SPECIAL REPORT

Wal-Mart Pricing Study Round VIII ’s Window To The Future

Produce pricing at A&P’s and give compelling reasons to think there might be a way to beat Wal-Mart.

BY JIM PREVOR

rom the Atlantic to the Pacific, PRODUCE BUSINESS has criss - doing 80 percent of the business in the United States crossed the nation searching for the retailer who has and had four times as many stores as Wal-Mart, albeit much smaller found the way to present real competition to the phe - stores. So perhaps somewhere in the corporate DNA of the Great nomenally successful Wal-Mart Supercenter. Atlantic and Pacific Tea Company is a memory of how the mighty In this, the eighth region covered by the PRODUCE BUSI - can fall, a memory missing from other chains that come very close to FNESS Wal-Mart Pricing Report, we head into Detroit where we may giving up on competing with Wal-Mart on the basis of price. have found not one, but two real competitors to the Wal-Mart Of course, a 17 percent savings over Wal-Mart, a chain that proud - Supercenter concept. ly banners “Always the lowest prices. Always.” on its stores, cannot For the first time in the study, a retailer has beaten Wal-Mart in have gone unnoticed in Bentonville. produce pricing and done so substantially. A&P’s Food Basics con - Which brings us to a slight asterisk we may need to place next to cept came in a little more than 17 percent less expensive than Wal- the Food Basics win: it is not 100 percent clear that Food Basics is a Mart on our market basket study. Up till now, no non-Wal-Mart supermarket. retailer has beaten Wal-Mart’s Supercenter concept by even a penny. We can almost surely say that executives at Wal-Mart have not To students of retailing, it is interesting, maybe even ironic, that classified it as such, because they are treating Food Basics as a differ - A&P should be the one to come up with the concept that might ent class of trade, more like a warehouse club than a supermarket. beat Wal-Mart on price. In market after market, we have seen con - Otherwise Wal-Mart executives may have felt a need to respond. ventional supermarket chains basically throw in the towel on It is also possible that since the banner is owned by A&P and price. They compete with Wal-Mart, of course, but either they do it not Safeway, or — chains with which Wal-Mart by going upscale — thus ceding the great middle class to Wal-Mart is involved in a great national battle — the store’s pricing may have — or they focus on maintaining market share by beating weaker led to less concern in Bentonville. competitors and simply say their prayers that location, reputation, Finally, the Food Basics concept is still under development and etc., will allow them to stay in business in the face of competition its profitability is not yet determined. Perhaps Wal-Mart doesn’t from Wal-Mart. feel a need to compete against experimental concepts. Other than in , where the competitive situation was Whatever the reason that Wal-Mart executives have been con - keeping prices low [See table on page 23], no supermarket anywhere tent to let this price differential exist, the fact that it is the first one was able to offer a price-oriented value package to its customers that we’ve been able to find in the country and that the difference is would beat or even approximate the Wal-Mart proposition. substantial means that the concept deserves close scrutiny.

THE ‘GREAT’ IRONY SUPERMARKET OR Of course, the last food retailer to stand astride America the way WAREHOUSE CLUB? Wal-Mart does today was A&P. There was a time when A&P was The reason we raise the question as to whether Food Basics is a

REPRINTED FROM PRODUCE BUSINESS • JANUARY 2005 / PAGE 48 Wal-Mart Supercenter vs 4 Chains Price Comparison - Detroit, MI Prices Available to the General Public

