That company last year opened a new, 700,000-square-foot distribution center in Kenosha, Wis., that is expected to facilitate further growth in the in the state.

“Affiliated Foods Midwest is probably going to be, along with Wal-Mart, the fastest growing in terms of sales and market share in next few years,” Flickinger predicted, citing AFM's new warehouse.

The Kenosha center, along Interstate 94 between Milwaukee and Chicago, was expected to serve Affiliated stores in Wisconsin, Illinois, Indiana, Minnesota, Michigan and Ohio. “Rising transportation costs and logistical concerns make it impractical to serve our northern region from our existing distribution centers,” Martin Arter, president of Affiliated, said in a release when the center was announced..

In addition, Affiliated Food Midwest has rolled out a more aggressive pricing strategy for its members that is gaining traction, Flickinger said.

Target Corp., based in Minneapolis, has one supercenter in the market and 2.7% share, but could see that volume grow as it converts more traditional discount stores to the P-fresh format emphasizing grocery offerings, Flickinger said.

Meanwhile, Maurer's 18,000-square-foot Fresh Madison Market, located on the ground floor of a residential housing complex for the university, competes at the other end of the spectrum, emphasizing “healthy and environmentally sound shopping choices” and a “full-service grocery shopping experience with fair prices on a good selection of fresh foods,” according the store's website.

Wal-Mart's bad PR comes at a bad time

A federal court of appeals ruled Monday that more than 1 million female Wal-Mart employees could proceed with the lawsuit, which was originally filed in 2001. The employees, who are seeking billions of dollars in damages, accuse Wal-Mart of paying women less than men and promoting fewer women into management positions.  In March, Wal-Mart said in a regulatory filing that an adverse ruling "may result in liability material to the company's financial condition." But it's still a long road before the case gets to trial, if it even gets there.

If the case remains in the media, analysts say it could hurt Wal-Mart's image, something the giant retailer has been working hard to repair. At the same time, Wal-Mart is reluctant to just settle the case, because it would likely cost them billions of dollars.

"This could be a huge verdict if this goes all the way through," said Terry Clower, director of the University of North Texas Center for Economic Research and Development. "Why do you think Wal-Mart's been fighting it so hard? How does Wal-Mart make up for something that? The folks shopping at Wal-Mart will end up paying for it."

As a result, Wal-Mart (WMT, Fortune 500) said it will appeal to the U.S. Supreme Court.

The problem is that now isn't a great time for Wal-Mart to take a PR hit. Like other retailers, the company has suffered sales declines with its same store sales falling for three consecutive quarters for the first time in its history. The company's net sales fell in the fourth-quarter for the first time since the company went public 41 years ago. And supermarkets have started to steal away some loyal Wal-Mart customers.

In an attempt to boost sales, Wal-Mart has begun a push into urban areas, which have previously been a tough fit for the retailer. But several analysts said they think that any bad press surrounding the company may tip the scales of opinion among local political leaders who have to vote to approve zoning changes for new Wal-Mart stores.

"I think there will be a backlash," said Burt Flickinger, analyst at Strategic Resource Group, a retail consulting firm. "Its strategy is backfiring, and this is going to be a big black eye for Wal-Mart for a number of years."

Flickinger said an inability to move into cities will hurt Wal-Mart's growth potential and ultimately its stock.

At the same time, Wal-Mart has survived hits to its image before. Over the past decade, the company has endured numerous reports of unfair labor practices as well as countless court cases and settlements. Wal-Mart even emerged unscathed from a damning 2005 documentary called "The High Cost of Low Price."

Through all of that, customers keep on coming back to Wal-Mart. Total sales have only once fallen at Wal-Mart's U.S. stores on a year-over-year basis in the company's history. Company profits have also recently outpaced Wall Street's expectations, despite the slip in U.S. sales.

"The acid test for all of this is how the company is doing," said Robert Passikoff, president of Brand Keys Consulting. "The truth is if all of this were having the kind of negative effect that it has on the PR side of the equation, you'd see a greater effect on profits -- but you're not seeing that."

Passikoff said that studies show consumers decide where to shop based on location, value and merchandise selection ahead of factors like store reputation.

The retail giant knocked Exxon Mobil (XOM, Fortune 500) out of the top spot on the Fortune 500 list, logging a profit of $14.3 billion on revenue of $408 billion in 2009.

Ted Boutrous, the lead attorney representing Wal-Mart in the case, said he believes customers understand that the court's ruling is not an indictment of the company.

"Customers are fair-minded, and they know the focus right now is on class-action law," said Boutrous. "The court went out of its way to say it is not saying anything abut the lawsuit's merits. The best way for Wal-Mart to protect its relationship with its customers is to take this to the Supreme Court." 

P&G, rivals jump into a pricing war

Consumer-product makers boost spending on promotions, accelerate launch of new goods to gain market share

By ELLEN BYRON

Procter & Gamble Co. is waging an aggressive market-share war, cutting prices, accelerating product launches and spending more on advertising in an effort to win over shoppers slowly reawakening from their recession-induced coma.

