Aggressive Competition Forces Walmart to Test Even Smaller Formats

SHARE:

Email

Print

LinkedIn

Facebook

Twitter

May 4, 2010

Walmart finds itself in an unusual position –– it is losing core bargain-hunting customers to smaller format stores such as Aldi and Save A Lot, which primarily sell low-priced store brands in boxes averaging 10,000 to 15,000 square feet.

Although analysts are uncertain how much of Walmart’s sluggish sales of the past three quarters are due to competition versus declines in consumer shopping trips and baskets, Walmart is concerned enough to test some new concepts.

Walmart is exploring opening smaller format stores – much smaller than its current Neighborhood Markets that average 42,000 square feet –– in target urban centers where Aldi and Save A Lot are winning share, according to a Wall-Street Journal report.

Mike Duke

Although Walmart declined to comment on the Journal report, CEO Mike Duke indicated Walmart’s new focus in a newly released annual report where he wrote that "innovative new formats" will spark U.S. growth.

In another indication of a directional shift, COO Bill Simon told investors last month that Walmart would focus on winning customers in large metropolitan areas with "more-efficient formats" that could include drive-through windows for pick-up of online purchases.

Walmart’s U.S. Supercenter growth has slowed considerably over the past several years, from 132 in 2007 to 49 in 2009, according to the report.

Meanwhile, Aldi’s and Supervalu’s Save A Lot concepts are growing steadily, coming on strong during the economic downturn. Over the next five years Save A Lot plans to add more than 400 units, from its current 1,197 stores to 2,400, Supervalu CEO Craig Herkert, former head of Walmart's Latin American operations, told the Wall Street Journal.

Meanwhile, German-owned Aldi currently has 1,084 stores in 31 states, opening 83 of those stores in the past year and recently introducing its format to Texas.

Aldi, with store brands comprising more than 90 percent of its assortment, sells more than 1,400 of the most frequently purchased grocery and household items, which the company claims fulfill 90 percent of customers' average weekly shopping needs.

The chain passes on savings to consumers with prices up to 50 percent below traditional supermarkets, according to the company's web site, adding it "does not pass on hidden costs such as in-store banking, pharmacies, bagging clerks, check cashing, photo processing or other non-essential grocery store services."

Walmart is intimately familiar with the allure of Aldi. In 2006 it pulled out of Germany unable to compete with the unique small format grocer and other deep discounters there.

"Aldi literally ran Walmart out of continental Europe, and now they're taking the fight to Walmart in the U.S.,” retail consultant Burt Flickinger of Strategic Resource Group told the Wall Street Journal.

Save A Lot stores stock approximately 1,800 items, 80 percent of which are private-label products displayed in retail-ready packaging, like Aldi, which reduces labor costs.

In a recent interview with the Minneapolis Star Tribune, Herkert said Save A Lot is currently Supervalu’s most important growth vehicle. “Given the state of the economy and given what we are doing internally in regards to integrating the Albertson's business, we're not focused today on growth in our traditional retail stores,” he said.

Read These Related Articles:

• Managing the Growth of Store Brands
• Wal-Mart and Kroger Recall Select Store Brand Dairy Products
• Wal-Mart Downsizes and Recasts its Marketside Web Site
• Food Safety: A Store Brand Equity Investment
• Holiday Price Wars Could Make Consumers Big Winners

Most Read

Guest Columns

Grocery Aisle Innovation Key to Retailer and Consumer Cost Savings

Retailers are redesigning the aisle, appealing to environmentally friendly consumers and capitalizing on market trends to make their private label brands more competitive.

Source: Tetra Pak Inc.

How to Develop a Private Label Expression Aligned with Retail Brand Strategy

By creating private label as a marketing tool rather than just a price alternative, retailers gain the opportunity to tell a complete brand story while simultaneously boosting customer loyalty.

Source: CBX

Using the Store Banner to Endorse Private Label Architecture

Although the economic downturn accelerated private label growth in Europe, there was another key driver -- retailers started to brand their stores.

Source: IPLC

See All Guest Columns »

Press Releases