Discount retailer Wal-Mart announced its expansion plans today for its next fiscal year. The company is adding over 350 new stores to its line-up worldwide. Most interesting -- and promising -- from them is the accelerating expansion of its Supercenters. For Wal-Mart, food sales will likely prove to be one of the fastest growing parts of the business over the next 10 years.
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Store Breakdown
Let's have a look at the breakdown in store category for Wal-Mart's expansion over the next year:
40 Traditional Wal-Marts
170-180 Supercenters
15-20 Neighborhood Markets
40-50 Sam's Clubs
100-110 International Wal-Marts
About 100-110 of the new Supercenters will come from remodeling existing discount stores, and around half of the Sam's Club expansion will come from relocating or expanding existing Clubs. Wal-Mart will also add seven new distribution centers next year.
Increasing Supercenter Focus
The real story here is Wal-Mart's increased focus on its Supercenters. Wal-Mart said in its press release that it's accelerating its Supercenter expansion. The company will add about 165 Supercenters to its line-up in the current fiscal year, and then the aforementioned 170-180. The concept, which combines Wal-Mart's traditional discounted merchandise with food sales, has been incredibly popular and profitable for the company. It's basically like a regular Wal-Mart but with a grocery store added on.
Customers love the convenience of being able to grocery shop and get household goods at the same time. For Wal-Mart, selling food products along with its regular stuff brings customers in with more regularity, and also increases the average check-out total. In the company's second quarter, which ended July 31, food sales were up 35% compared to the same quarter last year.
Supercenters driving the future
Motley Fool Stock Research analyst John Del Vecchio, who covers Wal-Mart, believes the Supercenter concept and expansion will fuel much of Wal-Mart's growth and profits going forward.
"The primary driver of Wal-Mart's growth over the next 10 years will likely be the Supercenter," said John. "Wal-Mart can leverage its superior distribution system and clout with suppliers to continue to deliver low prices to customers while expanding the products and services offered to its customers."
Wal-Mart appears to agree with John's thinking, and today's announcement from the company underscores that point -- as well as the fact that the company is financially strong enough to expand aggressively. Look for greater percentages of Wal-Mart's sales to come from food in the future.
Wal-Mart isn't the only discount retailer hitching its wagon to food sales. Target (NYSE: TGT) is doing a similar thing. Target operates SuperTargets in Georgia, Nebraska, Iowa, Kansas, and Utah, and has plans to add more to the roster.
Watch Those Margins
Watch the company's net margins, too, as the increased focus on low-margin food sales could affect them at some point. This isn't a certainty, though, because Wal-Mart's net margin in its second-quarter actually increased to 3.46% from 3.25% last year. This company vigilantly figures out ways to cut and control costs. For Wal-Mart, the future looks yummy when it comes to food sales.
Your Turn:
What do you think about Wal-Mart's focus on selling food? Will this take traffic away from traditional grocery stores? Have you shopped at a Wal-Mart Supercenter? Talk about it with other Fools on the Wal-Mart discussion board.
Related Links:
Motley Fool Stock Research: Wal-Mart
Wal-Mart Lowers Prices in Germany, Fool News, 8/28/00
Albertson's In Wal-Mart's Crosshairs? Fool Plate Special, 8/24/00
Practical Thinking on Wal-Mart, Fool on the Hill, 8/22/00
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