Supermarkets to be hurt by Wal-Mart's small stores

NEW YORK -- Supermarket chains like Safeway and Roundy's could have even more reason to fear Wal-Mart.

Wal-Mart Stores Inc. is expected to offer more details of plans to expand its small stores at its annual investor meeting Wednesday.

As of the end of July, Wal-Mart had 10 "Express" stores and had ramped up its "Neighborhood Market" concept to 217 locations, said Citi Investment Research analyst Deborah Weinswig.

Express stores are less than one-tenth the size of Wal-Mart supercenters and offer groceries, general merchandise like tools and pharmacies. Neighborhood Markets are more than twice the size of Express stores and offer perishable food, household supplies and beauty aids as well as a pharmacy.

The company is just beginning its small-format store drive, but the concept could help it increase its position inside city centers, Weinswig said.

Jefferies analyst Scott Mushkin compiled a list of cities where Wal-Mart has less than 20 percent market share in supermarkets. Expanding to those areas, which include San Diego, San Francisco, Boston, Los Angeles, Miami and New York as well as smaller cities, could "potentially pose significant challenges for Safeway, Supervalu, Ahold and Roundy's," Mushkin said. Wal-Mart's growth could put pressure on their prices and draw away customers.

Shares of Supervalu were flat at $2.22 per share in afternoon trading, while Safeway's stock rose 34 cents, or 2.1 percent, to $16.50. Roundy's stock slipped 2 cents to $6.27.

Supervalu's chains include Albertsons, Cub Foods and Jewel-Osco. Safeway's operates its namesake supermarkets, as well as Dominicks and Vons. Roundy's runs the Pick n Save and Rainbow chains, among others. Ahold, which is based in the Netherlands, owns the Stop & Shop and Giant Food grocery chains in the U.S.