Wal-Mart Wins as Supercenters Stampede Supermarkets

(MoneyWatch)  Wal-Mart's success in the recession is in significant measure due to its embrace of the supercenter format, the only one in the food, drug and discount store universe that enjoyed increased shopping frequency last year.

And that's bad news for supermarkets.

Supercenter shopping frequency, a measure of how often customers stop by the store, gained 0.7 percent last year despite the slowing economy, according to TNS Retail Forward ShopperScape research. Other formats saw declining frequency ranging from five percent for discount department stores to 1.7 percent for warehouse clubs, a category that includes Wal-Mart-owned Sam's and that has also seen some success in the recession. The discount department stores category includes the bulk of Wal-Mart's other outlets, as well as Target and Kmart stores. The frequency of visits to supermarkets, the main rival to supercenters, slipped by 3.6 percent.

Although it might not represent the worst percentage decline, the supermarket frequency fall is more precipitous than it looks. That's because between 2004 and 2008, supermarkets constituted the only category besides supercenters that saw an increase in frequency, up 4.7 percent. In the timeframe, supercenter frequency increased by 10 percent.

One phenomenon that might account for part of the decline also has its origins in the growth of supercenters. Many supermarkets turned to formats that emphasized more perishable products, convenience meals and gourmet food in the years leading up the recession, in part to avoid too much direct competition with Wal-Mart.

As the economy has slowed, supermarkets that have stepped up to more elaborate products and services seem to be losing some everyday shopping visits to bargain oriented supercenters and clubs. That doesn't necessarily mean those supermarkets are losing dollar sales as fast as store visits. Many products offered by supermarkets that have traded up provide fat profit margins. Still, supermarkets face a big problem. When they lose frequency, supermarkets not only surrender sales to their supercenter rivals, they also provide the competition with additional opportunities to convince shoppers that they don't need to go elsewhere, and in the recession, the lower prices offered by Wal-Mart supercenters are a pretty good argument.

In analyzing its figures, Retail Forward concluded that the perception of value has become more important to shoppers. Value-conscious shoppers are seeking out retailers that provide the most cost savings, Retail Forward states, and, as any number of sources report, a growing number of consumers are limiting their shopping to necessities. Supercenters thrive on providing consumers with necessities ranging from socks to prescription drugs to milk. So, Wal-Mart, by far the biggest supercenter operator and acknowledged low-price leader, has been in the best position to gain store visits as consumers have adapted to the economic environment.