Wal-Mart Supercenter versus the Traditional Supermarket
Skip to content
Marketing May 2, 2007

Wal-Mart Supercenter versus the Traditional Supermarket

How can a local grocery store survive?

Customers shopping in grocery store

elenabs via iStock

Based on the research of

Robert C. Blattberg

Karsten Hansen

Vishal P. Singh

What can your local grocer do to keep you from shopping at Wal-Mart? As Wal-Mart supercenters set up shop near traditional supermarket chains, you have more choices for where to buy groceries. Should you stick with the local chain where you have shopped for years or go to Wal-Mart, where the groceries are cheaper than anywhere else?

Add Insight
to your inbox.

Professors Karsten Hansen (Kellogg School of Management), Robert Blattberg (Kellogg School of Management), and Vishal Singh (New York University; graduate of Kellogg’s doctoral Marketing program) set out to determine the impact of the arrival of a Wal-Mart on local customers’ grocery shopping habits. More specifically, they investigated what types of customers are most likely to switch to Wal-Mart.

Hansen, Blattberg, and Singh’s research suggests ways local retailers can meet the challenge of an incoming Wal-Mart supercenter. They cited a 2003 Wall Street Journal article that showed 25 out of 29 supermarket bankruptcies in the past decade had been caused by the arrival of a Wal-Mart. Wal-Mart is now the number one player in the grocery industry. It has been able to gain and maintain this position because it keeps its costs below the industry level; according to the same Wall Street Journal article, Wal-Mart grocery prices are 8% to 27% lower than those of Kroger, Albertson’s, or Safeway.

The authors collected point-of-sale data for 10,000 households from a single local supermarket in an East Coast suburban town. The data was gathered before, during, and after a Wal-Mart supercenter entered the area, from November 1999 through June 2001. Hansen, Blattberg, and Singh used these twenty months’ worth of store records to find trends in customer spending habits as a result of the new supercenter, which opened in August 2000.

To investigate this question, the authors considered different factors that might explain household shopping behavior, including the following:

  • Household’s travel distances to the local supermarket and to Wal-Mart;
  • Demographics, such as income and household size (derived from census data) and the presence of a baby or pet (derived from observed purchasing behavior);
  • Shopping variables, such as the percentage of total visits between 9 A.M. and 5 P.M. during working days;
  • Product purchasing behavior, such as the fraction of expenses on fresh produce and specialty meat and seafood, prepared foods, and store brand products;
  • Pricing and promotions at the two stores;
  • Store sales variables, such as store traffic, and the average basket size (amount spent per visit) over the sample period.

Table 1 shows some summary statistics for the sample.

Table 1: Sample summary statistics

Through their research, the authors found one major trend in the local supermarket’s losses, equivalent to 17 percent, or nearly $250,000 per month: shoppers visited the local supermarket less frequently after Wal-Mart opened. Hansen, Blattberg, and Singh had originally expected losses would result from fewer visits, fewer items purchased in a single trip, or a combination of the two. As Figure 1 shows, they found only the first was true: customer purchases remained relatively stable during any given grocery trip (b) while the number of overall visits decreased (c).

Figure 1: Daily sales, store traffic, and basket size for local retailer before and after Wal-Mart entry

This finding was particularly important when it came to customers who were already predisposed to abandon their local grocer. Households with a pet or an infant were more likely to switch over to shopping at Wal-Mart, as were larger households and those located close to the new Wal-Mart. In contrast, households that did the majority of their shopping between 9 A.M. and 5 P.M. during working days were less likely to defect to Wal-Mart.

If a supermarket can retain just 5% (10%) of its best customers after a Wal-Mart opens in the area, its losses would be reduced by 41% (64%).

There were other trends among the households that remained loyal to the local supermarket. These households were more likely to buy fresh produce, seafood, and meal replacements such as deli sandwiches or pre-made salads. This finding suggests that traditional supermarkets may be more successful than Wal-Mart at providing quality meat and produce, and could reduce losses by showcasing the types of groceries they provide best.

