When times get tough, even Walmart's (WMT) "everyday low prices" aren't all that alluring to shoppers -- except in one segment of its business: food.
For its core customers, like everyone else, food is a budget item that can only be reduced, never eliminated -- and for them, it's a major one. Walmart's CEO recently confirmed that, for its customers, "food is consistently the top monthly expense outside of housing and vehicle payments."
So it's little wonder Walmart is seeing so much growth in groceries -- and why it continues to add food to its general merchandise stores.
One-Stop Shops on the Rise
It's no secret that Walmart has a huge presence in the grocery business. It became the nation's largest grocer a decade ago, killing 25 of the 29 supermarket chains that went bankrupt along the way.
But Walmart isn't alone in devoting more floor space to selling food. Many other bargain retailers are making similar shifts. Dollar Tree (DLTR) is adding more food items and installing new freezers and refrigerators to a growing number of its stores. And Target (TGT) is similarly adding a "broader food assortment," according to its CEO.
But, due to Walmart's ability to charge significantly less than its supermarket competitors, Walmart and its discount brethren have the opportunity to completely kill the "Big Three" supermarket chains -- Kroger (KR), SuperValu (SVU), and Safeway (SWY) -- and change the grocery industry as we know it.
We're already seeing big changes in the way people buy their groceries:
SuperValu has seen a decline in same-store sales (a good measure of foot traffic) for three years running.
And Safeway's same-store sales rose a paltry 1.6% in the recent quarter.
Kroger is holding strong, with same-store sales increases of around 5% over the past several quarters. But as we've seen in the past, if SuperValu and Safeway start to lose ground, it only quickens Walmart's move to the top, spelling more trouble for Kroger.
Consolidation in the grocery industry is a good thing for Walmart.
What It Means for Shoppers
It's conceivable that within a decade, most of us will be more likely to grocery shop at a Walmart, Target, or Dollar Tree than at the supermarkets we visit now.
The positive side is that this will probably mean lower prices on the food portion of our household budgets.
But there are also some negatives. For example, Walmart has done notoriously poorly at finding smart strategies for fresh seafood and meat. They don't offer as many product choices as major supermarket chains. And their produce isn't always as fresh as their competitors'.
However, if Walmart and its discount brethren want to become the leading grocery stores of the future, you can bet they'll figure out ways to cheaply remedy those shortcomings. And that will and add put more savings back in your pocket.
This article was written by Motley Fool analyst Adam J. Wiederman, who owns no shares of the companies mentioned above. The Motley Fool owns shares of SuperValu. Motley Fool newsletter services have recommended buying calls on SuperValu and creating a bull call spread position in Walmart Stores.
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