Supercenter goal beyond 2001: No. 1 food retailer in the U.S - Wal-Mart Stores

Discount Store News, Feb 19, 1996 by Laura Liebeck

For the first time in Wal-Mart's history, the discount store will not be the focus of expansion. That honor now goes to the supercenter. This year, Wal-Mart plans to open more supercenters than traditional discount stores. While this is anything but startling, it does provide a small pivot for the nation's largest retailer, which built its retailing empire in rural America with small stores jammed with mostly hard lines merchandise.

The supercenter program doesn't stray far from the original plan, but it has been updated. Wal-Mart has identified 1,200 middle-market sites--the thrust of its expansion--in the United States for supercenters, only 236 of which were open by the end of 1996, according to Peter Monash, a retailing consultant based in Columbus, Ohio. Approximately 360 supercenters will be open by the end of this fiscal year. Eventually Wal-Mart will stop building new discount stores and concentrate its efforts on the supercenter since these stores offer more sales and profits.

Wal-Mart's supercenter growth is gathering considerable momentum as a low-price, low-cost provider of groceries, giving the supermarket industry its first whiff of a truly national grocery chain. Its growing bulk positions the combo division to become the largest grocery retailer early in the next millennium.

It has reached this leading position in a very short time. Wal-Mart Supercenters have only been around for eight years (including its forerunner, Hypermarket USA) and will have a 62% share of total supercenter sales by the end of the year, according to industry consultant James Degen. Sales for 1996 are projected to total $17.78 billion, up from an estimated $11.51 billion for the fiscal year just ended. The total supercenter industry should produce $34.1 billion in sales this year, up from $26.3 billion in 1995, Degen said.

This year, Wal-Mart plans to open between 100 and 110 supercenters, about 86 of which will be converted--by way of 60,000-sq.-ft. grocery additions--or relocated Wal-Mart discount stores. The balance will be new constructions.

Additional supercenters may be more plentiful in the future if Wal-Mart is able to tap into its property holdings and convert traditional discount stores into supercenters ,without having to scout for new sites; 140 discount stores are sited next to vacant land capable of accommodating a grocery department addition. Wal-Mart's land-banking program has been in effect for years and permits the retailer to add grocery departments to existing discount stores when the need for a supercenter becomes suitable for that market.

According to Degen, Wal-Mart Supercenters produced sales of $37.8 million per unit in 1994, $46.6 million per unit in 1995 and are expected to hit $54.4 million unit this year.

So far, the only part of the country that Wal-Mart isn't looking at for supercenters is California because it is too far away for the company's chicken/chicklet ideal of locating stores within range of a distribution center, Monash said.

Wal-Mart is not yet looking at seeding supercenters in Canada, nor are big cities high on its to-do list.

Internationally, supercenters have been a hit for Wal-Mart. The two new supercenters in Brazil have produced sales of more than $200 million each since opening last year. Monash added that Wal-Mart has been pleased with the performance of the supercenters in Mexico and Argentina. Chile will be the next stop on the Wal-Mart Supercenter trail.

In the United States, Wal-Mart is exerting considerable pressure on the supercenter industry as it has in the discount store arena. For 1995, Wal-Mart passed veteran combo retailer Meijer, Grand Rapids, Mich., which Degen calculated should ring up $6.60 billion in sales, a 25.1% market share. Other key players include Fred Meyer, Super Kmart Centers and now SuperTarget, the fledgling supercenter division of Target Stores, which has two units.

Wal-Mart's storming of the supercenter industry is being closely watched by supermarket chains. These retailers are not especially worried about Wal-Mart's merchandising savvy in food, which pales in comparison to their own efforts, but they are mindful of Wal-Mart's logistical systems, vision of the future, market flexibility and knowledge of its customers.

"War-Mart's supercenter food program is very well articulated," observed supermarket industry veteran Gene Hoffman, president of Corporate Strategies International and a former executive of both Kroger and SuperValu. He noted that for customers looking for the best values, as defined by price, Wal-Mart is the right choice. But Hoffman noted that Wal-Mart's food presentation lacks imagination and is not the place for unusual finds.

Over the past few years, Wal-Mart has greatly improved its fresh presentation in produce, bakery, meats and seafood. Colorful signs and banners now decorate the expansive fresh area, and bakery smells permeate the front par the store. Product selection remains comparison to supermarkets and other supercenters, including the new SuperTargets, but the program appears to serve Wal-Mart's traditional customer base. Furthermore, Wal-Mart Supercenters have created a micromarketing program in food that caters to local tastes.