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Walmart’s strategy

Pitching low prices, chain aims to open Somerville grocery

A Walmart market’s prices for groceries in Dallas impressed Trena Daffe (left) and her cousin, Lajuanda Bennett. A Walmart market’s prices for groceries in Dallas impressed Trena Daffe (left) and her cousin, Lajuanda Bennett. (Photos by Rex C. Curry/Associated Press)
By Megan Woolhouse
Globe Staff / October 11, 2011

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DALLAS - To understand a Walmart grocery store, consider Ro-Tel, a combination of diced tomatoes and green chilies in a can.

The Texas kitchen staple recently sold for $1.20 a can at an Albertson’s grocery store here. A Walmart supercenter a few miles away sold it for 88 cents. But it was Walmart Neighborhood Market - a Walmart selling only groceries - that offered Ro-Tel for a steal: just 78 cents on sale.

“You can’t beat that,’’ shopper Lajuanda Bennett said recently as she pushed a shopping cart heavy with Ro-Tel cans through the store.

Walmart Neighborhood Market now wants to make its debut in the Northeast with a store in Somerville, promising these kind of rock-bottom prices to a region with some the nation’s highest grocery costs. Grocery prices in the Northeast run more than 3 percent above the national average, and rose nearly 6 percent over the past year, according to the US Labor Department.

The push in the Northeast - including the recently rebuffed effort to open a Neighborhood Market in Boston’s Roxbury neighborhood - is part of the Arkansas retailer’s plan to open more than 150 grocery stores across the country by late 2013. With a sagging economy weighing on sales, Walmart is relying on its tried and true strategy of undercutting competitors’ prices. And while the impact of Walmart’s grocery store concept is relatively new and unstudied, critics said the chain - already the world’s largest - hurts local business and competition.

Walmart representatives have said they want to expand in urban areas, such as Roxbury, where there are few stores offering affordable, healthy food, as well as places like Somerville, where the company says customers are “badly served’’ by what it calls overpriced competitors.

“It’s an important market for us, one we have the potential to serve some real needs in,’’ Walmart spokesman Steven V. Restivo said of the company’s desire to expand in the Boston area.

Somerville Local First, a group that advocates for independent businesses, recently said it would oppose the store. It cited the company’s wage and labor practices, pricing strategies, and fears that the grocery store, a corporate juggernaut, would pave the way for further Walmart expansion in Greater Boston that would drive smaller competitors out of business.

“We know the general public needs affordably priced goods, but Walmart, in our view, has a long history of predatory pricing, typically done to push out competition,’’ said Joe Grafton, executive director of the group. “Their ultimate goal is saturation of the retail market.’’

Dallas and Somerville may be world’s apart culturally, but there are similarities between East Somerville and the gentrifying section of Dallas where a Walmart Neighborhood Market opened about six years ago.

The Dallas store, like the proposed site near Assembly Square, sits off a busy interstate, not far from construction of a major, upscale housing development. Trendy condos, restaurants, and bars as well as pockets of modest housing dotted by liquor stores, surround the store.

Walmart opened in the area without controversy, recalled Paula C. Blackmon, chief of staff to Dallas Mayor Mike Rawlings, who was not in office at the time. No one protested, she said. “It’s a nice little Walmart.’’

Walmart Neighborhood Markets are about one-third the size of the company’s trademark “supercenters’’ in rural and suburban locations. The Dallas store looks much like any other grocery store, with orderly produce, deli, and bakery sections, predictably ringed by meat and dairy cases and dotted with sale items, like Big Red soda and 20-pound slabs of barbecue ribs.

A prepared foods section sells as many as 80 rotisserie chickens a day priced between $4.99 and $7.99 each, store manager Dave Warson said. The store’s top-seller is an 8-ounce bag of frozen fajita chicken that costs $2.98, he said. The store sells more than 2,000 bags a month to customers who find the store’s prices irresistible.

“I don’t give my money away,’’ said retiree Lloyd Shinn, as he rolled through the produce section with his wife. His only lament is that Walmart does not carry upscale San Pellegrino sparkling juices.

Walmart already has the largest grocery store market share in Dallas, a fast-growing city, but grocery competition in the city does not appear to have suffered. Aldi, an international supermarket chain, entered the North Texas market with 29 stores last year, and currently operates nine Dallas locations. Other smaller grocery chains, such as Arizona-based Sprouts Farmers Market and the Colorado-based chains Sunflower Farmers Market and Natural Grocers, have also opened new stores in the city in recent years.

Walmart, however, plans to launch more than a dozen new projects in Dallas, including construction of Neighborhood Market grocery stores; Walmart supercenters, the retail behemoth that sells electronics, clothing, and nearly everything else under the sun, including groceries; and Sam’s Clubs stores, the company’s membership discount chain.

Dallas leaders announced the Walmart expansion, which will double the number of Walmart-owned locations within the city, last February. The news came shortly after supermarket rival Albertson’s LLC said it would close seven stores in Texas, including five in the Dallas area. Albertson’s declined to comment.

Stacy Mitchell, senior researcher with the Institute for Local Self-Reliance, a nonprofit organization that advocates for local business ownership, said Walmart already controls 37 percent of the grocery market in the Dallas-Fort Worth area; the chain commands more than half the market share in 29 metropolitan areas, she said.

While Walmart grocery stores are too new to have been studied in depth, she said Walmart’s national dominance has forced consolidation within the grocery industry. She expects the same outcome in Massachusetts.

“That there will be a negative impact is hard to dispute,’’ Mitchell said. “Fewer independent grocers in the long term is quite dangerous - it can mean less choice and higher prices.’’

On a recent weekday in Dallas, the Albertson’s supermarket less than a mile from the Walmart Neighborhood Market uptown bustled. Several customers said they preferred it to Walmart, even if it meant paying 42 cents more for a can of Ro-Tel.

Wes Helms, an Albertson’s regular, said he shopped at Albertson’s because he had concerns about Walmart’s size and unrelenting growth, wondering if Walmart would eventually want to expand its grocery stores to include gas, oil changes, or other services.

“I won’t go in there,’’ Helms said of Walmart. “I think they ruin the local market.’’

Walmart has spread like kudzu across North Texas, which has more Walmart supercenters and Neighborhood Markets than any other major US market. Dallas leaders said they welcome Walmart’s growth, particularly the plan to build three new grocery stores in low-income areas in South Dallas.

Analysts also say the company’s grocery store expansion aims at reaching beyond its traditional customer base - the lower income shoppers hit hardest by the recession.

Mark Hamstra, an editor at Supermarket News, a weekly industry publication, said as Walmart’s retail sales have softened in recent years, the corporation has been looking for new sources of revenue. “They’re really going to be targeting a higher income customer,’’ Hamstra said.

Northeast metropolitan areas have some of the highest incomes in the nation, and Walmart’s interest in the region is a departure for a retailer that began selling merchandise in the rural South using folksy greeters in blue company vests.

Hamstra said many New England customers are also very loyal to veteran low-cost grocery chains like Hannaford and Tewksbury-based Demoulas Market Basket stores.

“In New England . . . it’s not going to be as easy for them to come in and put others out of business,’’ Hamstra said. “It’s one of the last markets [Walmart] hasn’t moved into too aggressively.’’

Megan Woolhouse can be reached at mwoolhouse@globe.com.