For supermarket managers, these are important findings. If a supermarket can retain just 5% (10%) of its best customers after a Wal-Mart opens in the area, its losses would be reduced by 41% (64%). In terms of advertising, it means that the main focus should be on external promotions that increase traffic to the store rather than internal promotions, which simply encourage customers to purchase more once they are inside. According to the authors, simply getting consumers to walk through the doors of a local store can prove paramount.

By understanding the demographics and purchasing habits of lost customers, traditional supermarkets can better equip themselves to compete when a Wal-Mart enters their area. Hansen, Blattberg, and Singh’s insights show that understanding the consumer can have far-reaching implications for the success of a local supermarket-even at a time when Wal-Mart’s giant supercenters threaten to upset the conventional foundations of the grocery industry.

Further reading:

“Price War in Aisle 3.” Wall Street Journal, May 27, 2003.

About the Writer
Lillian Cunningham, a master's student at Northwestern University's Medill School of Journalism.
About the Research
Blattberg, Robert C., Karsten T. Hansen, and Vishal P. Singh (2006). "Market Entry and Consumer Behavior: An Investigation of a Wal-Mart Supercenter." Marketing Science, 25(5): 457-476.

Read the original

Most Popular This Week
  1. 3 Tips for Reinventing Your Career After a Layoff
    It’s crucial to reassess what you want to be doing instead of jumping at the first opportunity.
    woman standing confidently
  2. College Campuses Are Becoming More Diverse. But How Much Do Students from Different Backgrounds Actually Interact?
    Increasing diversity has been a key goal, “but far less attention is paid to what happens after we get people in the door.”
    College quad with students walking away from the center
  3. When Do Open Borders Make Economic Sense?
    A new study provides a window into the logic behind various immigration policies.
    How immigration affects the economy depends on taxation and worker skills.
  4. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  5. Podcast: Does Your Life Reflect What You Value?
    On this episode of The Insightful Leader, a former CEO explains how to organize your life around what really matters—instead of trying to do it all.
  6. 5 Ways to Improve Diversity Training, According to a New Study
    All too often, these programs are ineffective and short-lived. But they don’t have to be.
    diversity training session
  7. How Has Marketing Changed over the Past Half-Century?
    Phil Kotler’s groundbreaking textbook came out 55 years ago. Sixteen editions later, he and coauthor Alexander Chernev discuss how big data, social media, and purpose-driven branding are moving the field forward.
    people in 1967 and 2022 react to advertising
  8. Your Team Doesn’t Need You to Be the Hero
    Too many leaders instinctively try to fix a crisis themselves. A U.S. Army colonel explains how to curb this tendency in yourself and allow your teams to flourish.
    person with red cape trying to put out fire while firefighters stand by.
  9. Immigrants to the U.S. Create More Jobs than They Take
    A new study finds that immigrants are far more likely to found companies—both large and small—than native-born Americans.
    Immigrant CEO welcomes new hires
  10. Podcast: China’s Economy Is in Flux. Here’s What American Businesses Need to Know.
    On this episode of The Insightful Leader: the end of “Zero Covid,” escalating geopolitical tensions, and China’s potentially irreplaceable role in the global supply chain.
  11. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  12. What Happens to Worker Productivity after a Minimum Wage Increase?
    A pay raise boosts productivity for some—but the impact on the bottom line is more complicated.
    employees unload pallets from a truck using hand carts
  13. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  14. Why Well-Meaning NGOs Sometimes Do More Harm than Good
    Studies of aid groups in Ghana and Uganda show why it’s so important to coordinate with local governments and institutions.
    To succeed, foreign aid and health programs need buy-in and coordination with local partners.
  15. How Much Do Campaign Ads Matter?
    Tone is key, according to new research, which found that a change in TV ad strategy could have altered the results of the 2000 presidential election.
    Political advertisements on television next to polling place
  16. How Experts Make Complex Decisions
    By studying 200 million chess moves, researchers shed light on what gives players an advantage—and what trips them up.
    two people playing chess
  17. Jeff Ubben Explains His “Anti-ESG ESG” Investment Strategy
    In a recent conversation with Kellogg’s Robert Korajczyk, the hedge-fund leader breaks down his unique approach to mission-driven investing.
    smokestacks, wind turbine, solar panel
  18. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
More in Marketing