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Super marketing at Wal-Mart

With thriving supercenters, Wal-Mart is surging ahead of bay area grocers, again changing the way Americans shop.

PINELLAS PARK -- It's 11:45 on a Friday night, but the closest parking spot to the Wal-Mart Supercenter is 100 yards from the door.

Inside one of the busiest supercenters in the nation, shoppers are filling their carts with doughnuts, $5.88 DVDs and Levi's Signature jeans spread over a 5-acre sales floor. At the checkout counter, the lines are three deep at 21 open registers.

In Wal-Mart's version of midnight madness, clerks wheel bulky pallets into the grocery aisles to restock the depleted shelves. Shoppers reach over, under or around them to grab the Grape Nuts, squeeze the Charmin or thump the melons.

"I've been here at midnight, 2 a.m. and sunrise. It's always this busy," said Alex Piovano, a 30-year-old information technology manager from Seminole who compares shopping the long aisles to driving the interstate. "To check out something on the shelves, you have to pull over, or somebody's right up your back with a cart."

Forty-one years after Sam Walton planted his first Wal-Mart discount store in rural Arkansas, his corporate successors once again are remaking the face of American retailing. This time, they've added a full-scale supermarket to their collection of towels and toys, garden plants and video games.

And just as the original Wal-Marts threatened old-line retailers like department stores, the supercenters have sent shock waves through the supermarket industry.

Wal-Mart Stores Inc. of Bentonville, Ark., the world's biggest corporation, has also become the nation's largest grocer in a remarkably short time.

The trend is playing out with a vengeance in the Tampa Bay area. Wal-Mart surged past Winn-Dixie this year to third place in the Tampa Bay market with a 14.5 percent share of the grocery business, according to Trade Dimensions Market Scope (which does not include Citrus County, which has a Wal-Mart Supercenter in Inverness, in its calculations). In 1998, Wal-Mart was a distant seventh place, with 1.6 percent.

Except for Publix Super Markets Inc., which leads with 34 percent of the market, all the major supermarket chains lost ground in the bay area in the past five years. Wal-Mart is gaining fast on second-place Kash n' Karry, which has 16.9 percent of the market.

Wal-Mart did it with 12 of its supercenters, from Spring Hill to Brandon, plus six of its Sam's Club membership warehouse stores. That's a fraction of the 50 Winn-Dixie stores and 65 Kash n' Karry stores located in the same territory.

And Wal-Mart is building supercenters as fast as it can. At least five more are slated to open in the Tampa Bay area within two years, as well as two more Sam's Clubs and two of Wal-Mart's new Neighborhood Markets, which are unadorned, conventional grocery stores.

Nationally, Wal-Mart now has as many supercenters (1,468) as it does regular discount stores and plans to have 2,088 within five years. Along the way, the company expects to expand its domestic payroll from 1-million to 1.8-million people by 2006. One retailing think tank, Retail Forward, projects that Wal-Mart will control 35 percent of the national grocery market and 25 percent of the drugstore market by then.

Meanwhile Target, the discount chain that made its name on cheap chic, has joined the race. It opened one of its slightly more upscale superstores, Super Target, 10 miles north of Pinellas Park last week in the rebuilt Clearwater Mall. Sales at the bay area's first Super Target in Wesley Chapel are running 20 percent ahead of the store's first few months last fall. One in four of all new Targets built nationwide will be a Super Target, each with a grocery store included.

In 2002, 40 percent of shoppers hit a supercenter, up from 25 percent in 1998.

Once grocers thought their better produce and meat departments could keep customers from defecting to such supercenters. No more.

"Five years ago supermarkets had a competitive advantage in perishables," said Kevin Snead, who co-wrote a McKinsey & Co. study for the Food Marketing Institute, the supermarket industry trade group. "Since then supercenter operators learned how to do produce just as well as supermarkets."

The Pinellas Park Wal-Mart brims with examples of how supercenters lure in grocery shoppers, then tempt them to wander the rest of the store.

During back-to-school season the kids clothes were right across the aisle from the Cocoa Puffs. All the pet food and beauty aids, such as soap and shampoo, are a 150-step march away from the closest corner of the grocery section. Shoppers must hike past the apparel, jewelry, greeting card, electronics, paper products and toy departments to get there.

Up front are other reasons for a visit: McDonald's, a nail salon, a portrait studio, an optical shop, a barber shop, a beauty parlor and a branch of the Pinellas County Teacher's Credit Union.

The result: A supercenter doesn't just add the revenues of a grocery to those of a discount store. There's a multiplier effect.

