Grocers Forced to React to Wal-Mart. Again.

Wal-Mart's (WMT) massive effort to attract wealthier customers is working so far, and it spells potential big trouble for other grocers, according to an examination of the chain's "Project Impact" initiative by Supermarket News.

Project Impact carries "considerable risk for Wal-Mart," according to the long article (not available online), but if it succeeds, "slugging it out with a more sophisticated and focused giant could very well be daunting."

"It's the second twist of the knife. For most supermarkets, the first twist was all the supercenters getting built, but now there's just that much more competition from them," David S. Rogers, president of DSR Marketing Systems, told SN.

Wal-Mart's customer base has been growing more affluent as the recession has dragged on and wealthier consumers have tried to save money. The timing couldn't be better for Project Impact, announced late last year. The effort involves spending billion of dollars on remodeling stores to make them more attractive to the new bargain-hunters; reducing the number of items available in stores to reduce clutter and cut costs, and introducing more well-known brands.

Wal-Mart, the world's largest grocer, has changed its longtime slogan from "Always Low Prices. Always." to "Save Money, Live Better." It's not abandoning its image as a place to buy cheap stuff; it's adding to it so as to avoid turning off its new customers, many of whom have long thought of Wal-Mart as a shoddy store where angry moms hit their screeching kids and where people shop for a dozen 2-liter bottles of diet Fanta root beer at a time.

Competing supermarkets have been struggling against Wal-Mart since the mid-'90s, when the chain grew massively, offering ultra-cheap groceries. Competing on price was necessary, but not sufficient. And not always possible, given that Kroger, Safeway and the rest couldn't begin to compete with Wal-Mart on cost, given the massive chain's massive economies of scale. Better strategies involved emphasizing quality and offering more selection.

Now competing chains have to revamp their strategies again, according to David Orgel Supermarket News' editor-in-chief.

He offers several bits of advice:

• Wal-Mart is eliminating many items. Find out what they are and offer them.

• Meet Wal-Mart's store upgrades head-on, and do the same. Competing chains have an advantage here, since most of them aren't starting from the Soviet-style atmosphere Wal-Mart stores are starting from.

• Stay with the "in the ballpark" pricing strategy that many grocers have employed against Wal-Mart. The chain still can't be beat on this front, Orgel notes, but Project Impact is actually adding to Wal-Mart's costs in the short term, which could be an opportunity for many competitors.

Above all, Orgel says, grocers "should act quickly on these opportunities. Wal-Mart may be distracted in the short term by its massive shifts, but at some point it will fine-tune its approach."