Friday, May 12, 2006

Like a "blooming flower": Wal-Mart's conquest of American food retail

About 20 percent of U.S. food sales are in Wal-Mart alone, the New York Times reported last Fall.
In the last five years, Wal-Mart has emerged as a dominant force in the grocery business, selling almost twice the amount of food and grocery items as Kroger, the country's largest supermarket chain. Wal-Mart undercuts supermarket prices by as much as 20 percent but is still able to generate considerable grocery profits because of its enormous volume and huge buying power. Wal-Mart's labor costs are also lower because, unlike workers at most supermarkets, its employees are not unionized.

"Wal-Mart just keeps growing," said David B. Dillon, chief executive of Kroger, which regularly compares the performance of its stores against Wal-Mart Supercenters. "And I don't see any signs of a slowdown in the number of stores."
In recent research, Thomas J. Holmes explains how Wal-Mart came to dominate the American retail scene. While other fast-growing chains, such as K-Mart and Target, sought to grab the "best" retail locations, Wal-Mart focused on perfecting its logistics. In order to keep its transportation and distribution systems as efficient as possible, Wal-Mart carefully maintained a particular density of stores as its business expanded. Holmes explains:
Wal-Mart started with its first store near Bentonville, Ark., in 1962. The diffusion of store openings radiating out from this point was very gradual. And this diffusion didn't just occur in one direction, but spread out in all directions, with the same measured deliberation. Imagine a slowly blooming flower, or a pebble dropped in a pond, with the waves moving across the water in slow motion. It is very helpful to view a movie [below]of the entire year-by-year diffusion path.
Thanks to Marginal Revolution for the link. Credit Thomas J. Holmes for the fascinating movie.

Update (a few minutes later). A reader comments:
Hi Parke. In response to your post today--did you see the article, also in the New York Times, about WalMart focusing hungry eyes on the organic market? Im pretty sure it was up yesterday. I'm a big fan of Michael Pollan's guest blogging on the NYT site and look forward to seeing him next week at the brattle as part of his book tour.
I think Jack from Fork & Bottle may have also pointed out the link about organic foods at Wal-Mart. The Pollan weblog appears to be by subscription only. Also, while looking for the New York Times link, I found this awful story about Wal-Mart buying favorable coverage from bloggers.

Update 2 (May 14). Mark from CalorieLab points out that the New York Times article about Wal-Mart public relations does not document webloggers accepting bribes. Rather, what I called "buying favorable coverage" means hiring an online public relations expert sufficiently persuasive to find webloggers who are willing to reprint Wal-Mart's views as independent opinions.