Walmart goes midsize with Neighborhood Markets

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Posted: Sunday, February 24, 2013 12:00 am

Say the name Walmart and many people think of a mega-size discount store that sells big-screen televisions, video games, clothing and toys. But surprise: The Arkansas-based company is the nation's largest grocery retailer, earning 55 percent of its revenue last year from grocery sales.

In 2012, Walmart sold $119 billion worth of groceries while No. 2-ranked Kroger Co. (owner of Baker's Supermarkets) rang up $61 billion in sales, according to Progressive Grocer.

Hungry for an even larger share of consumers' food budget, Walmart is betting that its Neighborhood Markets — midsize stores that focus on food and health and beauty products — will lure shoppers from discount supermarkets, dollar stores, convenience shops, SuperTargets and drugstores.

Nebraska's first Neighborhood Markets — one at 13105 Birch Drive in Omaha, the other at 2109 Towne Center Drive in Bellevue — will open for business Friday. Seven are planned.

The World-Herald last week got an exclusive tour of the store at 132nd Street and West Maple Road.

Most noticeable: At about 40,000 square feet, the Neighborhood Markets are half the size of most supermarkets. The smaller format is intended to draw price-conscious and midweek shoppers in need of a gallon of milk or a head of lettuce who don't want to wend their way through a 120,000-square-foot Walmart Supercenter or pay premium prices at a convenience store.

“The customer they're seeking has their list of things they need and wants the convenience of getting in and out very quickly,” said David Stewart, marketing professor at the University of California, Riverside.

Besides a smaller size, here's what else shoppers will see: gray concrete floors, harvest-gold walls with lime-green accents, ample aisles and motion-sensitive lighting in the refrigerator and freezer cases to save on energy, and a full-service pharmacy. Both locations will be open 24 hours, and each will employ about 90 people, said Adrienne Pope, manager of the Omaha store.

ADRIENNE POPE

About 80 percent of the shelves were full. The meat, cheese, dairy and fresh produce sections will be filled right before the store opens, said Cynthia Horning, a district manager who oversees operations of the area's Neighborhood Markets.

The stores, along with some Supercenters, will allow customers to use their smartphones to scan their purchases as they shop using Walmart's Scan and Go app. When they're finished shopping, they scan a QR (quick response) code at a checkout stand and pay, a feature that allows shoppers to bypass cash register and self-checkout lines, Horning said.

The markets offer a fresh produce section, take-and-bake pizzas, rotisserie chickens and other ready-made foods, and specialty brands including Wolfgang Puck and Rachael Ray, and local brands such as Mister C's, Lucky Bucket Beer and Rotella's.

When it comes to stocking the shelves, Walmart has done its homework with community surveys and demographic studies.

The store at 132nd Street and West Maple Road, for example, is emphasizing its selection of beer, wine and liquor in a bow to the wants of the area's population, while the Bellevue store, which is near Offutt Air Force Base, will offer a generous assortment of African-American and Hispanic foods and ethnic health and beauty products.

“The base is close and you can get people from all over,” Horning said.

The number of nongrocery items is limited. Shoppers will find slow cookers and coffee makers, a few children's toys in the cereal aisle and baby monitors with baby care items, as well as children's school supplies and seasonal products, such as Easter baskets.

In the market's health and beauty section — really a drugstore within the store — shoppers will meet with a product assortment that mimics most drugstore chains: hair-styling appliances, vitamins and a smattering of “As Seen on TV” products. The pharmacy will be open fewer hours than the 24-hour store.

The market also offers check-cashing and money order services, and a “site-to-store” merchandise pickup counter for online shoppers who want to avoid shipping costs.

Neighborhood Markets don't sell high-definition TVs, computers or children's clothing, but customers who want to pick up online purchases of such items at a Neighborhood Market can do so, avoiding the bustle of a discount Walmart or Supercenter, Horning said.


VIDEO: The World-Herald's exclusive Walmart tour


Carolyn Siracuse, a West Maple Road area resident, isn't sure whether she'll shop at the new Neighborhood Market. Siracuse, the mother of school-age children, divides her grocery shopping between Baker's and the Walmart Supercenter near her home.

“I like Baker's for its meat department and bakery,” said Siracuse, who was shopping at a nearby Baker's store. When she heads to the Walmart Supercenter at 168th Street and West Maple Road for groceries, it's because she also needs to pick up socks for the kids or towels for the bathroom.

But the market's proximity to the fitness center Siracuse visits is a plus. “I might go there to pick up a few things after I exercise. It's right next door.”

In that sense, Siracuse typifies the convenience-seeking customer Walmart is banking on.

