Someone's in the Kitchen

Voters in California recently rejected a Wal-Mart supercenter in their town.

If you think this is making all the nation's retailers breathe easier, buy some Kmart stock. The vote may have been a sock on the nose to Wal-Mart, but it hasn't even left a bruise. The world's biggest company didn't get to be the world's biggest company by backing away from a fight.

Wal-Mart is the elephant in the middle of the room. Everyone pretends it isn't there. But it keeps growing, and moving from room to room. Now it's in the kitchen.

In the eight years since Wal-Mart introduced its hypermarket concept – buy eggs while you're shopping for T-shirts – it has become the nation's Number One food retailer. And if you've noticed a lot of activity suddenly bursting forth from the traditionally conservative grocery retailing community, it's all in reaction to Wal-Mart.

Lately, the supermarket industry has been re-examining the urban marketplace in particular. Young professionals and empty-nesting baby boomers have been flocking back into many of the major urban downtowns. And they need places to buy groceries. But for them, grocery shopping isn't stocking up on boxes of cereal, cartons of milk and packs of Pampers. They're more likely to shop for higher-priced prepared meals, to spend more on quality and freshness, on organically grown produce, all-natural beef and free-range chicken.

When they're in the supermarket, they'll spend Starbucks-type money on fresh coffee beans and buy pricey wines. They'll grab sushi or a white basil pizza for dinner. They'll deposit a check, buy a video, fill a prescription, get a greeting card, order some flowers, arrange for a birthday cake, choose some live lobsters for a weekend clam bake, sign up for a gourmet cooking class, buy toys for the nephew or granddaughter. They'll check out the purchase at a high-tech self-service scanner and be on their way.

The lighting is better (boomers' eyes are in their 50s), the signage more appealing, the aisles less cluttered and the ambient music more acceptable.

The large supermarket operators once resisted such upgrading. Their margins are notoriously tight, square-footage is precious and inventory mismanagement can be crippling. You can't just reduce unsold oranges or week-old lettuce by 15 percent to get it out of the store, like you would with a sweater. So fancy design touches and customer amenities were always seen as unnecessary lily-gilding.

But that was then, when Wal-Mart was just selling housewares, hardware and generic clothing. Now, with the hypermarket empire expanding, grocery chains have no choice but to respond.

They can't beat Wal-Mart on price (historians note the noble Kmart effort that failed). And they can't say they have better selection or more shelf space or even higher-quality produce. Wal-Mart has done a good job of deflecting the fresher-than-thou argument.

However, they can for the moment challenge Wal-Mart on ambience and beat them on location. The Wal-Mart net has yet to encompass urban areas, which have been more resistant to the disruption and congestion that comes from erecting 300,000-square-foot buildings and huge parking lots. So supermarket operators have taken to city streets, manned the barricades and challenged Wal-Mart to a fight.

The Portobello Mushroom Wars have begun.