With a few exceptions, retail real estate development has been nonexistent in the Milwaukee area during the last few years as consumers cut back on shopping trips and banks significantly limited lending for commercial real estate development.
However, it appears that grocery store development is about to pick up dramatically in the area as Bentonville, Ark.-based Wal-Mart Stores Inc. plans to add several new stores in southeastern Wisconsin and Woodman’s Food Markets, Costco and Trader Joe’s plan additional locations.
The additional competition in the grocery market could come at the expense of Milwaukee-based Roundy’s Supermarkets Inc.’s considerable market share in the area, according to grocery industry analyst David Livingston.
Wal-Mart recently opened new stores, which include grocery departments, in Waukesha and New Berlin and is working on plans to open two new stores in Kenosha and stores at 222 N. Chicago Ave. in South Milwaukee, at the former U.S. Bowling Congress site at 5301 S. 76th St. in Greendale and in Timmerman Plaza at 10332 W. Silver Spring Dr. in Milwaukee, said Wal-Mart spokeswoman Lisa Nelson. One commercial real estate source said Wal-Mart plans to open another 4-5 five stores in the area in addition to those named by Nelson. The company also is in talks with West Allis officials about opening a store at 84th Street and Greenfield Avenue and plans to open a smaller neighborhood market store in the store that it closed in Waukesha when the new store opened there, Livingston said.
“There’s no magic number (of new stores planned for the area),” said Wal-Mart spokeswoman Lisa Nelson. “We’re looking to expand access to the Walmart brand and be as close to our customers as possible. We’re looking all over (the Milwaukee area), including the city.”
Janesville-based Woodman’s Food Markets opened a store earlier this year along Highway 41/45 in Menomonee Falls and is looking for another Waukesha County location for a store.
Issaquah, Wash.-based Costco Wholesale Corp. plans to build a 150,000-square-foot store on a vacant, 19-acre site in the Village of Pewaukee northwest of Highway 164 and Capitol Drive, and north of a Wal-Mart store at that intersection.
Wal-Mart and Woodman’s are discount stores and Costco is a discount club store, which includes a grocery department. Their expansion in the market is filling a void for discount grocery stores in the Milwaukee area, Livingston said.
The biggest reason that Milwaukee area consumers select a grocery store is price, Livingston said. Roundy’s Pick ‘n Save stores were once considered a discount store in the area. But after the owners of Sentry, Kohl’s and Jewel grocery stores had severe financial problems those stores were either scaled back significantly or eliminated from the Milwaukee area marketplace. Roundy’s acquired many of those stores and opened other stores and grew its market share to a peak of about 63 percent. The company took advantage of that higher market share, raising the prices at the Pick ‘n Save stores.
“All of a sudden Pick ‘n Save went from being a low price store to the premium priced store,” Livingston said. “They are no longer the low priced store by any stretch of the imagination.”
Wal-Mart and Woodman’s have prices about 15 percent lower than Pick ‘n Save, Livingston said. The companies are expanding in the Milwaukee area to take advantage of Milwaukee area consumers’ frugality and Pick ‘n Save’s market share dominance at a high price point, he said.
Wal-Mart will target areas for new stores close to high volume Pick ‘n Save stores in an attempt to take away the Roundy’s market share, Livingston said.
Woodman’s will target areas near as many Pick ‘n Save stores as possible, regardless of their performance, Livingston said.
“It’s like dropping an atomic bomb,” he said. “They want to impact as many (Pick ‘n Save) stores as possible. I think (Woodman’s) could do two (more Milwaukee area stores). They grow methodically. They’re very conservative.”
Another grocery chain that has expanded in the area in recent years is Aldi, which plans to add a store at 1201 George Towne Dr. in Pewaukee. Aldi is the only retail chain that is priced lower than Walmart and likes to be located near Walmart stores, Livingston said.
“Aldi is one of the few retailers where sales go up when a Walmart comes in,” he said.
There is little Roundy’s can do to slow this onslaught from its competitors, said Livingston, who used to work for the company. Wal-Mart has major size and supply chain advantages to keep costs down. Woodman’s expands slowly and pays cash, rather than borrowing, to build its new stores and is not saddled with the cost of paying back construction loans. Roundy’s is “hundreds of millions of dollars in debt,” Livingston said, has high union labor costs, and typically has to pay rent for its store spaces.
In addition, Pick ‘n Save is facing more competition on the higher end. Several Sendik’s stores have opened in the region in recent years and Trader Joe’s, which has a store at Bayshore Town Center in Glendale, is looking for a location for a store along Bluemound Road in Brookfield, according to commercial real estate sources.
“(Roundy’s) has got a lot of things going against them right now,” Livingston said.
As result, Roundy’s will lose market share and some Pick ‘n Save stores will close, Livingston predicts.
“Good (performing Pick ‘n Save) stores will become average stores, average (performing) stores will become poor stores and poor (performing) stores will close,” he said.
It is hard to tell which Pick ‘n Save stores are in the weakest financial condition, because it depends not just on sales but also on lease costs, Livingston said.
Roundy’s is not currently planning to build any new stores in the region, but is working on replacement stores in Mequon, West Bend, Greenfield and Racine. The company is not concerned about losing market share, said Roundy’s spokeswoman Lynn Guyer.
“We’re not really focused on market share,” she said. “Our major concern is pleasing the customer and giving them what they need and want, rather than looking at what the competition is doing.”
