Monday, September 15, 2008

Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

Wal-Mart, Inc. is expanding its program of converting selected Wal-Mart Discount store format stores -- which are big box stores that sell general merchandise products and a limited assortment of grocery items in its pantry departments but don't offer fresh produce and meats or supermarket-sized selections of groceries -- into food, grocery and general merchandise Supercenters in the U.S., Fresh & Easy Buzz has learned.

As we've reported previously, Wal-Mart is converting about 30 discount format stores in Southern California into Supercenters, adding what amounts to a full supermarket inside the existing stores.

We also reported earlier today the retailer has plans to expand this conversion program to other U.S. states where it operates the discount stores.

The discount store was Wal-Mart's first format nationally in the U.S. The stores sell everything from household goods and clothing to furniture, hardware and electronics. They offer a limited selection of dry grocery and perishable products, including some dairy products and frozen foods.

Over the years these consumables, including beverages and snacks, have been increased considerably in the discount stores by Wal-Mart as the retailer has found its performance enhanced greatly based on the more food and grocery offerings it makes throughout all of its store formats. In fact, consumables sales are the primary contributor to Wal-Mart's current strong performance compared to nearly all other general merchandise retailers in the current down U.S. economic climate.

Shannon Letts, a Wal-Mart regional vice president for real estate, says the retailer is stepping-up it conversion of selected discount stores into Supercenters, adding numerous stores to the makeover list, in addition to the 30 in Southern California.

Speaking to an audience of commercial retail real estate professionals and others last week at an event in Rogers, Arkansas called the Oklahoma/Arkansas Idea Exchange, sponsored by the International Council of Shopping centers retail trade group, Ms. Letts said among the new discount store-to- Supercenter conversion projects scheduled for this year include 6 discount stores in Arkansas and 5 in Oklahoma, in addition to the Southern California store projects.

Wal-Mart's corporate headquarters is in Bentonville, Arkansas.

Ms. Letts also said at the conference Wal-Mart is identifying discount stores throughout the U.S. which will be added to the list to be converted to Supercenters, which sell a complete selection of food and grocery items across all categories, as part of the expanded conversion program the retailer has embarked on.

She added Wal-Mart also has stepped up its overall store remodeling program, particularly for existing Supercenters but also for its other format stores.

Letts said very little about Wal-Mart's new small-format combination grocery and fresh foods Marketside format at the conference.

She did comment that the Marketside stores are particularly designed for "dense, urban-type areas." This is one of the strategies, the urban strategy, we've reported Wal-Mart plans to employ with its Marketside stores, which average about 15,000 -to- 20,000 square feet. However, Wal-Mart also will locate the stores in suburban cities, as it is doing with its first four stores in the Phoenix area in Arizona.

Those first four Marketside stores -- which will sell a limited assortment of basic grocery items, fresh meats, produce, perishables and baked goods, along with offering prepared foods made right in an in-store kitchen -- are set to open this fall in the Phoenix, Arizona Metro region cities of Chandler, Mesa, Gilbert and Tempe.

The Marketside stores, which also will have seating inside for about 9 -to- 10 customers at a time for its prepared foods offerings, are all located withing 1 -to- 2 miles from existing Tesco Fresh & Easy Neighborhood Market grocery stores in these four Arizona cities.

The Marketside and Fresh & Easy stores will be very similar in terms of merchandising and product selection, as well as look and design.

One major difference is in the prepared foods offering. Tesco makes its fresh, prepared foods for Fresh & Easy at a central kitchen in Southern California then ships the products to the stores. As mentioned above, the Marketside stores will prepare the foods for takeout and eating-in right in the stores.

Wal-Mart's expansion of its conversion of numerous discount format stores into full blown food and grocery selling Supercenters is part of the retailer's overall strategy to dramatically increase its share of the food and grocery sales market throughout the U.S.

The chain recently surpassed Kroger Co. to become the food and grocery market share leader in the U.S. nationally. However, in many markets such as California, which is the largest in the U.S., Wal-Mart has a very small presence when it comes to food and grocery retailing. That's why it's converting the 30 or more stores in Southern California into combination grocery and general merchandise Supercenters.

This situation also is one of the reasons Wal-Mart created its small-format Marketside. The retailer hopes the small-format chain will allow it to sell more food and grocery products in places like the San Francisco Bay Area and Southern California, for example, where it's been unable to open many new Supercenters because of objections to the mega-stores from city governments and community groups.

Additionally, the smaller footprint Marketside stores are designed, as Ms. Letts mentioned at the conference, to fit into dense, urban settings (cities like Los Angeles, Phoenix, San Francisco, San Jose) where it's impossible to build big box stores due to geographical and space limitations.

Further, Marketside is part of a multi-format food and grocery retailing strategy in which Wal-Mart wants not only to be shoppers' primary grocery shopping venue with its Supercenters and Sam's Club stores, but also their secondary and tertiary venues with its 45,000 square foot Neighborhood Market supermarkets (primary venues in some cases with those stores) and small-format food-focused Marketside stores.

The Phoenix, Arizona Metro region is a good place to try this strategy out with the first four Marketside stores because Wal-Mart has numerous Supercenters, Sam's Club stores and Neighborhood Market supermarkets in the region. In other words: Wal-Mart is looking for shoppers' primary, secondary and tertiary food and grocery dollars with its multi-format approach.

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