Mega-retailer Wal-Mart may have found a solution (or two) to all the community-based opposition in many parts of the U.S. to the retailer's building of its Supercenter stores.
Last month, the brawny big-box bruiser from Bentonville (Arkansas) decided to kill 47 new Supercenter store projects it had on the books for a variety of reasons, all having to do with either opposition to the stores from city and country governments or community-based groups in the cities and neighborhoods where the respective stores were to be built.
Don't feel sorry for Wal-Mart though. The world's and United States' largest retailer will still open at least that many (47) new Supercenters in the U.S. this year, plus a handful more.
The municipal government and community-based group oppostion is a serious impediment to Wal-Mart's Supercenter growth plan in the U.S. however. But it's not a new problem. It's been going for for years.
However, what is new is Wal-Mart's response to the oppostion, which historically has only been one-dimensional: To lobby city governments and community groups, trying to change their minds, or to fight the oppostion in court.
Until now, that is.
The Modesto Supercenter Strategy
In the Central Valley city of Modesto in Northern California, Wal-Mart is gutting an old 105,000 square foot long-empty big-box retail building, which most recently was divided in half and housed a store belonging to the now gone local discount warehouse grocery chain SavMax in one half of the building and a Rite-Aid drug store in the other half.Wal-Mart is turning the 105,000 square foot building into a scaled-down version of its Supercenter format store. The Modesto Supercenter, which is located at 3848 McHenry Blvd. a popular shopping street in the city of about 210,000, will have all the departments--fresh produce, meat, perishables, dry grocery and the like--that its larger Supercenters have, which average about 185,000 square feet and run as big as 225,000 square feet.
The only difference between the more petite Modesto Supercenter and nearly all of the retailer's other, larger Supercenters, is that those departments will be scaled down and the store's overall product selection will be a bit less expansive than in the traditional Supercenters.
To compare the size difference of this new Supercenter in Modesto to Wal-Mart's other stores of the same format, lets compare it to the retailer's Wal-Mart discount store format stores, one of which the retailer has in Modesto. That store, like all the Wal-Mart disount format stores', carries only a limited assortment of grocery products in a few aisles plus some basic frozen and perishable foods. However, it's still 115,000 square feet without the supermarket inside, which is 10,000 square feet larger than the new full food and grocery Supercenter set to open early next year on Modesto's McHenry Avenue.
The Modesto Supercenter scheduled to open early next year isn't first smaller-size Supercenter Wal-Mart has opened, nor the first it's located in an old big-box building it's gutted and completely remodeled. Last year, the retailer opened a Supercenter in Sanger, California that's just a bit larger than the Modesto store. Sanger is a suburb of Fresno and is about 100 miles south of Modesto in the southern Central Valley.
The main reason Wal-Mart is doing this Supercenter scaling-down in California, and especially in the Central Valley, is becuase the state as a whole, and the region particularly, has been one of the most difficult places in the U.S. for the mega-retailer to get approval to build it's 185,000 -to- 225,000 square foot new, from the ground-up Supercenters.
For example, Wal-Mart planned to build a roughly 200,000 square foot Supercenter in a shopping center in Modesto in 2001. However, after a couple years of rangling with the city planning commission and city council, as well as opposition from numerous small business groups, it abandoned those plans.
In 2004, Wal-Mart proposed building a brand new 225,000 Supercenter in Turlock, which is a city of about 75,000 residents located just 10 miles from Modesto. The Turlock City Council not only rejected Wal-Mart's proposal--even though the retailer already had a Wal-Mart discount store in the city and promised to keep it open along with the new Supercenter--it ended up passing a big-box ordinance which prohibited any retailer from opening a store of at least 100,000 square feet that devoted at least 5% of its floor space to grocery items.
The Supercenter ban was specifically designed to prevent Wal-Mart from locating a Supercenter in the city. However, through its language it left the door open for big box retailers like Costco Wholesale and even Wal-Mart's Sam's Club
Wal-Mart filed a law suit against the city of Turlock in February 2004, one month after the city council passed the ban legislation. The case was in the courts for two years. In 2006 the court ruled in favor of the city and Wal-Mart announced it would no longer try to build a Supercenter in the city.
