Cross-posted from the Writing on the Wal.
Wal-Mart is entering the Canadian grocery business in a big way, introducing the superstore concept north of the border:
Wal-Mart is eyeing plans to bring up to three massive superstores to Ontario, according to a published report....Wal-Mart already carries some groceries at most of its outlets, but superstores are seen as a threat to Canada's existing grocery chains. In addition to the merchandise and dry groceries carried in regular Wal-Mart, the new superstores will also sell fresh produce, meat and bakery goods.
Analysts predict
as many as 100 superstores will appear there in the next three or four years.
To help our friends north of the border, this seems like a good time to review what Wal-Mart has done to the American grocery industry. From a great site I just discovered called Oligipoly Watch (If you don't know, an oligopoly is a market where a few firms dominate instead of a monopoly, where there's only one):
Years of pressure from Wal-Mart have driven wreaked havoc with the leading supermarket firms in the country. Winn-Dixie, a market leader in the south, declared bankruptcy earlier this year. The latest victim is Albertson's, currently the #3 chain by sales.
Albertson's is already planning to sell its pharmacy chain (over 600 stores) to CVS for up to $4 billion. But an investment group consisting of smaller grocery chain Supervalu Inc., equity group Cerberus Capital, and real-estate company Kimco Realty. They are reportedly offering $9.6 billion for the chain. This would be the second largest leveraged buyout in history (after the famous RJR-Nabisco deal), provided no other rival group bids more at the last minute.
Albertson's has 2,500 stores nationwide. But given the composition of the bidding group, many of the underperforming stores are desirable for their real estate value rather than their ongoing ability to compete in the cutthroat grocery market.
An older Oligopoly Watch post quotes the NYT from 2003 on Wal-Mart's market share:
[A]ccording to the article, Wal-Mart stores account for 19% of the US's grocery sales. And Wal-Mart is planning to double the number of its supercenters in the next five years. According, to one estimate cited, that might add up to 35% of the US grocery market and 35% of the pharmacy business as well.
But these figures are misleading. Wal-Mart is now America's largest grocer, but while there are no Wal-Marts at all yet in most big cities, in rural areas they are ubiquitous. As Forbes explained in 2003:
About 70% of Wal-Mart's...1,333 Supercenters, which include grocery sections, are based outside the top 100 metropolitan statistical areas.
Wal-Mart calls this "market development." Rural American markets are fully developed. American urban markets are just slightly developed and the Canadian grocery market isn't developed at all yet.
So riddle me this Batman: If I have a stranglehold over rural grocery markets, how long will I keep prices low? If Canadian shoppers want to find out for themselves, then they should do nothing and enjoy Wal-Mart's allegedly low prices (for as long as they last).
JR