Walmart impact underestimated

By Jessica Cejnar, The Triplicate August 19, 2013 04:32 pm

The Ray’s Food Place in Crescent City closed in February.
The Ray’s Food Place in Crescent City closed in February. Del Norte Triplicate / Bryant Anderson
Years before the Walmart Supercenter opened its doors, economic analysts predicted the expanded store may cause another supermarket to shut its doors, but any other impact on local businesses would be spread evenly.

Now that two supermarkets have closed following the expansion, it may appear that analysts underestimated Walmart’s impact on other businesses, although any impacts so far appear to have affected just one company.

Three months after Walmart opened its supermarket, C&K Market closed Ray’s Food Place in Crescent City “due to an increased presence of retail competitors.” Last month, the Brookings-based company announced it was closing Smith River’s Ray’s Food Place, the community’s only grocery store. When residents demanded an explanation, company representatives blamed Walmart.

“Walmart had an impact on both of our stores in Crescent City and Smith River in terms of performance of those stores,” said C&K Market spokesman Grant Lunde. “Walmart has an impact in every market they come to.”

An economic impact analysis on the Walmart expansion prepared by Bay Area Economics for Del Norte County in September 2007 stated that the expanded store may cause one local supermarket to close. The analysis didn’t specify which store would be at risk of closure, although it considered the Ray’s Food Place in Smith River too far away to be “as affected by the Walmart expansion.”

Bay Area Economics is an urban economics and public-benefit real estate development consulting firm with offices in San Francisco, Sacramento, Los Angeles, New York City and Washington, D.C.

At the time the economic analysis was published, the expanded Walmart was scheduled to open in 2009. In 2007, the project was projected to achieve total annual sales of about $62.2 million in 2009, with $16.3 million coming from the store’s supermarket area. 

The Walmart Supercenter opened its doors on Nov. 15, 2012. The expansion added nearly 100,000 square feet to the store, with 39,000 devoted to the new supermarket. The remodeled store also included a full-service hair salon, a Subway and a Java Hut Express.

“We’re pleased to have the opportunity to serve our customers better by providing access to affordably-priced groceries,” Walmart spokeswoman Delia Garcia said last week. “Now we can offer the convenience of one-stop shopping for affordable, fresh groceries in addition to general merchandise.”

Although Garcia said she couldn’t give out any current sales figures on the Crescent City store, customers have responded favorably to “the convenience of one-stop shopping.”

For its report, Bay Area Economics tried to obtain sales information from local supermarkets. When they weren’t forthcoming, the firm visited Safeway, Grocery Outlet, Shop Smart Food Warehouse, Ray’s Food Place in Crescent City and Ray’s Food Place in Smith River. Bay Area Economics also visited Eller’s Fort Dick Market on Lake Earl Drive.

At the time of the firm’s visit, Safeway and Shop Smart were “moderately busy,” according to the economic analysis. Grocery Outlet appeared to have “slightly less traffic relative to its size.” The two Ray’s Food Place locations had the least amount of traffic, according to the economic analysis. 

With the exception of Smith River’s supermarket, all of Del Norte’s grocery stores are less than two miles away from the Supercenter. As a result, the analysis predicted that impacts from the expansion would be felt fairly evenly throughout the immediate Crescent City area.

The economic analysis also stated that the Walmart Supercenter’s impact on Grocery Outlet would not be as great because it fills a market niche for deeply discounted grocery, household and health and beauty care products.

The Walmart expansion was projected to have a smaller impact on general merchandise retailers in Del Norte County, according to the economic analysis. But the analysis also showed that general merchandise sales at Walmart accounted for over 80 percent of general merchandise sales in the county. 

General merchandise sales in the county accounted for about $54 million, according to the economic impact analysis. The analysis included sales from Rite Aid as well as the Medicine Shoppe and Pacific Drug, the latter two independently owned drug stores. 

At the time the economic impact analysis was published, Bay Area Economics noted that the proposed Walgreens and the expanded Walmart may result in the closure of an existing drug store. Both the Medicine Shoppe and Pacific Drug closed in 2008, turning customers’ prescriptions over to the Safeway and Walgreens pharmacies. 

