Discount food shopping

Wal-Mart's recent difficulties in California may cause some to snicker that the retailer's hitherto irresistible growth in food and consumables may finally have begun bouncing up against some unmovable objects. Wal-Mart, though, is forging tools that can sweep aside barriers to its expansion, starting with that old stalwart, the discount store.

Wal-Mart supercenters have entered the California market with a massive 225,000-square-foot unit in the town of La Quinta, but the retailer faces potential size restrictions in some California communities. Not to be disarmed, the retailer has developed a 99,000 square foot supercenter concept that can help it meet proposed rules against food stores of more than 100,000 square feet. The smaller supercenter debuted earlier this year in Tampa, Fla., and provides Wal-Mart a food and consumables concept to fit locations that just can't accommodate a hulking supercenter.

The Tampa store, dubbed "urban 99," remains true to Wal-Mart's supercenter conception and floor plan. Yet, in developing the urban 99 supercenter, WalMart has blended in elements from Neighborhood Market, which heavily influence perishables and dell

With supercenters big and small as well as Neighborhood Market, it's easy to overlook another important element in Wal-Mart's food arsenal, the discount store. George Strachan, a Goldman Sachs analyst, has suggested that doing so would be a mistake. Discount stores offer Wal-Mart flexibility, he noted, particularly those stores with expanded food departments.

Bigger food departments don't turn a discount store into a super-center, though. Bruce Peterson, senior vp/gmm perishables at Wal-Mart, said consumers don't necessarily shop the two concepts the same way--Wal-Mart doesn't approach merchandising the two concepts in the same manner, either--even when it comes to something as central as it's Store of the Community initiative in discount stores. "Everything we do has Store of the Community applications, and that does manifest itself in expanded food stores but that has a somewhat limited roll. National brands resonate with customers there," Peterson said.

Strachan conceded that a lack of perishables prevents consumers from doing all their food shopping at Wal-Mart discount stores, even the approximately 900 with expanded food sections. But he pointed out that those stores help drive share in markets where the retailer has yet to develop supercenters.

New Jersey is one of those markets. Strachan conducted a price comparison of a Wal-Mart discount store in Watchung, N.J., with nearby supermarkets on one occasion and discounters on another. In doing so, he demonstrated that Wal-Mart was the low-priced provider on shopping baskets that included heavy concentrations of food and consumables. Thus, discount stores have an inherent competitive edge and can help drive food and consumables share beyond the estimated 9.5% Wal-Mart now enjoys, Strachan noted.

The discount store can significantly lift Wal-Mart's food and consumables sales, and in more ways then one, he told Food Retailing Today. "It will have a material impact. Hundreds [more] Wal-Mart stores will get expanded food. Some of these will be expanded eventually into supercenters. Expanded food is just another tool, but an important one" he said.

Ultimately, formats beyond the standard supercenter provide Wal-Mart with flexibility to build food and consumables market share and maximize the efficiency of its distribution system.

At a Los Angeles discount store it opened three years ago, Wal-Mart demonstrated how flexible it can be. The multilevel mall location contained a blown-out food section. However, that isn't the only case where Wal-Mart combined a mall unit with expanded food. A store in Massapequa, N.Y., opened several months later included a food section resembling ones found Wal-Mart's Canadian stores, which focus more on refrigerated goods than do their Yankee counterparts. The Massapequa store provided 32 cold and frozen doors with items such as frozen meals and milk. Still, the Wal-Mart discount store in Los Angeles went the Massapequa location one better, offering even packaged salads.

"Food drives traffic," Smith Barney analyst Deborah Weinswig said, adding that where Wal-Mart executives can't envision supercenters, "I think they will continue to expand this department."

Despite that, Emme Kozloff, a Bernstein Research analyst, cautions that Wal-Mart's major offensive weapon in food and consumables remains the same. "Supercenters over the next five years will remain the driver and that is where management is allocating most of its capital related to food expansion," she said.