Wal-Mart not concerned about cannibalization with small-store expansion

How close is too close for Wal-Mart to put a Neighborhood Market to its cash cow supercenters? The retail giant said Thursday (June 19) that one to two miles outside a supercenter is the minimal distance guideline for placing Neighborhood Markets.

Jeff Davis, chief financial officer for Wal-Mart, was asked that question during a global consumer conference held in Nantucket, Mass., and sponsored by Jeffries, a global investment banking firm.

He said Wal-Mart has noticed when it locates a smaller format store in communities where it has strong brand recognition from a supercenter, it is other retailers that lose market share.

“We don’t really see supercenter’s losing share,” Davis said.

Walmart U.S. CEO Bill Simon has said the smaller formats are a way for the retailer to capture sales they are losing to dollar-store formats and other convenience competitors for the fill-in trip — a market valued at $415 billion a year. Wal-Mart said it has just 10% of that fill-in share, but aims to grow the share this year with an accelerated ramp-up of smaller format stores.

Northwest Arkansas is an area where Wal-Mart is building out its store infrastructure with 12 projects announced or in progress in Benton and Washington counties. Centerton, a small bedroom community five miles from Bentonville, recently hosted a grand opening for a Neighborhood Market, and will welcome a supercenter next summer.

Springdale, a town of 70,000, has been comparatively underserved by Walmart with just one supercenter and one Neighborhood Market. But the retailer is about to open a new supercenter this fall. The outlying towns of Farmington and Pea Ridge are each also welcoming a Neighborhood Market in the coming months.

Wal-Mart is also investing in at least two area downtown regions with Neighborhood Markets planned for Rogers and Bentonville next year.

The rural town of Decatur will get a Walmart Express format early next year. The town is  located between Gravette and Gentry, both of which already have these small formats.

Bentonville, Wal-Mart ground zero, is home to five projects announced, completed or with construction in progress.
• Supercenter on the Bella Vista / Bentonville line
• Neighborhood Market in SW Bentonville
• Neighborhood Market downtown Bentonville
• Walmart to Go, convenience store
• Walmart online grocery drive up depot

Simon recently said the 200 new small formats going up this year might not be enough to move the needle for a company with nearly a half trillion dollars in annual revenue. But, he added that 2,000 of these small stores might.

Simon said going forward he expects to see more small stores built than supercenters as the retailer works to fill-in markets where it has already has staked a claim. He said the Neighborhood Market comparable sales are on par with top grocers like Kroger and performing well with little to no realized cannibalization at nearby supercenters. 

“Think of it this way, a Walmart Express with site-to-store, ship-to-store, full grocery, gas and pharmacy can drive the same sales as three to five Dollar Stores. He said the hybrid Neighborhood Market can drive the sales of 10 Dollar Stores, and both models make better use of capital given their reduced building costs," Simon said in October during an investor conference.