Walmart slowing down growth of Neighborhood Market's smaller format stores

Walmart's US CEO Greg Foran said in an earnings conference call last week that the company would open 10-15 of the small format Neighborhood Markets this year, then hold off on further investment in the concept until results can be studied. As of January 30, Walmart operated 88 of the smaller-format stores, which are typically in the 12,000 - 16,000 square foot range.

Last year, Walmart opened 68 of the small format Neighborhood Market stores, far less than the 110-120 forecasted. These stores were once known as Walmart Express, but the company dropped the Express name late last year.

"Their supply chain is optimized for the supercenter," said Kantar Retail Analyst Dave Marcotte. "It can work reasonably well for a (traditional) Neighborhood Market, but when you keep going down in size, eventually it's going to become an issue."

Walmart plans to open 180 - 200 traditional Neighborhood Market stores this year, which typically range between 38,000 and 42,000 square feet.

BB&T Capital Markets Analyst Andrew Wolf told Supermarket News that there is not a lot of evidence to show that small stores really work. He continued to say that Aldi and Trader Joe's are the exception, not the rule.

Analysts predict better year-end for supermarkets

Industry analysts said earlier this month that they expect the financial performance of supermarkets during the second half of the year to be slightly better than in the first half. Reasons cited include the following:

• A slowdown in inflation, which may result in better value propositions;
• Slow but ongoing acceleration in the general economy;
• More meals at home expected this winter, as compared to 2011 when mild weather resulted in more meals away from home.

Overall, the financial performance for the top 10 publicly traded grocery chains in the first half of 2012 was mixed as compared to the previous year. Sales were up 3.5% and operating income increased 1.2%, but comparable-store sales increased less this year than last.

According to Andrew Wolf, managing director for BB&T Capital Markets, inflation ran at about 3.3% for the first half of the year, so the 3.5% sales gain came almost entirely from inflation.

"As a result, the stronger conventional players generally saw a little bit of improvement in volume trends as inflation dropped from 3.8% in the first quarter to 2.7% in the second - and while comparable-store sales were still down in real terms, they were down less as volume improved."

Top 10 publicly traded grocery chains (ranked by sales volume):
1 - Kroger
2 - Safeway
3 - Supervalu
4 - Ahold USA
5 - Delhaize America
6 - Whole Foods
7 - Harris Teeter
8 - Stater Bros.
9 - Roundy's
10 - Ingles Markets