Wal-Mart Grocery Plan Off Track

It’s not often to read in the business press these days that Wal-Mart is having trouble growing. But Dow Jones reports today that Wal-Mart’s plan to conquer the grocery market has hit a roadblock.

Not only has Wal-Mart decided to put the brakes on its “marketside” experiment (as well as desperately rebranding it), but its “ambitious” relaunch of the Great Value brand has been delayed. The company was intending rerelease thousands of its in-house label products, and give them significantly increased shelf space - in order to better cater to cash-strapped customers. Unfortunately, it hasn’t been able to make that happen.

There are a couple points we might add.

That’s not the only reason Wal-Mart is having trouble growing its grocery share. Despite the recession and desperate local politicians, communities are still saying no to Wal-Mart. Over the past two years we’ve seen record breaking numbers of Wal-Mart projects fail. In the past two weeks the Wal-Mart Watch community has sent over 25,000 letters to the city council members of New York, Chicago and LA - urging them to stand to Wal-Mart. The bottom line is that Wal-Mart hasn’t done much to make it more palatable to the communities that have opposed it.

And along the same lines, it seems that a wholesale focus on cheaper, in-house products isn’t compatible with Wal-Mart’s push to retain higher income shoppers and move into higher income neighborhoods. On one hand, Wal-Mart is spending millions to make shoppers feel more comfortable with its produce and meat, and on the other hand its making a rush for the bottom with cheaper, Wal-Mart brand groceries.

As always, Wal-Mart wants to be all things to all people. It’s doubtful that it will work.

Wal-Mart Sees Delays In Its Plan To Become Bigger Grocer [Dow Jones via Wall Street Journal]

Wal-Mart Stores Inc., long a retail titan, is finding that being a grocery titan is a bit bumpier.

The retailer, which has been sailing through the recession - relatively speaking - on the appeal of its low-cost offerings, has fallen behind on the re-launch of its private-label Great Value brand and has put the brakes on any expansion for its small grocery stores.

The ambitious Great Value launch, which involves several thousand items, “has met with some delay,” Wal-Mart spokesman John Simley said.

Most of the products, ranging from cereal to juice to paper towels, should be on shelves by the end of June or into July, compared with initial plans for a May-to-June time frame, Simley said.

Simley declined to provide details about the delay, saying, “We’re just trying to get it right.”

All the refreshed products, which the retailer started rolling out in late March, are planned to be in place by the end of September.

The stakes are big for Wal-Mart, whose strategy is for its house brands to produce an increasing amount of revenue, with Great Value a focal point. Private-label products can cost consumers quite a bit less than brand merchandise and generally provide retailers better profit margins.

Wal-Mart declined to disclose how much Great Value contributes to its overall grocery sales, but the products are receiving more shelf space. JPMorgan estimates that private label has a roughly 20% penetration in Wal-Mart’s food category.

Wal-Mart has updated the packaging for thousands of Great Value items, endeavored to improve about 750 of them, including cookies and laundry detergent, and added more than 80 new offerings, like thin crust pizza and organic cage-free eggs.

“Industry participants believe that the lead times, breadth of the project, and complexity associated with the full launch each played a role in the delay,” said JPMorgan analyst Terry Bivens in a research note.

Packaging and product improvements may have taken longer than the retailer originally planned, Bivens said.

The delay could push back revitalization plans the retailer may have for its other private-label offerings, including Old Roy pet food, Parents Choice baby care products and Equate health and beauty aids. A Wal-Mart spokeswoman declined to comment on the other private-label offerings.

Bivens said the Great Value delay “extends investor uncertainty and concern about the ultimate impact of Wal-Mart’s private label push.”

Wal-Mart also does not plan to add more Marketside grocery stores, after opening four of them during the past year in Arizona. Wal-Mart started what it called a trial format in what was seen by analysts as a way of firing back at U.K. grocer Tesco PLC (TSCO.LN), which had started building similar formats, called Fresh & Easy, in the state. Tesco has slowed expansion plans for its Fresh & Easy stores, but is still opening one a day, with plans to have 170, primarily on the West Coast, by around the end of February.

“While we have been pleased with what Marketside has done to date, we’re not going to increase the number of stores at this time,” Wal-Mart spokeswoman Caren Epstein said. “Given the economy, we’re seeing customers are looking to one-stop shopping.”

Neither the lack of expansion for Marketside nor the delayed Great Value rollout are seen as setbacks, Epstein said. “We are constantly monitoring and evaluating and we make our decisions based on our analysis.”

Marketside stores average about 15,000 square feet and primarily offer ready-to-eat meals and fresh produce. The stores are smaller than Wal-Mart’s Neighborhood Market grocery stores, at about 30,000 square feet, and the company’s superstores, which offer a wide amount of merchandise in their 187,000-square-foot format.

Wal-Mart has also added its name to the Marketside stores, which had been operating under their own banner.

Wal-Mart shares were recently off 2 cents at $48.48.

Posted by Media Team on Wednesday, June 17, 2009

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