Retailer devising drive-up grocery

Wal-Mart offers a look at future

There will be a day in the not-so-distant future when shopping at Wal-Mart will have all the convenience of a Sonic drive thru.

That was the mental image Bill Simon, president and CEO of Wal-Mart U.S., provided for those attending the 35th annual Raymond James Institutional Investors Conference on Tuesday in Orlando, Fla. Nearly 100 companies gave presentations, including Arkansas-based Wal-Mart, J.B. Hunt Transport Services Inc. and Arkansas Best. The three-day conference concludes today.

Simon talked a great deal about the company’s plans to strategically grow its fleet of smaller stores - Neighborhood Markets and Express stores - in the country’s urban and suburban areas and to use its online shopping site, Walmart.com, to fill customers’ orders, either for pickup or delivery.

In a test market of nearly a dozen stores in Denver, customers can submit orders online and then pick them up, either by having a loader take the order to their car in the parking lot or by driving through the pharmacy. More test markets will be added later in the year, Simon said.

So far, 90 percent of the customers who have tried it have been satisfied with it, he said.

Wal-Mart started under founder Sam Walton in 1962, but grew exponentially once the mammoth Supercenter stores were introduced in 1988. The smaller, more grocery-oriented Neighborhood Markets and the company’s e-commerce business were launched about 1999. It’s been said that there is a Wal-Mart store, distribution center or fulfillment center within 5 miles of two-thirds of the country’s population.

Simon said Wal-Mart garners about 25 percent of the $585 billion “stock-up” market through its 3,200 Supercenters. A stock-up trip is considered a big weekend trip in which consumers intend to get the groceries they need for the week.

The stock-up trip represents about 60 percent of consumers’ grocery spending, and Wal-Mart gets more customers than any other retailer for these trips.

However, a flood of 16,000 pharmacy, dollar and convenience stores opening since 2005 has hurt the Supercenter business. The in-between, midweek “quick trip” - a $415 billion market - is where Wal-Mart hopes to pull ahead of the competition, Simon indicated.

Wal-Mart will continue to open more Supercenters this year, though many will be relocations or expansions; the retailer will be adding the smaller-format stores at a faster rate. Simon called the smaller-format stores “mini-Supercenters.”

“No need to build the drug store; we have these,” Simon said. “No need to build the dollar store; we have these. No need to build the grocery store; we have these.

“Ten thousand items are available immediately; the rest of the assortment is available through our logistics and digital network. You want it in a day, we hope to be able to get it to you - the way you want it, where you want it.”

Sales at about 350 Neighborhood Markets open at least a year grew 40 percent in Wal-Mart’s fiscal 2014. The company plans to have 500 to 525 of those stores open by the end of fiscal 2015 and grow its revenue by 35 percent to $8 billion.

All new stores will have fresh food, fuel and pharmacies. Stores are about 40,000 square feet with about 25,000 different items.

“Customers love the format - it’s Wal-Mart prices with easy access,” Simon said.

The dollar stores, convenience stores, traditional grocers and pharmacies may have one or more of the everyday shopping aspects covered, but the Neighborhood Markets will have them all, plus the ability to deliver through e-commerce, Simon said. Management had estimated that sales would be $10 billion in the markets by 2016, though “I think we’re going to easily meet or exceed that,” he added.

Randy Koontz, first vice president of investments at the Rogers Raymond James office, found it interesting that the large- and small store formats can exist within close proximity without the small stores cannibalizing sales from the Supercenters. As a result, customers actually spend $300 more per year between the stores, Simon said.

“Customers are still going to do that stock-up trip on the weekend, where they come in and get a couple of baskets full of stuff, but [Wal-Mart] wasn’t capturing the ‘fill-in’ trip,” Koontz said.

The even-smaller Express stores, about 20 in number, range from 10,000 to 20,000 square feet and carry about 10,000 different items. Wal-Mart is planning to add another 100 Express stores in fiscal 2015.

“We have come a long way with these two formats over the last three years,” Simon said. “We’re excited about their opportunity. We believe they represent tremendous growth potential for the company in a retail space that is defined on one end by digital and on the other by pure physical.”

The Wal-Mart-owned ASDA’s grocery pick-up and home-delivery service has been successful in the United Kingdom, and now Wal-Mart is planning to bring the concept stateside, starting with the tests in Denver.

“We’re really excited about a drive-thru format,” Simon added. “You saw us launch it attached to a Supercenter in Denver. We’re going to try some other interesting things with that - stand-alone, attached to smaller stores. There are a lot of opportunities for that.”

Business, Pages 25 on 03/05/2014

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