When two Wal-Mart Supercenters and a rival regional grocery opened near a Kroger Co. supermarket in Houston last year, the Kroger's sales dropped 10 percent.

Store manager Ben Bustos moved quickly to slash some prices and cut labor costs, for example, by buying ready-made cakes instead of baking them in-house, and ordering precut salad-bar items from suppliers.

  • Related
  • Market update

    Enter stock symbol or company name:


  • A Wal-Mart Supercenter A Wal-Mart Supercenter
His employees used to stack displays by hand: Now, fruit and vegetables arrive stacked and gleaming for display.

Such moves have helped Bustos cut worker-hours by 30 percent to 40 percent from when the store opened four years ago, and lower the prices of staples such as cereal, bread, milk, eggs and disposable diapers. Earlier this year, sales at the Kroger finally edged up over the year before.

Just as Wal-Mart Stores Inc. reinvented the world of discount retailing over the past two decades, it is now remaking the grocery business. The behemoth, based in Bentonville, Ark., started selling food in 1988 and became the nation's largest grocer last year, with more than $53 billion in grocery sales.

Wal-Mart sells groceries in at least 1,258 supercenters, 180,000-square-foot grocery-discount-store combinations, and in 49 small Neighborhood Markets. Most of the stores are in the South and Southwest.

In the Baltimore region, Wal-Mart has 18 discount stores, some of which sell groceries, a spokeswoman said. The retalier does not have plans to build supercenters or Neighborhood Markets in the immediate future, she said.

If Wal-Mart's supercenters continue to expand at their current pace, within this decade, more than three-quarters of the nation's Krogers and Albertsons Inc. stores and more than half the Safeway Inc. outlets could be within 10 miles of a Wal-Mart supercenter, according to Trade Dimensions, a market-data provider.

The fight for the carts and minds of customers already is having an impact. Shoppers in competitive markets are seeing prices fall as Wal-Mart pushes rivals to match its low costs. Among the tactics the chains are using: improving their inventory-tracking systems, doubling or tripling discount coupons and boosting customer loyalty with discount-card plans.

"Wal-Mart made us look at ourselves and reinvent ourselves," said Dick Tillman, who heads Kroger's Delta division of five Southern states, where Wal-Mart has built 80 supercenters and four Neighborhood Markets of roughly 40,000 square feet, about the size of an average supermarket.

The rivalry between Wal-Mart and No. 2 Kroger, based in Cincinnati, No. 3 Albertsons, of Boise, Idaho, and No. 4 Safeway, of Pleasanton, Calif., -- which has 27 stores in the Baltimore region -- eventually could mean the death of at least one of the chains.

Neither Kroger or Albertsons has stores in Maryland.

Even with little direct Wal-Mart competition, Albertsons has been shrinking, closing underperforming stores, and Safeway -- which opened a new store in Pikesville earlier this month -- is struggling to digest a plateful of acquisitions of regional chains. In smaller markets, independent stores and regional chains already are feeling pressure.

In the past decade, 29 chains have sought bankruptcy-court protection, with Wal-Mart as a catalyst in 25 of those cases, said Burt Flickinger III, managing partner of Strategic Resource Group, a supermarket consulting firm.

Consolidation among grocers since the late 1980s gave Wal-Mart an incentive to break into the sector. With less competition, the price of food sold at supermarkets nationwide grew at twice the rate of the producer-price index from 1991 through 2001, fattening profits. That meant Wal-Mart could come in, cut prices 10 percent to 15 percent and still make a profit.

As with its other merchandise, Wal-Mart is aggressive on cutting costs. To simplify inventory, suppliers are being asked to pack fresh chicken trays in uniform weights to make it easier for the store to restock and price the poultry. A machine, rather than a person, fries and flips doughnuts. Produce is stacked in reusable plastic containers to cut labor costs.

Meanwhile, a central office at Wal-Mart's Arkansas headquarters monitors the stores' heating and cooling systems and refrigerated cases to control utility bills.

Studies show that items at Wal-Mart cost 8 percent to 27 percent less than at Kroger, Albertsons or Safeway, including discounts from these competitors' loyalty cards and specials.

Customers are responding. Nancy Short, a receptionist at a Houston pediatric office, had shopped at the Houston Randalls, recently purchased by Safeway, until the Wal-Mart opened near her office last year. She found the variety and quality of produce similar to Randalls, she said, while favorite items like a Kraft Monterrey Jack cheese log and Frito-Lay Wow potato chips were half the price.