The moves helped the world's biggest consumer-products company report stronger-than-expected results for its most recent quarter, including a 7% surge in year-over-year sales volumes, the best showing in 18 quarters.

Price battles are escalating as P&G's major competitors, also reporting quarterly earnings Thursday, cut prices as well. Colgate-Palmolive Co. said Thursday its North American prices for the quarter were 3.5% lower than a year earlier. Unilever PLC, whose Chief Executive Paul Polman, a former P&G executive, began cutting prices to boost volume sales a year ago, said its overall prices were 3.3% lower in the period.

"It's war inside stores," says Burt Flickinger III, a former P&G executive who now tracks pricing patterns in the U.S. as a consultant to major retail chains. The last time Mr. Flickinger saw this level of promotional activity was about 20 years ago, when P&G's market share had been dented by a recession, a string of difficult acquisitions and disappointing product introductions.

P&G's U.S. prices are lower on average than they were a year ago in categories including batteries, down 12.7% in the 12 weeks ended March 20; liquid laundry detergent, down 4.6%; shampoo, down 4.3%; and diapers, down 1.3%, according to a Sanford Bernstein analysis of data collected by Nielsen. In contrast, P&G's Gillette razor-blade prices rose 5.6% during the period. The data don't reflect pricing at Wal-Mart Stores Inc. or club stores.

A 64-ounce bottle of Downy fabric softener, which last summer cost $4.49, or $3.49 on sale, now often goes for $2.99 on sale, says Mr. Flickinger.

Mr. Flickinger, a managing director of Strategic Resource Group, estimates the company's promotions have lowered the price of some items by as much as 8% to 10%.

P&G's new chief executive, Robert McDonald, "has put the industry on notice, essentially saying, "You can't just take our market share by discounting and promoting around us,'" says Bill Chappell, an analyst at SunTrust Robinson Humphrey. "They're now going to focus on market share first, and profitability seems to be somewhere behind that."

P&G profit fell 1% to $2.59 billion, or 83 cents a share, for the fiscal third quarter, weighed down by a charge stemming from the health-care overhaul. Low prices cut into sales growth excluding acquisitions and currency influences, which came in at the lower end of the company's range. Sales rose 7% to $19.18 billion.

Profit at Unilever—which makes Lipton tea and Ben & Jerry's ice cream—rose 33% to €973 million ($1.28 billion). Sales increased 4.1% to €10.14 billion when stripping out acquisitions and currency fluctuations, as sales volumes rose 7.6%.

Unilever has accelerated the pace of new product launches, including a version of Hellmann's Mayonnaise made using cage-free eggs, and a range of Dove soap and skin goods targeted at men.

For Unilever, the strongest region in the quarter was Asia, Africa and Central and Eastern Europe, where sales rose 7.6% at constant currencies and volume rose 12%.

Read more: http://www.time.com/time/business/article/0,8599,1920698,00.html#ixzz0npZmwL1Z

A Walmart store in Miami

Walmart loves to shock and awe. City-size stores, absurdly low prices ($8 jeans!) and everything from milk to Matchbox toys on its shelves. And with the recession forcing legions of stores into bankruptcy, the world's largest retailer now apparently wants to take out the remaining survivors.

Thus, the company is in the beginning stages of a massive store and strategy remodeling effort, which it has dubbed Project Impact. One goal of Project Impact is cleaner, less cluttered stores that will improve the shopping experience. Another is friendlier customer service. A third: home in on categories where the competition can be killed. "They've got Kmart ready to take a standing eight-count next year," says retail consultant Burt Flickinger III, managing director for Strategic Resources Group and a veteran Walmart watcher. "Same with Rite Aid. They've knocked out four of the top five toy retailers, and are now going after the last one standing, Toys "R" Us. Project Impact will be the catalyst to wipe out a second round of national and regional retailers." (See 10 things to buy during the recession.)

Though that's bad news for many smaller businesses that can't compete, Walmart investors have clamored for this push. Despite the company's consistently strong financial performance, Wall Street hasn't cheered Walmart's growth rates. During the 1990s, the company's stock price jumped 1,173%. In this decade, it's down around 24% (Walmart's stock closed at $51.74 per share on Sept. 3). "Walmart is under excruciating pressure from employees and frustrated institutional investors to get the stock up," says Flickinger. (Read "Can Toys "R" Us Sell Toilet Paper?")

Many analysts believe that the store-operations background of new CEO Mike Duke will keep investors quite happy. Though the recession finally caught up to Walmart last quarter, when the company reported a 1.2% drop in U.S. same-store sales, Walmart was a consistent winner during the worst days of the financial crisis, as frugal consumers traded down. While most retailers are shutting down stores, Walmart has opened 52 Supercenters since Feb. 1. Joseph Feldman, retail analyst at Telsey Advisory Group, estimates that each store costs Walmart between $25 and $30 million. In order to continue the momentum that it has picked up during the retail recession, over the next five years the company plans to remodel 70% of its approximately 3,600 U.S. stores.