Produce Item Wal-Mart A&P’s Food % Over Farmer % Over Kroger % Over Meijer % Over Supercenter Basics Wal-Mart Jack Wal-Mart Wal-Mart Wal-Mart Asparagus $2.93 $2.98 1.71% $2.99 2.05% $3.49 19.11% $2.99 2.05% Avocados, Medium $1.14 $0.88 -22.81% $1.71 50.00% $1.49 30.70% $1.50 31.58% Bananas - Yellow $0.38 $0.39 2.63% $0.39 2.63% $0.49 28.95% $0.49 28.95% Beans, Green (lb) $1.94 $1.98 2.06% $1.99 2.58% $1.99 2.58% $0.88 -54.64% Bok Choy $0.78 $0.58 -25.64% $0.99 26.92% $1.99 155.13% $0.89 14.10% Broccoli (Bunch) $1.69 $0.73 -57.05% $1.79 5.92% $1.99 17.75% $1.99 17.75% Cabbage - Green (lb) $0.48 $0.47 -2.08% $0.59 22.92% $0.59 22.92% $0.49 2.08% Cabbage - Red (lb) $0.64 $0.48 -25.00% $0.69 7.81% $0.99 54.69% $0.69 7.81% Cantaloupe - Whole $1.88 $1.28 -31.91% $2.99 59.04% $2.99 59.04% $2.00 6.38% Carrots - Whole 1# Bag $0.62 $0.39 -37.10% $0.99 59.68% $0.99 59.68% $0.75 20.16% Cauliflower (Each) $2.14 $1.98 -7.48% $2.99 39.72% $3.49 63.08% $2.00 -6.54% Celery $1.24 $0.99 -20.16% $1.49 20.16% $1.49 20.16% $1.29 4.03% Coleslaw - 1# Bag $1.38 $1.18 -14.49% $1.99 44.20% $1.99 44.20% $1.49 7.97% Cucumbers - Regular $0.68 $0.33 -51.96% $0.79 16.18% $0.99 45.59% $0.69 1.47% Eggplant $1.89 $1.48 -21.69% $1.99 5.29% $1.29 -31.75% $0.99 -47.62% Garlic (lb) $1.97 $1.48 -24.87% $1.99 1.02% $1.99 1.18% $1.65 -16.24% Grapefruit - Red $0.98 $0.44 -55.10% $0.99 1.02% $1.99 103.06% $1.32 34.69% Green Onions $0.33 $0.39 18.18% $0.50 51.52% $0.50 50.00% $0.50 51.52% Kiwi $0.33 $0.25 -25.76% $0.40 21.21% $0.40 21.21% $0.33 1.01% Lemons $0.36 $0.33 -9.26% $0.50 38.89% $0.50 38.89% $0.50 38.89% Lettuce - Green Leaf $1.24 $1.48 19.35% $1.89 52.42% $1.99 60.48% $1.29 4.03% Lettuce - Iceberg $1.18 $0.99 -16.10% $0.97 -17.80% $0.99 -16.10% $0.99 -16.10% Lettuce - Red Leaf $1.24 $1.48 19.35% $1.89 52.42% $1.99 60.48% $1.29 4.03% Lettuce - Romaine $1.24 $0.98 -20.97% $1.99 60.48% $1.99 60.48% $1.29 4.03% Limes - Bulk $0.28 $0.10 -65.00% $0.40 42.86% $0.33 17.86% $0.20 -28.57% Pears - Bartlett $1.17 $1.29 10.26% $1.49 27.35% $1.99 70.09% $1.29 10.26% Pears - Bosc $1.17 $1.39 18.80% $1.69 44.44% $1.99 70.09% $1.29 10.26% Peppers - Hothouse Yellow $2.67 $2.48 -7.12% $3.99 49.44% $3.99 49.44% $3.49 30.71% Peppers - Regular Green $1.41 $1.98 40.43% $1.79 26.95% $1.79 26.95% $1.89 34.04% Pineapple - Del Monte $3.97 $3.49 -12.09% $4.99 25.69% $4.99 25.69% $3.99 0.50% Potatoes - Red Bulk $0.68 $0.56 -17.65% $0.99 45.59% $0.99 45.59% $0.89 30.88% Potators - Russet 5# Bag $2.26 $1.08 -52.21% $2.97 31.42% $2.79 23.45% $2.49 10.18% Salad - Caesar Bag $2.53 $1.98 -21.74% $2.99 18.18% $2.99 18.18% $2.89 14.23% Salad - Garden Bag $1.68 $1.18 -29.76% $1.97 17.26% $1.99 18.45% $1.89 12.50% s e

c Squash - Zucchini $1.64 $0.98 -40.24% $2.99 82.32% $1.99 21.34% $1.49 -9.15% i v r e Tangerines - Bulk $0.64 $0.20 -69.38% $0.50 -21.88% $0.50 -21.88% $0.40 -37.50% S g

n Tomatoes - Grape $3.68 $2.58 -29.89% $2.99 -18.75% $2.99 -18.75% $3.49 -5.16% i t e k

r Tomatoes - Hothouse $1.93 $1.68 -12.95% $2.99 54.92% $2.49 29.02% $1.99 3.11% a

