Wal-Mart, target gain supercenter share: distribution issues gain attention - Special Report

DSN Retailing Today, Feb 24, 2003 by Debbie Howell

The one chain that might have posed the biggest threat to Wal-Mart, Fred Meyer, has meanwhile stuck to its established market in the Pacific Northwest. When Kroger merged with Fred Meyer in 1999, many thought the nation's largest grocer would use the deal to launch a broad supercenter rollout.

But Kroger has shown little inclination to expand the concept to new markets, perhaps due to its own troubles competing against Wal-Mart. Fred Meyer, the oldest and most upscale supercenter format in operation, runs 132 stores in five western states. It faces little supercenter competition thus far. Though they function essentially as supercenters, Kroger calls these units "multi-department stores."

In Arizona, Kroger continues testing a modified 100,000-square-foot supercenter concept dubbed Fry's Marketplace. It originated when Fred Meyer stores in Arizona converted to Fry's, a name more established in that market.

Apart from the moves of the top supercenter players, food continues to grow as a key category for traditional discounters. Target, Wal-Mart, Kmart, ShopKo, Duckwall-ALCO, Fred's, Dollar General and Family Dollar have all expanded food offerings as a convenience to shoppers.

In recent years, pantry sections of snacks, beverages, shelf-stable food and household consumables have become a staple at discount stores and drug stores. Discounters continue to experiment with the addition of perishable items, such as Wal-Mart's expansion of refrigerated and frozen cases in some discount stores. Dollar General is also experimenting with fresh food, including bread, and is rolling out this program to more of its stores.

Target offers some cold items in its stores, and all Kmart stores underwent their Big Kmart conversions a few years ago to add a pantry department.

The industry's supercenter growth, along with discounters' increasing emphasis on food as a traffic generator, are quickly reshaping the way Americans shop for groceries. While mass retailers are the clear winners, supermarkets are losing share each year due to inroads from alternate food formats. ACNielsen surveys have shown shopper frequency growing at supercenters, club stores and dollar stores, and declining for traditional grocers.

Degen said the inroads made by supercenters should continue. He estimated supercenters today account for 7.5% of industry sales in food and nonalcoholic beverages, up from 1.5% in 1994. Supermarkets, in contrast, have declined from 85% of food and beverage sales in 1994 to 68.5% in 2002.

All this bodes well for continued food growth by mass retailers. Especially given the tough economy, discounters that embrace some sort of food program can do well as price-conscious shoppers turn to them for bargains.

STORE SHARE FOR THE BIG FIVE SUPERCENTERS

OPERATOR                          STORE COUNT
                         JAN '02   JAN '03   JAN '04

Wal-Mart supercenters      1,066     1,258   1,468
Super Kmart                  124       117   60
SuperTarget                   62        94   124
Meijer supercenters          152       156   158
Fred Meyer (Kroger Co.)      133       132   134

TOTAL                      1,537     1,757   1,944

OPERATOR                             STORE COUNT SHARE
                             JAN '02          JAN '03   JAN '04 *

Wal-Mart supercenters          69.4%            71.6%     75.5%
Super Kmart                     8.1%             6.7%      3.1%
SuperTarget                     4.0%             5.4%      6.4%
Meijer supercenters             9.9%             8.9%      8.1%
Fred Meyer (Kroger Co.)         8.7%             7.5%      6.9%

TOTAL

* Projections. Figures are based on company numbers, analyst reports and
DSN Retailing Today estimates. Market share comparisons based on January
2004 after liquidation of 57 Kmart supercenters.