Big box bans like Turlock's are common in California. Two other cities in the area, Oakdale which is next door to Modesto, and Patterson, which is about 25 minutes away from Modesto, have both passed laws similar to Turlock's, designed specifically to keep Wal-Mart Supercenters out of their respective cities.
Wal-Mart pulled the plug on a Supercenter in another nearby city in 2006, when the city of Ripon, just a few miles from Modesto, fought against the retailer's proposal to locate a Supercenter in the community. At the time the issue of contention was over where the Supercenter would be located in Ripon. Wal-Mart announced it would not build on the site but would look for a more suitable location in the city. That was two years ago and the retailer is yet to announce a site in Ripon.
Last year Wal-Mart did get approval to build a 225,000 square foot Supercenter in Ceres, which is right next door to Modesto. However, the community of about 45,000 was far from the retailer's first or second choice in the region. But since the city is aggressively seeking retail and streamlines the permit process, Wal-Mart went forward with the proposal. The Cerers Supercenter is currently being built--not without community protest of sorts--and is scheduled to open later this year.
Bay Area and SoCal also tough for Supercenters
Its not just the Central Valley that opposes Wal-Mart Supercenters so strongly. In fact, the nine county San Francisco Bay Area, which is about 90 minutes from Modesto, opposes the mega-stores as much or even more than the Valley's municipalites and communty groups.
Wal-Mart has only a couple Supercenters in the 7-million population strong Bay Area. Those stores are out in the fringes of the region where opposition and the need for tax dollars of any kind are far more desired than in the major Bay Area cities and suburbs. As a result, opposition to the Supercenters is less intense.
Try as it might, Wal-Mart has failed to build numerous new Supercenters its proposed in many of the most desirable Bay Area cities; cities where it wants to be with that format.
Wal-Mart hasn't had much better luck in the Southern California region, where more than half of California's residents live. It has some Supercenters in the region, but nowhere near the number it wants--or has tried to get approval for.
In fact, it's in Southern California where Wal-Mart has come up with phase two of its plan to open more Supercenters in the Golden State, albeit somewhat smaller than average like the Modesto and Sanger stores, and of a somewhat hybrid nature
The retailer just announced plans to add an additional 25,000 -to- 50,000 square feet on to a number of its Wal-Mart discount stores in Orange County, therby turning them into hybrid Supercenters.
According to John Mendez of Wal-Mart, the stores--like the Modesto Supercenter--will have all the same departments and sell the same food and grocery products that a standard, larger Supercenter does. The departments will just be scaled-back and have a more limited overall product assortment.
Wal-Mart's discount stores sell perishable items like milk, juice and eggs, have some frozen foods, and contain aisles where a limited assortment of grocery products is offered.
The expanded discount stores would still retain all the non-foods departments they currently have but would add a smaller-version of a full-fledged Wal-Mart Supercenter supermarket inside.
Wal-Mart becoming more agil
These two developments, along with Wal-Mart's new, small format (about 15,000 -to- 20,000 square feet) Marketside grocery markets which will make their debut this summer in the Phoenix, Arizona Metropolitan region, are showing that a mega-retailer can also be a nimble one when it comes to format adjustments and creations.
By choosing a Supercenter strategy which includes remodeling existing, smaller buildings like in Modesto and Sanger, and adding on square footage to Wal-Mart discount stores like the retailer plans to do in Orange County, Wal-Mart is showing a new adaptability after years of sticking with the single Supercenter mind set and format.
As a result, the retailer will be able to garner much more of the grocery dollar market share in states like California where the opportunity is there but the jumbo sized singular Supercenter format has proven a barrier to entry.
Additionally, the small-format Marketside stores will give Wal-mart an urban strategy for city's like San Francisco, Oakland, San Jose and Sacramento in Northern California, and Los Angeles and San Diego in Southern California, if it chooses that strategy.
