February, 2003

Walmart Pricing Study

Wal-Mart Prices Look Sunny In South Florida

This series of price comparisons was kicked off with a visit to Connecticut, where the northeast rollout of a Wal-Mart Supercenter crushed supermarket competitors with regards to prices — ranging from 23 percent at Super Stop & Shop to 36 percent at Big Y over Wal-Mart on fresh produce.

When we moved to the Salt Lake City area in Round II of our series, we found that local retailers were far more competitive. Wal-Mart still won, but Harmon’s was only 2 percent over Wal-Mart’s prices, Smith’s just 6 percent and Albertson’s 12 percent over Wal-Mart’s pricing level.

With this piece, we roll down to South Florida and the far southeast end of Wal-Mart’s ever-growing national footprint. Our findings: the competitive situation in Salt Lake City seems to be an aberration. Like the northeast, Wal-Mart in South Florida is not merely the lowest priced, but is so low-priced as to call into question the long-term viability of competitors.

It would be damming enough if we simply had found that Publix is content to price its produce at 31 percent over Wal-Mart, striking enough if we had only found that Winn-Dixie was content to price its department at 52 percent over Wal-Mart. This time, however, we added a different competitor into the mix: A Super Target store. This concept adds a supermarket onto a conventional Target discount store, much as the Wal-Mart Supercenter marries a supermarket to a Wal-Mart general merchandise store.

Going into the study, we anticipated that the ability of Wal-Mart’s Supercenters to outprice competitors in market after market was making a statement about the Supercenter format. Perhaps the format is particularly efficient and allows operators to sell at good prices and still make a profit. Or, perhaps, as some have theorized, the real purpose of food in general and produce in particular is to increase the frequency of customer visits to the general merchandise store, and thus operators of supercenters can afford to work on tight margins in produce because the high margins will be made selling general merchandise to the same customer.

But even the Target supercenter, though beating out both Publix and Winn-Dixie, was really not competitive with Wal-Mart, pricing out at 22 percent over the Wal-Mart produce basket. This 22 percent gap on identical formats raises the possibility that the competitive positioning is not a matter of format, but a matter of company capability and philosophy. Put another way, it is not that supercenters are going to beat everyone; it is that Wal-Mart will.

This may account for the mystery as to why others, including major supermarket chains, haven’t rushed to roll out their own supercenters.    

On Ad


Theoretically it doesn’t matter what competitors might do on ad. Wal-Mart has a policy that it will not be undersold, and any customer who brings in a competitor’s ad will be able to purchase the item at the same price at Wal-Mart. But most people don’t bother, and the policy is not well publicized, particularly in the food area.

Indeed in fresh produce, such a policy could cause real problems —  when an item goes on ad, sales typically spike. If a lot of people exercised this Wal-Mart option, there is a real question as to whether the store could be adequately stocked.

So for the sake of our study, we pay attention to items actually promoted as being on special. From the beginning, we have theorized that although supermarkets might lose out to Wal-Mart overall when it comes to pricing, they might decide to cream Wal-Mart on advertised specials. This might just create enough consumer confusion that it would muddy the Wal-Mart image as the low-price leader.

But in Southeastern Florida, at least, the effort is a tough one for Wal-Mart’s supermarket competitors. Winn-Dixie seems to have decided to simply ignore Wal-Mart. Winn-Dixie’s advertised specials were priced 53.21 percent over Wal-Mart’s prices for the identical items. In fact, Winn-Dixie’s specials were so uncompetitive that the comparison against Wal-Mart was slightly worse than the average for the whole department.

Publix drew to a virtual draw with Wal-Mart on its advertised specials, coming in just .84 percent over Wal-Mart’s prices. In addition, Publix pulled off a coup, being the first supermarket chain in our study to beat Wal-Mart on the price of bananas — Wal-Mart sold Chiquita at 44 cents a pound, and Publix clobbered them with Chiquita bananas on special at 33 cents a pound. In fact, because our study weights equally a pound of bananas and a pound of artichokes, in real life market baskets, where consumers are more apt to purchase bananas more heavily, Publix almost certainly beat Wal-Mart this week on advertised specials.

Super Target edges out Wal-Mart with a price level 5.14 percent below Wal-Mart’s on Target’s advertised specials. Though Target beat Wal-Mart, it was not that impressive a win, when one considers that back in Salt Lake City on advertised special’s Harmon’s beat Wal-Mart by 43.07 percent and Smith’s beat Wal-Mart by 22.39 percent.

Also the ad specials look less winning for Target when one considers that it won because it creamed Wal-Mart on cucumbers and small Granny Smith apples but lost on bananas, limes and red onions. The typical market basket would show Wal-Mart a winner.  pb 




Walmart Supercenter Price Comparison




Walmart Supercenter Price Comparison - South Florida