Wal-Mart's Neighborhood Market Pushes Price in Recession

In Phoenix, Neighborhood Market, the Wal-Mart grocery store format, is making a stronger bid to be a community supermarket rather than the convenience grocery store originally envisioned, and price plays a significant role.

The upfront convenience product section that conspicuously engaged customers as they entered the store in earlier concept versions has been deemphasized in a Phoenix-area Neighborhood Market visited yesterday. Take out food still exists near the entrance, but lay out and lighting immediately invite customers into the department that supermarkets today use to make their big statement about freshness, quality and price, the produce department. That's accomplished in large measure by placing big bins of products such as cucumbers and peppers right out in front of shoppers as they enter the store. In fact, the Neighborhood Market featured produce department sales more aggressively than a nearby Wal-Mart supercenter.

Phoenix is the market where Wal-Mart has launched the even-more-convenience-oriented Marketside concept, one that features prepared food as the heart of its operation. Still, Wal-Mart seems to be doing more than giving Marketside its space. By featuring deep discounts prominently, the retailer is taking an aggressive stance on pricing in a store that's more akin to a mainstream supermarket but in a somewhat smaller space. More comprehensive in its product offering than Marketside, it's also an easy-to-shop supercenter alternative that takes advantage of Wal-Mart's distribution prowess.

In Wal-Mart's strategy, referred to as radial distribution, shipment volumes generated by supercenters make logistics cheaper for its other concepts. So, when Wal-Mart cuts prices to the bone to tempt customers away from other retailers, it still may be making money rather than taking the losses other retailers accept when they use bargains to lure shoppers. Also, according to Wal-Mart store personnel in the market, the retailer has been taking great advantage lately of deals offered by local suppliers to enhance the discounts it can offer through its typical distribution. It's even taking smaller sized produce products than normal to get and offer particularly deep discounts for the most bargain-conscious consumers, a group that has grown in the recession. With all that, it becomes a strong competitor to area supermarket chains including Kroger-owned Fry's, Supervalu-owned Albertsons and Safeway.

Phoenix also is one of the big initial locations for Tesco's Fresh & Easy format. Wal-Mart has been adding to its Neighborhood Market roster in Phoenix, where it currently operates four of the stores.