Walmart Expansion: Good for New Superstore, Not So Good for Competitors

Also Read: Walmart Expansion Approved; Mayor Calls Concerns ‘Monsters Under the Bed’

The 4-1 City Council approval of a Walmart supercenter Aug. 23 to replace the existing outdated store sets the stage for an all-out grocery war once the remodel is completed.

Walmart's expanding to include full-on food sales will be tough for competitors, especially the Vons and Henry’s Farmers Market stores located next door in the Poway Town & Country shopping center—not to mention Albertsons, Costco and Stater Bros. within the city limits

But some proponents argue expansion will be good for Poway consumers by expanding the overall market for groceries and forcing competitors to hone their product and service offerings.

Lynn Reaser, chief economist for Point Loma Nazarene University, said the City Council’s nod is a good decision for the economy.

“The fact is that Walmart targets areas that have significant growth prospects, so there is a potential for all of the grocery chains in the region to grow,” said Reaser.

She said that Poway is constantly adding new residents with higher incomes who spend more money on the daily necessities, thus the overall economy can absorb a larger Walmart.

“There will be more competition for existing stores in the area, which will benefit consumers significantly in terms of the variety of choices and potentially lower prices,” Reaser said. “The pressure on the existing retailers will obviously increase, but they can succeed if they target particular niches, or focus on customer service, or if they improve the quality of their offering.”

The environmental impact report (EIR) on the project released this spring said the expanded store would generate $33.9 million in grocery sales each year, but noted that an expanded store could take as much as $13.2 million in sales from existing Poway purveyors of food goods.

Nevertheless, the draft EIR said competitors should sustain the loss of business.

“It is unlikely that the development of the supermarket component of the proposed Walmart expansion would cause any supermarkets to close,” said the document.

The expansion will include the addition of a fresh produce, meat, deli and bakery department, according to company documents.

Bob Reynolds, a retail consultant located in Moraga in Northern California, agrees with Walmart’s own assessment, and said the super-sized Walmart store will put the pressure on less-prepared retailers in Poway.

“Grocery retailing in a zero sum game,” he said. “Where Walmart’s sales are going to come from depend on the nature of the site, so it if is a neighborhood site, the negative impact will increase.

“I would expect that the local competitors will be hit hard by a larger Walmart,” he said.

He calculated that Walmart would generate $600,000 to $800,000 in grocery sales each week, most of which will come from sales now enjoyed by area retailers.

“The sales generated from groceries will come from the chains,” said Reynolds. He noted Vons and Henry’s could be particularly hard hit once the supercenter is built because the are so close to the site.

“Henry’s would be hurt less because they are unique,” said Reynolds, adding that other niche stores, such as Monrovia-based Trader Joe’s or Texas-based Whole Foods Inc. (which do not have stores in Poway) would not be as hurt. “They have different orientations." 

Reynolds sounded a cautionary note, to be sure. He said Walmart has suffered a series of declines in same store sales in the U.S., a key measurement in retailing.

The measurement has been down for nine quarters in a row, he said. That’s why the push to expand and remodel existing stores.

“Once can expect that Walmart has done its research, and so one can expect that they will do very well [in Poway],” he said.

Reynolds observed that Walmart would not have spent as much money and time if executives didn’t think they would do well enough to cover expenses as they ramp up sales and profits with a larger store.

“It will be an expensive site for them to re-do, so they must be planning to do well with the expansion,” said Reynolds.

A spokeswoman for Vons' parent, Safeway Inc. in Pleasanton, did not respond to requests for comments. “We do not comment on our competition,” said Teena Massingill in the public affairs department.

The public company operates the 312 Vons stores in Southern California, and had sales of $41.1 billion in 2010, one tenth the size of Walmart’s $405 billion in sales reported for 2010.

A spokeswoman for the Phoenix, AZ-based Sprouts Farmers Markets, owner of the Henry’s store in Poway, did not respond to requests for a comment.

The Boney family, which now owns the chain, said the site would be converted to a Sprouts store by Sept. 26, according to a company website.

The family started the Henry’s stores in the 1940s in San Diego and later sold them. The family repurchased the Henry’s stores earlier this year from owner Smart & Final Inc. in Commerce.

Meanwhile, some retailers are already beefing up ahead of the arrival of a powerful competitor.

The Poway Target store located at 14823 Pomerado Rd., owned by the Minneapolis, MN-based Target Corp., has begun selling food goods on a limited basis, providing more competition for mainstream grocery stores—a “one-stop shopping experience” for customers.

Miro Copic, a professor of marketing in San Diego State University's business school, says that the one-stop shopping concept will be the key to Walmart’s success as a supercenter in Poway.

He believes that Walmart will do well with a larger store, at the expense of competitors, as shoppers take advantage of making one shopping trip for all their household needs.

“Walmart will expand the pie a bit but not enough that it won’t take away market share from competitors,” he said.  

“Short term, it’s going to be a tsunami” for competitors, he said. “But long term, there will be a period of adjustment” as everyone fights for market share.

Nevertheless, Copic said Walmart tends to sell leading brands at lower prices rather than trying to stock a lot of alternative offerings, which will help traditional grocery stores. The fact that not everyone will want to shop at Walmart will help competitors, along with broader selection, such as larger meat selections and bakery products.

But the Arkansas-based retailer will be the king of the hill in terms of sales.

“It will appeal to specific shoppers, and certainly those trying to save money in these tough economic times.”