To try to predict how a Walmart store may impact other local businesses, analysts need to know what the competition’s sales figures are, said Ray Kennedy, Bay Area Economics’ vice president. This is proprietary information that stores generally don’t give out, he said.

“Even if you had that it’s hard to make a precise prediction,” Kennedy said. “If you don’t have that information, you have to make a judgement call based on other factors like the current traffic.”

Kennedy, who helped put the 2007 report together, said Bay Area Economics has done other analyses on Walmart stores’ potential impacts in other areas. Sometimes it takes years for those stores to be built even after the project has gone through the environmental impact phase, he said.

In one case, Kennedy said a store that his firm predicted would close once Walmart had moved in shut its doors years before construction on the big box store even started.

“The grocery industry is a pretty tough industry,” he said. “There are a lot of competitors. It’s not just Walmart. There are other new competitors appearing all the time.”

In response to C&K Market’s assertion that the Walmart expansion resulted in the closure of the two Ray’s Food Place grocery stores, Garcia pointed to positive impacts the retailer has had in other communities. 

In Cornelius, Ore., the Walmart Supercenter brought greater tax revenue, more new jobs and nearly $1 million in fees for city improvements, according towalmartcommu
nity.com
. The corporation’s website also states that it has attracted nearly two dozen new businesses when a store opened in a Chicago neighborhood. 

“Businesses typically see being near a Walmart or in proximity to a Walmart as a positive because of increased customer visibility and increased customer traffic,” Garcia said. “As many items as we carry, we don’t carry everything, and there’s an opportunity for businesses to find their niche.”

In Del Norte County, the Wal-Mart corporation made some improvements to Summer Lane and Washington Boulevard in preparation for the store’s expansion, she said. This includes utility extension and sidewalk improvements.

Even though she couldn’t give out specific sales information, Melissa Porter, vice president of marketing for Grocery Outlet, said the Crescent City store has been able to co-exist with the expanded Walmart well.

“We operate next to Walmarts all over the place and we do fine,” she said. “(Crescent City) is one of our better stores, and it’s doing really well. The couple who owns the store does a great job.”

Clyde Eller, owner of Eller’s Fort Dick Market, which has a deli and offers canned goods, toiletries, pet care products, frozen items, produce and dairy products, said although he hasn’t really done a lot of research into the matter, he doesn’t think he’s been negatively impacted by the Walmart expansion. But the number of customers has increased since Smith River’s supermarket closed, he said.

“When Ray’s shut down, the closest store is me,” Eller said. “It’s either four miles to me or 11 miles to Crescent City (or) Brookings. If people are doing minor shopping like bread and milk, it makes more sense that they come here. We’ve (also) seen an increase in foot traffic.”

As for C&K Market’s remaining Del Norte County store, Shop Smart in Crescent City, Lunde said the Walmart Supercenter has negatively impacted that store as well.

“We expect to see that and plan for it as much as possible,” he said. “We try to plan a budget that will take into account what Walmart might do from a negative sales standpoint.”

The economic impact analysis also acknowledged the difficulty of filling a vacancy once a supermarket has left:

“It is not clear through the retail analysis or conversations with brokers familiar with the local conditions what type of tenant would take over a vacant space in the 30,000 to 40,000 square-foot range, or even a subdivided space. Thus (Del Norte County) faces the prospect of a possible long-term vacancy for a vacated supermarket.” 

In the case of Smith River’s supermarket, Lunde said no other company has expressed interest in opening a supermarket at the former Ray’s Food Place location. 

As for the former Ray’s Food Place location in Crescent City, no business licenses have been filed for that store front, Crescent City Planner Eric Taylor said Wednesday. 

The Rite Aid corporation, which owns the shopping center, is exploring ideas to rejuvenate and enhance the property, according to spokesman Eric Harkreader. But it’s too early to say what that would look like, he said.

Representatives from Safeway declined to comment, saying sales information isn’t something they share for competitive reasons.

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