SPECIAL REPORT Wal-Mart Pricing study round viii Detroit’s Window To The Future Produce pricing at A&P’s Food Basics and Meijer give compelling reasons to think there might be a way to beat Wal-Mart. BYJIMPREVOR rom the Atlantic to the Pacific, PRODUCE BUSINESS has criss- dle class to Wal-Mart — or they focus on maintaining market crossed the nation searching for the retailer who has share by beating weaker competitors and simply say their found the way to present real competition to the phe- prayers that location, reputation, etc., will allow them to stay in nomenally successful Wal-Mart Supercenter. business in the face of competition from Wal-Mart. In this, the eighth region covered by the PRODUCE Other than in Salt Lake City, where the competitive situa- FBUSINESS Wal-Mart Pricing Report, we head into Detroit where tion was keeping prices low [See table on page 23], no super- we may have found not one, but two real competitors to the market anywhere was able to offer a price-oriented value pack- Wal-Mart Supercenter concept. age to its customers that would beat or even approximate the For the first time in the study, a retailer has beaten Wal-Mart Wal-Mart proposition. in produce pricing and done so substantially. A&P’s Food Basics concept came in a little more than 17 percent less expensive THE ‘GREAT’ IRONY than Wal-Mart on our market basket study. Up till now, no non- Of course, the last food retailer to stand astride America the Wal-Mart retailer has beaten Wal-Mart’s Supercenter concept by way Wal-Mart does today was A&P. There was a time when even a penny. A&P was doing 80 percent of the supermarket business in the To students of retailing, it is interesting, maybe even ironic, United States and had four times as many stores as Wal-Mart, that A&P should be the one to come up with the concept that albeit much smaller stores. So perhaps somewhere in the cor- might beat Wal-Mart on price. In market after market, we have porate DNA of the Great Atlantic and Pacific Tea Company is a seen conventional supermarket chains basically throw in the memory of how the mighty can fall, a memory missing from towel on price. They compete with Wal-Mart, of course, but other chains that come very close to giving up on competing either they do it by going upscale — thus ceding the great mid- with Wal-Mart on the basis of price. 18 PRODUCE BUSINESS JANUARY 2005 Kroger or Albertsons — chains with designed to make a low price presenta- which Wal-Mart is involved in a great tion of good quality possible. national battle — the store’s pricing may To begin with, Food Basics operates have led to less concern in Bentonville. under a variable-size philosophy. Unlike Finally, the Food Basics concept is still most conventional supermarket chains under development and its profitability is that will insist on presenting the con- not yet determined. Perhaps Wal-Mart sumer a set size of each fruit, at Food doesn’t feel a need to compete against Basics the charge is to identify the “sweet experimental concepts. spot” in the market. They look for the Whatever the reason that Wal-Mart executives have been content to let this- price differ ential exist, the fact that it is the first one weve Of course, a 17 percent savings over Wal-Mart, a chain that proudly banners been able to find in the country and -that the differ “Always the lowest prices. Always.” on its stores, cannot have gone unnoticed in ence is Bentonville. Which brings us to a slight asterisk we substantial means that the concept may need to place next to the Food deserves close scrutiny. Basics win: it is not 100 percent clear that Food Basics is a supermarket. We can almost surely say that execu- tives at Wal-Mart have not classified it as such, because they are treating Food Whatever the reason that Wal-Mart size where the crop is peaking and where Basics as a different class of trade, more executives have been content to let this the best values are. like a warehouse club than a supermar- price differential exist, the fact that it is It should be noted that this approach ket. Otherwise Wal-Mart executives may the first one we’ve been able to find in made it difficult for our comparison have felt a need to respond. the country and that the difference is study to include as broad a range of It is also possible that since the ban- substantial means that the concept items as we might like. Our approach in ner is owned by A&P and not Safeway, deserves close scrutiny. these Pricing Reports is to identify com- parable items at all the stores in a given SUPERMARKETOR market. If it happens to be that one store WAREHOUSE CLUB? in the market is out of coconuts on the To get ahead in The reason we raise the question as to day we survey, we simply remove whether Food Basics is a supermarket at coconuts from the price comparison. the produce business,all is that it promotes itself as offering In Detroit, we found we had to warehouse club prices without the larger remove more items than usual, princi- you need to sizes most warehouse clubs feature. It pally because Food Basics didn’t offer a does this through various means, includ- comparable item. For example, we usual- stay aheadof ing not giving away checkout bags but ly include large red apples in our survey. instead urging people to bring their own Food Basics’ offering, on the day we were the produce busi- or offering to sell them bags. there, was too small to be directly compa- The stores also feature a more limited rable and so we excluded that product selection — 20,000 SKUs as opposed to from the study. 45,000 in a conventional store. The stores are low service — no ser- DAY-TO-DAY BUYING vice deli, all case-ready meat, no in-store Limiting selection to high volume bakery, etc. Everything is geared toward movers and buying at the peak size of keeping expense out of the box so that the crop is only part of the Food Basics the lowest retails can be offered. formula for produce success. Food Basics In produce, specifically, all but about is not committed to the brand-driven pro- Initiating Industry Improvement70 items are regular A&P-stocked items. grams that most conventional supermar- But the 70 items specially bought for kets are tied into. In this sense, the pro- Food Basics make a big difference, as curement model, which literally involves does the decision of which of the regular buying at the very best price possible A&P items should be displayed. each day, can be viewed as a throwback For subscription Like a warehouse club, Food Basics to the Wild West days of produce buying tries to stock only the fastest moving before contracts and other long-term information, items, so one won’t find the extensive arrangements came into vogue. please use range of items that most supermarkets Ironically, the very fact that this day- now carry. Although the quality of the to-day buying may have fallen out of the bind-in cardproduce seems to meet all conventional favor may make it more effective for supermarket standards, there are signifi- those who do practice it today. After all, in this issue. cant differences in the merchandising as more and more chains are committed and procurement model from a conven- on various programs, those who have tional A&P banner — differences all surplus product have fewer and fewer 20 PRODUCE BUSINESS JANUARY 2005 Wal-Mart Supercenter vs 4 Chains Price Comparison - Detroit, MI Prices Available to the General Public Produce Item Wal-Mart A&Ps 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