"Supercenters are almost diabolical," said Sandy Skrovan, a vice president of research for Retail Forward. "By doubling the size of the store, they triple the sales."

The average U.S. discount store is 90,000 square feet and generates $23-million in annual sales. The average Wal-Mart Supercenter is 182,000 square feet and does $87-million in sales.

In two years, the Pinellas Park store has become one of the chain's national stars. Wal-Mart will reveal only that the 236,000-square-foot store generates far more than $100-million in sales, although some local retail developers think it does twice that.

By the entrance is a produce department big enough to keep seven workers busy filling bins faster than shoppers empty them. It's an all-day race. In a typical day the Pinellas Park store goes through 25 cases of mangos, 100 watermelons and 150 cases of cantaloupe. Workers root out the rotten and the smooshed from the piles three times a day.

"We stage things in a prep room, but I go ballistic if I ever see fewer than two people on the sales floor," said Ted Burson, produce manager. "Shoppers expect to have someone to answer questions."

On a busy Saturday, more than 30,000 shoppers cruise its aisles.

The chain is a national phenomenon: 82 percent of all Americans bought something at a Wal-Mart in 2002. Increasingly, Wal-Mart has shifted its new construction from suburban areas on the edge of cities to major urban areas.

Still, its customer base remains anchored in the heartland of the Sunbelt and Midwest, where it has the most stores. Its core shoppers buy on price -- young professionals with limited discretionary income, blue collar workers, retirees and others on fixed incomes.

That's one reason Florida, which ranks below the national average in income, has been one of Wal-Mart's best and fastest-growing markets. It's also why Florida was among the first states to see Wal-Mart Supercenters and is the fourth state to get Wal-Mart's new Neighborhood Markets, which are still being tested.

The appeal of a Wal-Mart Supercenter is one-stop shopping, and many of those shopping at the store in Pinellas Park buy into the notion.

"I shop at Publix, and the perishables at Wal-Mart are just as good," said Robin Spires, 31, who drives across the Gandy Bridge from Tampa to shop the Pinellas Park supercenter.

But Judy Young, a school teacher who made a 10-mile drive from Seminole, steers clear of the grocery aisles. "I think their produce is sort of iffy," she said.

Wayne Ivy, a 32-year-old bank loan officer from Feather Sound, prefers to shop for groceries elsewhere and tries to hit Wal-Mart only when the crowds are smaller.

"The prices are good,' he said as he loaded a car for a neighbor who was shopping to outfit a new apartment. "But I learned long ago to buy tackle at this Wal-Mart the night before I go fishing rather than morning of. I was here at 8 a.m. one Sunday to buy stockings for the wife before church. It was even crowded then."

Wal-Mart did not invent supercenters. They've been popular for decades in Europe, where they are called hypermarkets. American versions operate as Fred Meyer in the Pacific Northwest and Meijer in the Midwest. Until about 30 years ago, Florida had its own variations on the theme under such names as J.M. Fields/Pantry Pride and Webb's City in St. Petersburg.

But Wal-Mart, which has always been an experimenter, brought the supercenter roaring back to life through years of relentless tinkering.

"They just plug away at something until they get it exactly right," said Sandy Skrovan, a vice president of research with Retail Forward. "Then they roll it out nationwide faster than anyone else."

In 1987, Wal-Mart first tried the food business with Hypermarket USA, a joint venture with a regional supermarket in Texas. In 1988, Wal-Mart bought a food distributor and began adding grocery departments to its experimental supercenters. In 1990, Wal-Mart's Hypermarket partner pulled out after deciding the discount chain's sole interest in the partnership was learning how to sell food.

The supercenter was the product of thousands of little experiments.

"We are our own worst critics," said Sharon Weber, spokeswoman for the company. "We're always experimenting."

The supercenter deli, for instance, was moved from the back of the store to the front when decisionmakers realized deli customers insisted on getting in and out fast. Wal-Mart invented a carousel for the checkout that eliminated the need to hire baggers. Wal-Mart gets manufacturers to pack products in display cartons that a clerk merely peels open and places on a shelf.

Merchandisers at the Pinellas Park store even stuck bunches of bananas at a side entry to see if people would buy them on impulse for a snack. It worked.

Wal-Mart's experiments produced far more misses than hits. The search for the right storefront shops to flank supercenter entrances included failed ventures in assemble-yourself furniture, mattresses, distressed merchandise, babysitting services and leather shops. The chain this summer gave up on a test of a no-haggle used car operation in the parking lot of a Houston supercenter.