M Tomatoes - On the Vine $2.84 $2.48 -12.68% $2.99 5.28% $2.49 -12.32% $2.69 -5.28% . S .

U Tomatoes - Plum/Roma $1.74 $1.78 2.30% $1.99 14.37% $2.29 31.61% $1.99 14.37% : e c

r Yams $0.88 $0.46 -47.73% $1.00 13.64% $1.29 46.59% $0.89 1.14% u o

S TOTALS $59.85 $49.61 -17.11% $74.21 23.99% $76.47 27.77% $61.54 2.82%

supermarket at all is that it promotes itself deli, all case-ready meat, no in-store bak - to stock only the fastest moving items, so as offering warehouse club prices without ery, etc. Everything is geared toward keep - one won’t find the extensive range of items the larger sizes most warehouse clubs fea - ing expense out of the box so that the low - that most now carry. ture. It does this through various means, est can be offered. Although the quality of the produce seems including not giving away checkout bags In produce, specifically, all but about 70 to meet all conventional supermarket stan - but instead urging people to bring their items are regular A&P-stocked items. But dards, there are significant differences in own or offering to sell them bags. the 70 items specially bought for Food the merchandising and procurement model The stores also feature a more limited Basics make a big difference, as does the from a conventional A&P banner — differ - selection — 20,000 SKUs as opposed to decision of which of the regular A&P items ences all designed to make a low price pre - 45,000 in a conventional store. should be displayed. sentation of good quality possible. The stores are low service — no service Like a warehouse club, Food Basics tries To begin with, Food Basics operates