So what does a Project Impact store look like? One recent weekday afternoon I toured a brand new, 210,000-sq.-ft. Walmart in West Deptford, N.J., with Lance De La Rosa, the company's Northeast general manager. "We've listened to our customers, and they want an easier shopping experience," says De La Rosa. "We've brightened up the stores and opened things up to make it more navigable." One of the most noticeable changes is that Project Impact stores reshape Action Alley, the aisles where promotional items were pulled off the shelves and prominently displayed for shoppers. Those stacks both crowded the aisles and cut off sight lines. Now, the aisles are all clear, and you can see most sections of the store from any vantage point. For example, standing on the corner intersection of the auto-care and crafts areas, you can look straight ahead and see where shoes, pet care, groceries, the pharmacy and other areas are located. And the discount price tags are still at eye level, so the value message doesn't get lost. (See how Americans are spending now.)

"They are like roads," De La Rosa says proudly. "And look around, the customers are using them. We've already gotten feedback about the wider, more breathable aisles. Our shoppers love them."

The layout is also smarter. "You can kind of guess where everything is going to be," says Sharon Tilotta, 73, a shopper in the West Deptford store. The pharmacy, pet foods, cosmetics and health and beauty sections are now adjacent to the groceries. In the past, groceries and these other sections were often at opposite ends of the store, which made it more difficult for someone looking to pick up some quick consumables to get in and out of Walmart. "Under Project Impact, Walmart is providing more of a full supermarket experience within its walls," says Feldman. "The biggest complaint against them has always been that it takes a long time to get through everything. This definitely improves efficiency." De La Rosa also points out the party-supply section. Favors, wedding decorations, cards and scrapbooks are all in one area. "In the past, these products would be in three different places," he says.

And although Walmart won't admit to targeting specific competitors — "We're just listening to what our customers want," De La Rosa says — it's clear that, under Project Impact, Walmart will make major plays in winnable categories. The pharmacy, for example, has been pulled into the middle of the store, and its $4-prescriptions program has generated healthy buzz. With Circuit City out of business, the electronics section has been beefed up. Walmart is also expanding its presence in crafts. Sales at Michael's Stores, the country's largest specialty arts-and-crafts retailers, have sagged, and Walmart sees an opportunity. Stores are chock-full of scrapbooking material, baskets and yarns. "Look, they're selling the stuff that accounts for 80% of Michael's business, at 20% of the space," says Flickinger. "It's very hard for any company to compete with that." (Read "That Viral Thing: People of Walmart.")

Apparel, one of Target's traditional strengths, gets a prominent position at the center. The color palettes of the shirts and dresses are brighter and more appealing than they've been in the past. "Walmart has figured out fashion for the first time in 47 years," Flickinger says. "They've gone from a D to an A-minus." Briefs and underwear have been shuttled to the back. "That's a smart move," Flickinger says. "People know to come to Walmart for the commodity clothing. Now, they have to walk past the higher margin, more fashionable merchandise to get what they need."

Of course, Project Impact isn't perfect. You'd think that if Walmart was going to open a massive new store with a cutting-edge layout, the company would at least put a sign up. In West Deptford, it's easy to miss the entrance to the Walmart — which is buried in the back of a parking lot — while driving along a main thoroughfare. And of course, customers will always nitpick. One elderly shopper complained about a shortage of benches in the store (she needed a rest). Another had a more esoteric, yet legitimate, gripe. "Their meat is leaky," says Jeff Winter, 30, a West Deptford shopper. "And instead of giving you a wet wipe to clean it off, they give you a dry towel. How's that going to prevent E. coli or whatever?" (See which businesses are bucking the recession.)

What analysts really want to see from Project Impact, however, is a faster pace of implementation. "The biggest hurdle facing Walmart is the speed with which they can roll this out," says Feldman. As more Project Impact stores pop up, the existing stores appear worse by comparison. For example, while the merchandise at the Project Impact store outside of Philadelphia really speaks to that particular market — there's tons of Eagles and Phillies gear — at one regular discount store outside New York City, Minnesota Twins and Seattle Mariners pajama pants wasted away on the racks. There were plenty of associates staffing the electronics section at the Project Impact store; at the discount store, five frustrated shoppers waited in line for help from a customer-service rep. Soon, it was closer to 10.

What about the friendly service? In West Deptford, the associates were sunny and bright. At the New York–area discount store, not so much. "You'll notice we've been in the store for two hours, and no one has even said hello to us," Flickinger says after he and I toured that store. He's right, we weren't feeling any love. But if Project Impact keeps picking up momentum, many more Walmart salespeople, and shareholders, should be smiling.