What Chain Has 700 Stores That No One Seems To Be Watching?

The Lempert Report
October 05, 2016

It’s Walmart’s Neighborhood Market, a format we have long endorsed as a consumer centric retail experience that has an average of 42,000 square feet.

The Walmart Neighborhood Market is on trend for the mass market and has 22 straight quarters of positive comparable sales growth and 11 straight quarters with comps up 5% or more. WalMart launched its first Neighborhood Market in 1998, and plans to open another 90 stores this year.

According to Business Insider there are two important reasons why Neighborhood Market has found success.

1. Grocery is hard to disrupt

Grocery now makes up the majority of WalMart's U.S. segment, and it's been its best performing one in recent years. The company has doubled down on the segment with the rapid expansion of Neighborhood Markets and by bringing its grocery pick-up service to 400 stores in 60 markets, which allows customers to order online and then pick-up groceries from a kiosk in the parking lot.

On the most recent earnings call, management noted the impact the pick-up service was having on overall e-commerce growth as last quarter was the first time in more than two years that e-commerce growth accelerated. 

Sales per square foot at Walmart U.S. averaged $435 last year, but they appear to have been higher in Wal-Mart's grocery segment than the rest of the store. Using the $435 figure would mean WalMart's Neighborhood Markets generated about $11 billion in revenue last year, though the actual number is probably higher.

2. Urban penetration

Wal-Mart began its life catering to rural customers and has long struggled to penetrate markets. The company is still without a store in New York and only recently opened its first in Washington, DC. The Neighborhood Market concept, however, has given it the ability to open up in dense cities where real estate may not be suitable for a Supercenter. Wal-Mart opened its first Neighborhood Market in Chicago in 2011, and now has five of them in that city. In Atlanta and the surrounding area, it now has 12 such stores. 

Wal-Mart's Neighborhood Markets can also take advantage of food deserts in such environments, neighborhoods where residents have little access to fresh food. 

With its economies of scale and price advantage, Wal-Mart has the ability to create a low-priced supermarket chain that is hard for competitors to match.