The store in Utah is unique because it contains an assortment of bulk food. The Florida location is located near the University of Central Florida and contains the first liquor store. Wal-Mart sells liquor in stores in other states, but Florida law requires retailers who sell liquor to have a separate entrance to the department that cannot be accessed from inside the store. An assortment of beer and wine is sold inside the store and a sign in the department refers customers to the "wine and spirit shop for more selection."

The financial contributions of Neighborhood Market still barely register against Wal-Mart's annual sales that will approach $250 billion this year, and considering the average store measures just 40,000 square feet, it represents an immaterial 2% of the approximately 48 million square feet of new selling space Wal-Mart expects to add during 2003.