The growth trajectory for Walmart Neighborhood Market stores over the next five years puts sales at around $27 billion by 2020, more than Dollar Tree and more than Dollar General – two smaller retailers noted for being disruptors in the retail sector.
A $27 billion annual sales level, a forecast by Kantar, will be a welcome boost as Wal-Mart Stores seeks to boost sales and margins during a time when investments in higher wages, more managers and e-commerce is bruising the bottom line.
To push the non-supercenter format, Walmart U.S. has realigned the Neighborhood Market management structure by moving Jesica Duarte to oversee market development for the grocery format. Duarte hails from Walmart Chile where she was chief merchandising officer for the past three years.
It’s been a couple of years since Neighborhood Market began a management restructuring but now with added market managers by district focused solely on Neighborhood Market, the structure more closely resembles Walmart’s food business leadership under Charles Redfield for Walmart U.S.
Carol Spieckerman, CEO of Spieckerman Retail, said shoring up the management team and assigning district-level managers is a good strategy that will hopefully allow Walmart to localize assortments while standardizing and achieving economies of scale when it makes sense.
Walmart has often viewed the Neighborhood Market as a complementary format to its cash cow supercenters. But as hundreds of these grocery formats have been added in the past three years supercenter traffic has declined compared to that of the Neighborhood Markets. Critics have said Walmart did not treat the Neighborhood Market like its own format, but under the leadership of Walmart U.S. CEO Greg Foran that is beginning to change.
Walmart does not comment on cannibalization but it’s clear it’s happening in areas where both formats are in close proximity. Foran recently told investors that Walmart would be more thoughtful and strategic about the placement of new Neighborhood Markets.
Walmart does not release specific traffic numbers but has generally reported positive traffic comps in the Neighborhood Market formats, while supercenter traffic has its ups and downs quarter to quarter. Over the past several years the percentage of Walmart shoppers visiting a supecenter has trended down to 62% from 68%. Neighborhood Market shoppers have risen from 3% to 10%, and Walmart.com shoppers are up to 17% from 8%, Kantar noted.
Judith McKenna, chief operating officer for Walmart U.S., said at the recent Year Beginning Meeting that the full-size Neighborhood Market leverages Walmart’s best tools — supply chain, efficiency and low prices. She said the retailer has learned a lot about how customers shop in small formats and that is shaping more changes in the format. She said the Neighborhood Market offers Walmart a way to capture share in existing markets and the retailer will open 135 more Neighborhood Markets in the balance of the year, which is more than twice the number of supercenter additions (60).
Cleveland Research also noted that the Neighborhood Market holds lots of potential and it gives Walmart a chance to create some separation from its traditional high low grocery competitors. As price becomes more neutralized in this transparent climate, experts say Walmart will have to do a better job on product quality, service and experience like its competitors at Kroger, Publix and H-E-B. That is precisely what Walmart is trying to do with with its fresh food offerings, regional and local food offerings, as well as expanded seafood, bakery and deli-prepared foods offering meal solutions.
Critics say Walmart needs to continue their efforts to differentiate the shopping experiences in the Neighborhood Market from those in a supercenter. Not that it is better than the other, just different.
“It’s great to see Walmart really getting behind the Neighborhood Market format on the heels of shuttering its Express stores. Dedicating people and drilling down on process are steps in the right direction. While Walmart’s medium-sized markets have tremendous potential, they will also have to do a lot of heavy lifting. Neighborhood Markets are Walmart’s front line of defense for going up against small format dollar stores and hard discounters like Aldi and soon, Lidl, and fending off regional players like Publix that enjoy rabid followings,” Spieckerman said.
She said Neighborhood Markets are also Walmart’s main vehicle for providing convenience on three fronts: customizing assortments to focus on grab-and-go items, offering a more easy-to-navigate format, and continuing to sharpen its clicks-to-bricks pick up capabilities.
A recent survey of suppliers conducted by Cleveland Research found that 70% said they do not have dedicated teams specifically for the Neighborhood Market format, but that may change in the near future.
“It will be important for suppliers to look beyond potential store count increases and to closely follow, and mirror, Walmart’s strategies for the grocery format. Soon, that could easily warrant creating dedicated teams and even tweaking hiring strategies to onboard talent with previous regional, specialty and/or small format experience,” Spieckerman said.