CENTERED ON THE FUTURE

BENTONVILLE, Ark. -- Wal-Mart Stores here does not anticipate any letup in its supercenter expansion for a very long time.In an interview with SN, Nick White, executive vice president of Wal-Mart Supercenters, said the retailing giant is taking a long-term view of supercenter growth and continues to be a student of the food retailing industry -- ready to alter its merchandising or geographic focus

BENTONVILLE, Ark. -- Wal-Mart Stores here does not anticipate any letup in its supercenter expansion for a very long time.

In an interview with SN, Nick White, executive vice president of Wal-Mart Supercenters, said the retailing giant is taking a long-term view of supercenter growth and continues to be a student of the food retailing industry -- ready to alter its merchandising or geographic focus as developments and competition dictate.

Wal-Mart, which has opened 396 supercenters in the last nine years, expects to add 24 more in September and October for a total of 100 this year, and it contemplates opening at least 100 more units per year for the foreseeable future, White told SN. According to White, "Supercenters will be to the next decade what [Wal-Mart] discount stores were to the 1980s" -- a decade when Wal-Mart opened about 1,000 discount stores before turning its attention to supercenters in 1988. With only 236 of the company's 2,166 discount stores converted to supercenters, White said -- perhaps only half-jokingly -- "That leaves 1,930 discount stores without supercenters, so by my calculations, we could probably continue to grow at a rate of 100 supercenters a year for the next 19 years." According to White, the company's plans for supercenters include the following: * Expanding into Minneapolis next year, while continuing to strengthen its operations in the South and Midwest, where most of its discount stores are located. * Continuing to open 75% of supercenters in expanded or relocated discount stores. * Testing a revamped home-meal replacement program in the Richmond, Va., area. * Continuing to learn from its grocery competitors. White declined to disclose supercenter volume, though observers have estimated that each Wal-Mart supercenter averages sales of about $65 million per year, for a total of around $25.7 billion for its 396 supercenters -- or about 25% of Wal-Mart's total volume of $104 billion. They also estimate that food or food-related products account for about 40% of per-store sales, or around $26 million, which would put Wal-Mart's 1997 supercenter food sales at $10.9 billion -- moving it past Publix Super Markets, Lakeland, Fla., and just behind Ahold USA, Atlanta, as the seventh largest food retailer in the United States. Given Wal-Mart's aggressive supercenter growth plans -- and allowing for growth by the industry's other top players -- observers estimate that Wal-Mart could be vying for the nation's top market share by 2002 with Kroger Co., Cincinnati, and Safeway, Pleasanton, Calif. White said Wal-Mart has no specific ambitions to be No. 1. "Our desire is to be the best, and if that causes us to be the biggest, that's just a by-product of our other efforts," he said. "One thing Wal-Mart wants to do is to grow. We never had a specific goal of becoming the largest discount store operator, but we did, and we realize that continuing to open 100 or more supercenters per year will cause us to become the largest in that segment as well." Jonathan Ziegler, a San Francisco-based securities analyst with Salomon Bros., New York, said the proliferation of Wal-Mart Supercenters is likely to lead to more industry consolidation "as it becomes more difficult for some operators to handle the new market capacity and to generate healthy same-store sales." Gary Giblen, managing director of Smith Barney, New York, said he sees the growth of Wal-Mart Supercenters as a death knell to independents. "It's been proven time and again that good chains do well against supercenters. But it's the companies who get caught in the cross fire -- primarily the independent operators -- that will suffer," he said. Wal-Mart's 396 supercenters are spread across 28 states, with most in the central United States -- Arkansas, Texas, Louisiana, Missouri and Oklahoma, where most of the company's discount stores are located. The company also operates 29 supercenters outside the United States -- 21 in Mexico, three in Argentina, two each in Brazil and Indonesia and one in China -- under the direction of Wal-Mart's international division. The U.S. stores devote one-third of space to food and two-thirds to general merchandise -- an allocation that has remained steady over the past few years, White said. In a typical supercenter, the food section is located on either the left or right side of the store, with bakery, produce and meat along one wall and the deli on the same wall wrapping around onto the back wall, adjacent to an in-store restaurant (Wal-Mart's own Radio Grill or space leased to either McDonald's or Taco Bell); frozen food in the front half of the section; and dry groceries in the rear. Separating food from the discount store side are items commonly associated with supermarkets, including paper goods, pet foods, housewares, candy, greeting cards and stationery. About 75% of Wal-Mart Supercenters have opened in discount stores that were expanded or relocated to accommodate food, while the other 25% are newly built units, White said -- a ratio he said the company expects to maintain. Store sizes vary considerably, he pointed out. "We build stores to fit the markets, although there is no best size. Of the stores we have planned, there is no single likely scenario." He said that about 310 supercenters in converted Wal-Mart discount stores are either 188,000 square feet or 167,000 square feet, while around 65 newly-built supercenters fall into the 136,000-square-foot prototype. Wal-Mart also has 10 supercenters of 200,000 to 220,000 square feet, "which require a lot of land for a very large building in a very large market to give us the kind of volume we need," White said; and 11 units of 109,000 square feet, geared to areas with smaller populations. Wal-Mart has previously disclosed plans to build its eighth food distribution center next year in Bedford, Pa. White said plans for grocery warehouses have not gone beyond that facility, but since each location services about 100 stores, "clearly, if we continue to open 100 supercenters per year, we will have to open additional warehouse facilities," he said. Wal-Mart expanded supercenters this year into Maryland (Pokomoke City); Iowa (Muscatine and West Burlington); Ohio (Ottawa), and Wisconsin (Beloit), with one more Iowa supercenter scheduled to open next year in Fort Dodge and two more Ohio locations due -- in Alliance in the fall and Bucyrus next year -- the company said. White said Wal-Mart plans to open its first Minnesota supercenter -- a 200,000-square-foot store in Apple Valley, a Minneapolis suburb -- in mid-1998. However, despite industry speculation to the contrary, White said supercenter expansion is unlikely in New England and on the West Coast in the short-term, "because those are relatively new areas for Wal-Mart discount stores, and our growth in those two areas will still be largely in that segment. Ziegler told SN he believes next year's expansion into Minneapolis may be part of a test by Wal-Mart to see if its supercenter concept can work as well in a more urban location as it does in the mostly rural markets where its existing stores are located. "Going into more densely populated areas has worked for the other supercenter operators -- Fred Meyer Inc., Meijer, Target Stores and Kmart, but Wal-Mart's real-estate philosophy for the last few years has been to open discount stores in rural areas with enough property land-banked next door so the store can be expanded to a supercenter site. "But Minneapolis seems like a good metropolitan area for Wal-Mart to move into because it features an assortment of strong regional operators and no strong national players. So while Wal-Mart may be testing the waters, it doesn't appear to be a test that can be rolled out to densely populated markets with major chain competition." Giblen said he agreed that Minneapolis may not be a typical metropolitan marketing area. He said he sees Wal-Mart's move into Minneapolis as "a possible preemptive strike aimed at Target," which is based in Minneapolis -- "to keep its supercenters out of the Twin Cities." Giblen also said he thinks Wal-Mart's decision to open a supercenter there "is designed to test the mettle of Cub Stores," whose corporate owner and franchiser, Supervalu, is based there. Cub operates a franchised unit in Apple Valley. White said Wal-Mart regards the nation's 34,000 traditional supermarkets as the biggest challenge -- and the biggest source of education -- for its supercenter ambitions. "Any retailer that sells groceries is competition for supercenters," he said, "but clearly, the grocery industry is our main competition. "As we expand our supercenters, we run into new competitors in each area of the country, and we have to analyze each one's strengths and weaknesses to learn exactly what we're up against before we open store, s.xpects to add 24 more in September and October for a total of 100 this year, and it contemplates opening at least 100 more units per year for the foreseeable future, White told SN.

