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Report: Wal-Mart Is No Category Killer in Large Cities

NEW YORK -- A new Merrill Lynch study finds that Wal-Mart has made few inroads into the large cities where most grocery dollars are spent, according to an article in Forbes magazine.

About 70 percent of Wal-Mart's 1,333 Supercenters, which include grocery sections, are based outside the top 100 metropolitan statistical areas. Its grocery customers are predominantly unskilled, blue-collar farm laborers, the elderly or the unemployed, according to Merrill Lynch. This is in line with Wal-Mart's own observation that 20 percent of those customers don't have bank accounts, according to the article.

Even though Wal-Mart is now the nation's largest grocery retailer, it seems to be having trouble penetrating large cities with its Supercenter concept, which accounts for almost half its 2,850 domestic stores.

Food sales at the Supercenters increased 25 percent last year to an estimated $38 billion. However, less than 40 percent of this $7.8 billion increase in sales came in the top metro markets.

So far, most of Wal-Mart's sales have been taken from small-town grocery chains where the major grocery operators have less than 30 percent of their sales base. In the top 26 markets with populations over 2 million, Wal-Mart had a combined average market share of 3.65 percent during 2002, according to the Merrill report.

The real problem the traditional grocery chains face is weak demand and an inability to raise prices in a deflationary environment--not Wal-Mart pricing pressure, according to the report. Kroger and Safeway are gaining or maintaining share in about half or more of the top 100 markets where they have a presence. The only two big chains to suffer inroads from Wal-Mart in 2002 were Albertsons and Winn-Dixie, the Merrill report said.
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