West Central Tribune, MN
01-10-07
Montevideo businesses prepare for Wal-Mart Supercenter
Tom Cherveny West Central Tribune
MONTEVIDEO — When the doors open later this year on a Wal-Mart
Supercenter now under construction in Montevideo, it may not be long before the
doors of some competing businesses close for good.
But there are businesses which will enjoy increased sales thanks to the arrival of
the Supercenter, and even businesses in head-to-head competition with WalMart need not toss in the towel.
“There are success stories all over the place,’’ Dr. Kenneth E. Stone, a former
economics professor with Iowa State University, told a Montevideo audience
of around 70 people — many of them business owners.
“It’s not easy, but there are success stories,’’ said Stone on Monday evening.
Businesses that are savvy enough to reposition themselves in their markets and
take other competitive steps can co-exist and even prosper, he said.
Also, some businesses will enjoy the spillover traffic made possible by the
increased customer traffic a Supercenter will attract. Studies in Mississippi show
that overall sales in a host community will rise by 11 percent four years after the
opening of a Supercenter, although much of that increase is gobbled up by the
Wal-Mart store itself.
Businesses that usually benefit from the spillover traffic are those which sell
products different than those featured by Wal-Mart. Those that typically benefit
include building materials stores, restaurants, and stores that sell higher-quality
sporting goods, furniture and jewelry, he said.
Those most likely to experience sales declines include grocery stores, apparel
stores, home furnishings stores, and various specialty stores.
Stone has been speaking to audiences all over the country on how they can
compete when big-box discount stores like Wal-Mart come to town. He was
recently a featured source on a CNBC news documentary.
Supercenters are geared to the grocery business. There is no doubt that grocery
stores will most feel the impact of the new store in Montevideo, according to
Stone. In Ankeny, Iowa, the very popular owner of a Super Valu store closed his
40,000-square-foot store within one year of a Supercenter’s opening in 1999.
In Polk City, Iowa, a Supercenter opening led to the closing of the Jubilee Foods
store. The owner told the Des Moines Register that his business fell by 25
percent on the day the Supercenter opened, and it “never came back,’’ said
Stone.
The Supercenter will take market share from existing grocery stores in
Montevideo, and especially from grocery stores in smaller, neighboring towns.
Neighboring towns of 4,000 or less population may have the most to lose,
according to Stone.
Studies in Mississippi, where a sales tax on food allows for accurate study,
showed that Supercenter stores caused grocery sales to drop in neighboring
towns of under 4,000 people by 28 percent in seven years. Twelve years later,
the stores still saw sales that were 27 percent below their level prior to the
Supercenter’s opening, said Stone.
He told the Tribune that the loss of the only grocery store can deprive a town’s
retail sector of the “critical mass” needed. There are a variety of towns in the
Montevideo market area with single grocery stores: Appleton, Clara City,
Clarkfield, Dawson, Granite Falls, Madison and Milan.
The geographic reach of a Supercenter can easily extend 50 to 70 miles,
depending on population density and the proximity of other retail centers. The
store under construction in Montevideo will enclose approximately 150,000
square feet. This size Supercenter serves market areas with populations of
20,000 to 30,000 people, according to Stone.
The existence of a 64,701-square-foot Wal-Mart store in Montevideo since 1993
will cushion some of the impact associated with the Supercenter’s opening,
Stone said.
Supercenters feature 53 departments, many of them expanded versions of
departments at the existing store. A Supercenter usually introduces departments
including groceries, a vision center, tire and lube center, gasoline, hair care,
portrait studio and branch bank.
The Montevideo store has dropped its plans for both a gasoline station and tire
and lube center, according to Stone and city officials.
Stone said some grocery stores have managed to compete quite well with WalMart Supercenters. He cited the Fareway chain. It emphasizes the availability of
quality meat cut to a customer’s preference on site as its competitive advantage.
The meat at Supercenters is case ready or packaged at the processing plant,
Stone said.
He urged retailers to be mindful of their pricing strategy. Wal-Mart’s strategy is to
put its lowest prices on a list of “price-sensitive’’ products that consumers are
most likely to compare against other stores.
He warned retailers against engaging Wal-Mart in a price war. HyVee tried it in
Fort Dodge, Iowa, and had to cry uncle when the price for a gallon of milk had
dropped to 25 cents, he said.