The company's legendary penny-pinching and its obsession with investing in logistics technology helped make Wal-Mart more efficient than any of its major rivals. It costs Wal-Mart 16 cents to sell $1 worth of merchandise. The supermarket industry average is 23 cents.

Still, Wal-Mart constantly prods manufacturers to cut prices. In August, for instance, Tropical Sportswear Int'l Corp. of Tampa managed to squeeze almost a dollar off the price of its Puritan men's casual pants so Wal-Mart could sell them for $9.94 a pair.

The supplier's reward: more precious shelf space in stores and the hope of increasing sales of the pants by 30 to 50 percent.

What's a supermarket to do?

The Wal-Mart Supercenter changed the supermarket landscape in Pinellas Park. Most grocers in the area were once open 24 hours, seven days a week. Now only Wal-Mart is.

There's not a Kash n' Karry within 5 miles. A Winn-Dixie on nearby 49th Street N closed. Albertsons remodeled and added gas pumps to counter Wal-Mart's filling station, which offers gas discounts to people who buy vouchers inside the supercenter.

Now Wal-Mart hopes to win more converts by opening two or three more Supercenters within 15 miles.

Mark Husson, a securities analyst with Merrill Lynch, compares the arrival of Wal-Mart Supercenter to a deadly disease for rival supermarket chains.

"When the plague comes to your village, everyone gets sick. But not everyone dies," said Husson, "The strong gain market share as the old and the weak die."

Supermarkets will survive, he says. But probably not the fourth- and fifth-biggest chains competing in major markets such as the bay area. That could be trouble for the chains that hold those trailing positions here -- Winn-Dixie and Albertsons.

Local grocers have countered with a variety of strategies.

Executives at top-ranked Publix have been on a store-building binge in Florida, primarily to stay a step ahead of Wal-Mart. They're even building stores as small as 27,000 square feet in downtown areas to cover unserved neighborhoods.

Other grocers set up frequent shopper programs to increase customer loyalty and, on selected items, match the deeper discounts supercenters offer. Winn-Dixie turned an aisle in each store into a dollar store.

Wal-Mart carries only the most popular grocery items, half as many as supermarkets that stock more regional brands and a broader range of sizes. Kash n' Karry, for instance, heavily promotes an ever-widening selection of fresh produce, which now includes such exotic items as kiwano horned melon, malanga root and tamarindo beans.

Grocers are bolstering their selection of nonfood items that command a higher profit margin, too. Albertsons even began testing toy departments in a partnership with Toys "R" Us.

What the supermarkets can't do is match Wal-Mart's vaunted "everyday low prices." That would be suicidal because supermarkets buy their groceries differently from supercenter operators.

Supercenters can afford to sell groceries at a loss and make up the lost profit margin on other merchandise.

"We are not going to compete with supercenters on price," said Frank Lazaran, the new president and chief executive officer of Winn-Dixie Stores Inc.

Supermarkets charge suppliers for a place in their stores, collecting fees for shelf space, coupon rebates, exclusivity and advertising support. Albertsons Inc., for instance, reported earnings of about $1.5-billion in 2002. In the same year, it collected about $2.5-billion in promotional money and rebates from its suppliers, said Neil Z. Stern, a partner with McMillan & Doolittle, a retail consulting firm in Chicago.

"Supermarkets earn their money buying groceries from suppliers as well as selling them," Stern said. "Discount stores only earn their money selling them. So they tell suppliers to just give them their lowest possible price."

So while four Tampa Bay grocers wanted $5.49 to $6.49 for a 65-ounce container of Cheer Color Guard detergent recently, Wal-Mart's price was $4.87 and Target's was $4.99.

The salvation for supermarkets may be that food shoppers have a range of motivations.

While Wal-Mart appeals to bargain hunters, young families and a blue-collar crowd, most grocery shoppers choose where they buy food for a variety of reasons. Price is No. 3 on the list. In fact, consumers rate cleanliness (88 percent), quality produce (87 percent), clear sell-by/use-by dates (82 percent), quality meats (81 percent) and convenient location (80 percent) right up there with low prices (83 percent), according to the Food Marketing Institute.

"Price is not the only issue in where people buy their food," said Walt Rubel, a spokesman for Albertsons Inc., which is pouring $60-million into remodeling its remaining Florida stores this year after pulling out of Miami a few years ago. "We think a broader food selection, customer service and more convenient locations make us a better place to shop."

-- Mark Albright can be reached at albright@sptimes.com or 727 893-8252.