Indeed, Wal-Mart, with grocery-related sales of $83.7 billion last year ($65.3 billion from supercenters and $18.4 billion from Sam's Club), is rolling over supermarket chains and is poised to batter many marketers, media and advertising businesses in the process.
Retail consultant Burt Flickinger says over the next three to five years the U.S. will see "the biggest period of retail consolidation since the Great Depression," and estimates Wal-Mart will grow close to $30 billion to $35 billion per year, most of it from supermarket sales volume. "That's the size of Safeway, every year," says Mr. Flickinger. Indeed, Wal-Mart sales advanced $26.5 billion to $217.8 billion in its most recent fiscal year, ended Jan. 31, 2002.
Wal-Mart Supercenters' share of the $682.3 billion grocery store market jumped to 9.6% in 2001, up from 8.6% in 2000, further increasing the gap with its nearest competitor, Kroger Co., and almost double the share of each of the next two chains in line, Albertson's and Safeway.
upping visit frequency
The behemoth has no plans to stop there. Grocery aisles were added to stores in 1997 as a way to increase customer visits. Industry surveys have indicated customers visit supercenters with grocery stores two or three times per week, while they might visit a discount store three times a month.
Wal-Mart this year plans to add 180 to 195 new supercenters, most selling groceries, in the U.S. It also is looking to expand grocery sales in areas it didn't usually touch with its smaller, lower-volume neighborhood market concept. This year, about 15 to 20 new markets will be added to the 30 currently in operation, with a national rollout planned over the next three years.
Wal-Mart is getting top-of-the-line share for its minimal ad dollar, and joins other supermarket chains in spending most of its ad funds on unmeasured advertising such as point-of-purchase displays and local newspaper circulars. Measured media, for example, is only 15.2% of Wal-Mart's total advertising, 18% of Kroger's and 26.6% of Albertson's.
Wal-Mart also is emerging as one of the nation's largest retailers of its own private-label brands, although it insists its strategy remains selling brand names at low prices. However, as Wal-Mart becomes more involved in manufacturing, retail consultants expect Wal-Mart to emphasize products in its spots, perhaps competing head-on with marketers it has so effectively corralled on prices. The retailer's current ad focus brands the store using employees and customers, and stresses low prices.
Not even other discounters are insulated from Wal-Mart's jaws. Target Corp.'s Target Stores is expanding into grocery retailing, a potentially treacherous move. Food typically has razor thin margins, and would lower Target's overall margin. Unlike Wal-Mart, Target's returns are weighed down by its two department store chains, Marshall Field's and Mervyn's. Target, which has recently begun to add price cut shelf-talkers to its aisles, "cannot compete head-to-head with Wal-Mart on price," says Mr. Flickinger.
The Wal-Mart juggernaut is forcing others to the ring. Koninklijke Ahold's Giant Supermarkets is testing mini-Toys "R" Us shops within its stores.
"Wal-Mart is developing the scale and skill to be one of the largest brand marketers in the world," says Mr. Flickinger. "That's going to be devastating for the U.S. supermarket industry and for U.S. manufacturers."