REPRINTED FROM PRODUCE BUSINESS • JANUARY 2005 / PAGE 49 under a variable-size philosophy. Unlike Ironically, the very fact that this day-to- largest retailers and the owner of the majori - most conventional supermarket chains that day buying may have fallen out of favor may ty of A&P shares. will insist on presenting the consumer a set make it more effective for those who do It is not clear that Wal-Mart would even size of each fruit, at Food Basics the charge practice it today. After all, as more and more be interested. is to identify the “sweet spot” in . chains are committed on various programs, Still, Food Basics is a significant concept They look for the size where the crop is those who have surplus product have fewer because it competes in the marketplace peaking and where the best values are. and fewer potential homes for the produce. without ceding the price competition to Wal- It should be noted that this approach As such, the supply/ demand situation Mart. It may point the way, along with made it difficult for our comparison study to should allow Food Basics to get plenty of and Sav-a-Lot, perhaps even the dollar include as broad a range of items as we offers of produce at lower and lower prices. stores, to a developing new class of trade might like. Our approach in these Pricing Finally, terminal market wholesalers are that is prepared to wrestle Wal-Mart on price. Reports is to identify comparable items at reporting that with Food Basics, they feel all the stores in a given market. If it hap - they have a shot they don’t have with most SQUEEZING WAL-MART pens to be that one store in the market is chains. If the wholesalers are long on good In an age when Wal-Mart is so powerful out of coconuts on the day we survey, we quality product, Food Basics is interested in and so seemingly unstoppable, is it possible simply remove coconuts from the price a transaction. Most chains have closed their to see the marketplace developing where comparison. doors to the same wholesalers except for fill- Wal-Mart gets squeezed between low-price In Detroit, we found we had to remove ins or low-volume items. formats and supermarkets that have gone more items than usual, principally because Although in a sense this opportunistic upscale? Food Basics didn’t offer a comparable item. buying strategy — buy in the free market However the future shakes out for Food For example, we usually include large red without obligation to particular brands or Basics, Wal-Mart’s more immediate problem apples in our survey. Food Basics’ offering, suppliers and use all sources of products in Detroit may be Meijer. Meijer was doing on the day we were there, was too small to including terminal markets — may ultimate - super centers when super centers weren’t be directly comparable and so we excluded ly limit the scalability of the Food Basics cool, and although they priced higher than that product from the study. concept. That is probably not a real concern Wal-Mart in this study, it was a nominal to A&P. amount — just 2.82 percent. This is close DAY-TO-DAY BUYING It is doubtful anyone in Montvale, NJ, is enough that other competitive factors come Limiting selection to high volume even thinking of “beating” Wal-Mart as this into play. movers and buying at the peak size of the concept is developed. More likely, they are One of the great mysteries of late 20th crop is only part of the Food Basics formula looking for a good concept for a 25,000- century retailing is why major supermarket for produce success. Food Basics is not com - square-foot box. And, of course, A&P is a chains never developed their own general mitted to the brand-driven programs that much smaller and more troubled chain than merchandise/food combo superstores. Their most conventional supermarkets are tied Wal-Mart. failure to do so means that, for example, into. In this sense, the procurement model, If you told the A&P executives that their even at this late date Wal-Mart can open which literally involves buying at the very concept was limited and they could only Supercenters in California, and Safeway has best price possible each day, can be viewed have 500 profitable Food Basics stores, they no effective response in its arsenal to woo as a throwback to the Wild West days of pro - would throw a party both in New Jersey and shoppers who prefer the Supercenter model. duce buying before contracts and other in Germany at the headquarters of the Ten - As a result, with the exception of a limit - long-term arrangements came into vogue. glemann Group, which is one of the world’s ed number of Target Supercenters, Wal-Mart rarely encounters straight-up competition against a similar concept. One place Wal- How They Stack Up Against Super Wal-Mart Mart does so is when they bump up against Meijer. % over % over % over Wal-Mart may still win; perhaps con - Region Store Wal-Mart Store Wal-Mart Store Wal-Mart sumers will prefer Wal-Mart stores even if prices are identical to Meijer’s. Or, perhaps, Meijer has cut prices to compete with Wal- Connecticut Super Stop & Shop ...... 23% Shaws ...... 34% ...... 36% Mart but doesn’t have the cost structure to sustain these price levels and make an ade - Salt Lake City Harmon’s ...... 2% Smith’s ...... 6% Albertson’s ...... 12% quate return on capital. Anything is possible. Still, our study found a produce pricing South Florida Super Target ...... 22% ...... 31% Winn-Dixie ...... 52% difference of 22 percent in favor of Wal-Mart last time we bumped into a Target Super - Dallas, Texas Albertson’s ...... 23% Brookshires ...... 7% Kroger ...... 19% center down in our South Florida report Neighborhood Market . . . . . -1.2% Tom Thumb ...... 27% (Please see PRODUCE BUSINESS February 2003.) Wal-Mart would doubtless feel more comfort - Portland, OR Albertson’s ...... 30% ...... 22% ...... 27% able if it were showing that kind of price dif - Safeway ...... 37% ferential against Meijer. We also surveyed A&P’s conventional Farmer Jack concept and a Kroger store, Phoenix, AZ Albetson’s ...... 22% Bashas’ ...... 25% Fry’s ...... 15% and found both out of the price competition Safeway ...... 17% game with Wal-Mart. Farmer Jack came in at 23.99 percent over Wal-Mart and Kroger Palm Springs, CA Albertson’s ...... 19% Jensen’s ...... 60% ...... 16% was a stunning 27.77 percent over Wal-Mart. ...... 20% Still, the combination of A&P’s Food Basics and Meijer makes Detroit a particu - Detroit, MI A&P’s Food Basics ...... -17% Farmer Jack ...... 24% Kroger ...... 28% larly challenging market for Wal-Mart and Meijer ...... 3% a window on how the trade may develop. pb

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