According to White, "Supercenters will be to the next decade what Wal-Mart discount stores were to the 1980's--a decade when Wal-Mart opened about 1,000 discount stores before turning its attention to supercenters in 1988.

With only 236 of the company's 2,166 discount stores converted to supercenters, White said--perhaps only half-jokingly--"That leaves 1,930 discount stores without supercenters, so by my calculations, we could probably continue to grow at a rate of 100 supercenters a year for the next 19 years."

According to White, the company's plans for supercenters include the following:

* Expanding into Minneapolis next year while continuing to strengthen its operations in the South and Midwest, where most of its discount stores are located.

* Continuing to open 75% of supercenters in expanded or relocated discount stores.

*Testing a revamped home-meal replacement program in the Richmond, Va., area.

*Continuing to learn from its grocery competitors.

White declined to disclose supercenter volume, though observers have estimated that each Wal-Mart supercenter averages sales of about $65 million per year, for a total of around $25.7 billion for its 396 supercenters--or about 25% of the Wal-Mart's total volume of $104 billion.

They also estimated that food or food-related products account for about 40% of per-store sales, or around $26 million, which would put Wal-Mart's 1997 supercenter food sales at $10.9 billion--moving it past Publix Super Markets, Lakeland, Fla., and just behind Ahold USA, Atlanta, as the seventh largest food retailer in the United Sates.

Given Wal-Mart's aggressive supercenter growth plans--and allowing for growth by 2002 with Kroger Co., Cincinnati, and Safeway, Pleasanton, Calif.

White said Wal-Mart has no specific ambitions to be No.1 "Our desire is to be the best, and if that causes us to be the biggest, that's just a by-product of our other efforts, he said.

"One thing Wal-Mart wants to do is to grow. We never had a specific goal of becoming the largest discount store operator, but we did, as we realize that continuing ot open 100 ore more supercenters per year will cause us to become the largest in that segment as well."

Jonathan Ziegler, a San Francisco-based securities analyst with Saloman Bros., New York, said the proliferation of Wal-Mart Supercenters is likely to lead to more industry consolidation "as it becomes more difficult for some operators to handle the new market capacity and to generate healthy same-store sales."

Gary Giblen, managing director of Smith Barney, New York, said he sees the growth of Wal-Mart Supercenters as a death knell to indpendents. "It's been proven time and again that good chains do well against supercenters. But it's the companies who get caught in the cross fire--primarily the independent operators--that will suffer," he said.

Wal-Mart's 396 supercenters are spread across 28 states, with most in the central United States--Arkansas, Texas, Louisiana, Missouri and Oklahoma, hwere most of the company's discount stores are located.