Walmart, which opened its first Neighborhood Market in 1998, has stepped up construction in the last five years. The world's largest retailer now operates more than 230 Neighborhood Markets across the nation and has given them a lime-green color scheme to distinguish them from the blue banners that mark its discount stores and Supercenters.

Walmart plans to open four more Neighborhood Markets in the Omaha area in the next 12 months. Markets at South 168th and Harrison Streets and the 50th and L Streets area are expected to open this spring; the 96th Street and Giles Road location is slated to open in the fall; and the 90th and Lake Streets store should open in the second half of 2013.

A glimpse of the new Neighborhood Market store near 132nd and Maple while it is being readied for opening on March 1. JAMES R. BURNETT/THE WORLD-HERALD

A seventh store that would be built on the site of the former Target on Saddle Creek Road — the existing building would be razed — awaits Omaha City Council approval.

Walmart has exercised a similar strategy — blanketing the city and opening about a half-dozen stores in the space of six to 12 months — in Wichita, Kan., and Denver.

In both cities, Cincinnati-based Kroger, which operates supermarkets under the Dillon's banner in Wichita and King Sooper in Denver, dominates the grocery industry.

Omaha, analysts say, has more grocery chains and choices, and the market is saturated and, thus, very competitive.

“You can't always trade dollar for dollar on Walmart's prices but you can compete by having more services,” said Jon Springer, associate editor at Supermarket News in New York City. In fact, Kroger often “does better in markets where Walmart is a competitor,” Springer said. “Between them and Walmart, they make it hard on other competitors.”

Staff at the Baker's store about a block from the West Maple Road Neighborhood Market were ready to tick off a list of Walmart's disadvantages.

“They don't have a full seafood and meat department. They don't have a fresh bakery or full-service deli,” said Brian Arndt, assistant manager at the Baker's store at 13250 West Maple Road.

Grocery market analyst David Livingston of DJL Research in Wisconsin agreed: “Baker's will do fine. They can hold their own. And Hy-Vee is strong.”

Walmart's target are stores like Bag 'N Save and No Frills that try to compete on low prices, Livingston said.

Nash Finch, which purchased 12 Bag 'N Save and 18 No Frills stores last year, did not return a call for comment, but Nash Finch President and CEO Alec Covington told investors and analysts in a conference call in July that the purchase of the two brands would better position the company, predominantly a wholesaler, to face Walmart.

A 2012 World-Herald consumer preference study indicated that the percentage of households in the previous month that had shopped at No Frills was 9 percent and at Bag 'N Save, 6 percent. That compares with 30 percent at Hy-Vee, followed by Walmart with 23 percent and Baker's with 12 percent.

In general, competitors did not want to talk publicly about Walmart, or, if they did, they said they were confident they would compete well. Analysts characterize Omaha as a competitive, mature market. The demand for groceries is stable but not growing.

“Walmart is going after the price-conscious shopper. This is not about keeping up with growth,” Livingston said. “At some point, somebody's got to get off the bus.”

Price is a factor, “but so is convenience and brand assortment,” making it unlikely that Omaha will see price wars, said Kathy Siefken, executive director of the Nebraska Grocery Industry Association. Supermarkets typically experience a drop-off in sales for 30 to 60 days after the new guy shows up on the block, she said. “Whenever a new store opens up in the area, whether it's a Hy-Vee or a No Frills, customers are going to check it out.”

Whether they stick with a new supermarket or return to their old grocery store all depends on what consumers want, Siefken said.

“In a lot of Nebraska communities, a meat counter that grinds its own fresh meat at least once a day is a big selling point,” Siefken said. “Shoppers that don't care whether their meats are prepackaged are going to shop at Walmart.”

Consumers who now shop for groceries at Walmart Supercenters may shift to Neighborhood Markets, cannibalizing their own operations. “This is one of the trends we've seen — as the population ages, they do not want to go to a 180,000-square-foot store,” Siefken said.

Walmart isn't worried about customers who shift from shopping at a Walmart Supercenter to a Walmart Neighborhood Market, Livingston said. “A lot of their Supercenters are overachieving. They don't mind losing to themselves.”

Walmart declined to comment about its competitors, saying its focus was on providing service at a “Walmart price.”

Video: The World-Herald's exclusive Walmart tour

In general, the arrival of Walmart Neighborhood Markets can increase the woes of already struggling chains that lack the ability to compete with respect to price, volume or assortment, analysts say.

“Here in Southern California, Walmart showed up with multiple stores in a short period of time,” said Stewart, the marketing professor at UC Riverside. “Invariably, there will have to be some losers. You may see some of the more traditional convenience stores begin to disappear. You may see some of the big chains closing their smaller stores. There's not enough growth in the Omaha market to keep everyone in business.”

Contact the writer: 402-444-1142, janice.podsada@owh.com

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