Stockton, CA. Wal-Mart the Wallflower

A giant seeks a smaller footprint [Sacramento Bee (Calif.)]

Three years ago, Stockton welcomed a Wal-Mart Supercenter, the first in Northern California, with open arms. Last month, the city passed a law forbidding Wal-Mart from opening any more of them.

The City Council’s 6-1 vote bans all new big-box grocery stores but is clearly aimed at Wal-Mart, which had proposed two more Supercenters.

“There’s a feeling that one ‘super Wal-Mart’ is sufficient,” said City Manager J. Gordon Palmer Jr.

Success in California has come slowly and grudgingly for Wal-Mart Stores Inc. Although it has opened 31 Supercenters in the state since early 2004, it has encountered resistance on a scale not seen elsewhere.

Local activists and the United Food and Commercial Workers, which represents grocery workers, have halted or delayed Wal-Mart’s advance through lobbying and litigation in roughly two dozen communities. Elected officials and judges have listened sympathetically to their argument that non-union Wal-Mart harms communities by paying substandard wages and putting local retailers out of business through relentless discounting.

“When the story is told, it resonates,” said Jacques Loveall, president of UFCW-Golden 8 in Roseville.

Wal-Mart’s hurdles in California aren’t all political. Costly real estate upsets its business model, which depends on cheap land for its massive stores. The state’s incumbent grocery chains, once thrown off stride by Wal-Mart, have learned to compete more effectively.

Wal-Mart “came in with a plan to take the state by storm,” said Robert Reynolds, a supermarket consultant in Moraga. “It is very slow going—it is expensive.”

Coupled with Wal-Mart’s national problems, including sluggish earnings, the California struggles are prompting the company to rethink its strategy. Consultants say Wal-Mart is planning a new grocery format that’s the size of a convenience store with an upscale feel. The idea is that a smaller footprint would churn up less political friction.

“Much of it has to do with the public opposition that they’ve faced, most prominently in California,” said analyst Stephanie Hoff of Edward Jones in St. Louis.

Another factor is new competition from Britain’s Tesco, which is planning small markets in California and the Southwest.

“Wal-Mart, which is finding itself blocked more and more over footprint size, is paying attention to what Tesco is doing,” said Richard George, a professor of food marketing at Saint Joseph’s University in Philadelphia.

Wal-Mart wouldn’t discuss the plan, but spokeswoman Tiffany Moffatt said, “We’re always looking at new formats.” She said any new format would be driven by customer preferences, not competition or politics.

Wal-Mart, the world’s largest retailer and the nation’s No. 1 grocer, acknowledges some hiccups in California but says it is pleased with its progress.

“Our Supercenters have been extremely successful,” Moffatt said. Supercenters, which average 185,000 square feet, are nearly twice as big as regular Wal-Marts and contain full-line grocery stores.

Wal-Mart is more successful politically in some places than others. Where there’s more open space, or there’s a clear need for jobs and retailing, union influence tends to wane and the climate is friendlier.

Greater Sacramento’s four Supercenters are sprinkled around the edges of the region. The area’s first truly urban Supercenter, which opens next year, will land at a site that’s been struggling for years, the former Florin Mall.

Wal-Mart held 4.8 percent of the area’s grocery market as of December, says Nielsen Trade Dimensions.

But Wal-Mart’s overall California presence is tiny by the standards of a $345 billion-a-year company. It runs 208 stores in the state, including Sam’s Clubs. Texas has one-third fewer people but twice as many Wal-Marts.

One reason is politics.

“A lot of California, politically, is dominated by union interests. Wal-Mart galvanizes that interest,” said Larry Kosmont, a land-use consultant in Encino.

At least 12 communities have passed big-box laws similar to Stockton’s. Five others, including Sacramento, require economic-impact studies before mega-groceries can be built.