For example, it's impossible for Wal-Mart to get approval, even if it found the space, to built a Supercenter in politically-charged San Francisco. However, it's likely it could get approval--with a bit of a fight still--to buildl a 15,000 -to- 20,000 square foot Marketside store, or two or four in the highly dense city.
The same is the case in urban Los Angeles and San Diego. In terms of the Modesto model of locating a Supercenter in a smaller, existing building, doing so makes it difficult for a city to stop Wal-Mart because the application and permiting process is much different than when building a new store from the ground up. Essentially, a city like Modesto can't prevent Wal-Mart from putting whatever type of store it desires in an existing building like the 105,000 square foot former combined supermarket and drug store location on McHenry Avenue, as long as it files the proper paperwork and meets existing city laws.
The same is the case for the square footage additions the retailer plans to do with some of its Orange County Wal-Mart discount stores. Should the respective cities in Orange County try to hold up or prevent Wal-Mart from adding the additional square footage to those stores, the retailer would easily win in court, since such additions are done by retailers of all types regularly, and preventing Wal-Mart alone from doing it would likely be ruled descriminatory.
Localizing and shrinking new Supercenters
Another strategy Wal-Mart is employing is to design its Supercenter to fit in with a local communities geographic location, setting, culture and history. For example, the brand new Wal-Mart Supercenter in Austin, Texas pictured at the top of this piece, sure looks a bit different than the typical Wal-Mart square, big box Supercenter, doesn't it? It's designed to fit into the more hip, upscale style that is Austin.
The retailer has designed similar "local" Supercenters in Colorado that fit in with the regions rugged mountains and woods, using different roofing and siding on the buildings, in addition to numerous other local touches. One Supercenter in Colorado even has a complete bicycle shop in the store, and Wal-Mart built and paid for bike paths and bike racks on land around the store because the communtiy is a major bicycling area.
These localization design strategies also include shrinking the Supercenters a bit if need be. Wal Mart has built a couple of the mega-stores so far that are in the 130,000 sqaure foot range rather than the average 185,000 size
Marketshare is key regardless of format
Last year, Wal-Mart overtook Kroger Co. as the number one grocery sales market share leader in the U.S. It's a close race between the two retailers though.
What Wal-Mart seems to have finally figured out with its new format flexibility as detailed in this piece, is that grocery marketshare is king, and it doesn't have to just come from a 185,000 -to- 225,000 square foot Supercenter.
In addition to putting the scaled-down Supercenters in the old bg-box buildings like the retailer is doing in Modesto and Sanger, adding the additional square footage for groceries onto the existing discount Wal-Marts in Orange County, and introducing the new, small-format Marketside grocery stores this summer in Arizona, Wal-Mart also is building more of its average 45,000 sqaure foot Neighborhood Market supermarkets this year and next than it has in many years.
This new, muti Supercenter and multi grocery store format strategy should give Wal-Mart additional market share, allowing it to increase its lead over Kroger. The main reason this should be the case is because these strategies will allow it to increase its grocery sales square footage in places like California where it currently has a minimal food and grocery retailing presence because of the inability to open any where near the number of traditional, new Supercenters it has wanted to for over a decade.
The mega-retailer plans to use it hybrid Modesto Supercenter strategy and the Orange County add-on discount store strategy in other parts of the U.S. in which gaining approval for new, built from the ground up Supercenters is a problem.
The Modesto Supercenter strategy also will be used in places like urban areas, where space is of a premium and the idea of acquiring an empty big box building and turning it into a Superstore is a good option.
Further, expect to see Wal-Mart add additional square feet on to other discount stores in other parts of the U.S. this year and beyond. Food and grocery sales are what's allowing the retailer to post strong sales and profit gains like its recently released quarterly profits.
Wal-Mart wants to be able to sell more food and grocery products in all categories in all of its stores--as well as in more places in the USA. As a result, the strategies detailed in this piece will be implemented, along with the buolding of new Supercenters, wherever the brawny big box retailer from Bentonville thinks they make sense.