October, 2010

Walmart Pricing Study

Despite One Wal-Mart Supercenter In The Neighborhood, New Jersey & Long Island Retailers Stay The Course

With the first annual edition of The New York Produce Show And Conference coming around the bend, we bring the 21st rendition of the Produce Business Wal-Mart Pricing Report to the Big Apple. Well, not exactly. High rents and small footprints make most of Manhattan unsuitable for a supercenter, and union agitation has kept Wal-Mart out of the outer boroughs.

So we did the next best thing and moved to New Jersey. As with our last iteration of the Produce Business Wal-Mart Pricing Report, which focused on Philadelphia, Wal-Mart is not a major player in New Jersey. In the whole state, it only has five supercenters and most are in the southern half of the state.

In Northern New Jersey, there is only one supercenter — in North Bergen. Although Wal-Mart still can impact local marketing, the concentration is low enough that many chains will either react locally — just lowering prices in the store nearby the Wal-Mart Supercenter — or they may ignore the supercenter altogether, simply closing up or not opening stores in that immediate vicinity if they can’t make a profit.

Of course, great oaks from little acorns grow, and there are long-term risks to giving a competitor such as Wal-Mart a wide berth.

 

 

New Jersey Stores Put Up Good Fight

The New Jersey stores we selected — a Food Basics, a Pathmark and a ShopRite — are all in proximity to the Wal-Mart Supercenter in North Bergen. However this time, as long as we were in the giant New York Metro market, we thought we would add a little twist. We would go to the opposite side of Manhattan, out to Long Island, where there are no Wal-Mart Supercenters.

To get from Long Island to the North Bergen Wal-Mart Supercenter requires crossing at least two bridges or tunnels. In a traffic-dense area, a Long Island family shopping regularly for food in North Jersey is unlikely to happen, except under extraordinary circumstances. So the two areas — North Jersey and Long Island — are non-competitive. Though both being part of New York Metro, both being suburban areas, they have a similar cost structure and similar clientele.

So we thought that it would be interesting to do our normal price comparison to Wal-Mart in New Jersey and then see how the prices in North Jersey compared to Long Island. Or to ask the question another way: Could we see that Wal-Mart in North Jersey was keeping pressure on North Jersey retailers to keep prices down on fresh produce by noting higher prices in Long Island where there is no Wal-Mart Supercenter?

 

 

In New Jersey, we compared the Wal-Mart Supercenter against one of A&P’s Food Basics banner stores; against Pathmark, traditionally seen as highly promotional in pricing (now owned by A&P as well); and a ShopRite store, the uber-powerful independent supplied by Wakefern.

Wal-Mart has almost always won the Produce Business Wal-Mart Pricing Report. Among traditional supermarkets, Fiesta Mart in Texas eeked out a 0.3 percent victory in Houston, and there was a fluke in Dallas, when, at a time when Wal-Mart was enforcing uniform pricing on its Supercenter and Neighborhood Market concepts, a Dallas Wal-Mart Neighborhood Market edged its sibling Supercenter and won by 1.2 percent due to some manager specials.

Other than those special situations, the Produce Business Wal-Mart Pricing Report has consistently shown that the soft underbelly of Wal-Mart’s low price image is that the supercenter is consistently beat by deep discounters. In St. Louis, Supervalu’s Save-a-lot concept beat out Wal-Mart by 12.76 percent, and Aldi trounced Wal-Mart by 25.03 percent. The last time we encountered A&P’s Food Basics concept was when A&P still had its operation in Detroit, and Food Basics beat out Wal-Mart by 17 percent.

Well, as Yogi Berra, once a player for the Minor League Newark Bears, is quoted as saying, “It’s déjà vu all over again,” as Food Basics again beats out Wal-Mart with an 11.11 percent edge.

ShopRite also lived up to its reputation as a hyper-competitive organization, coming in at just 8.26 percent over Wal-Mart. With its Price Plus loyalty card applied to eight items in its comparative market basket, ShopRite comes down to 7.38 percent above Wal-Mart. In general, consumers tolerate price differentials of less than 10 percent. Differences in location, convenience, service and product often justify those differentials. With only one Wal-Mart Supercenter in the area, it won’t matter — for now — but differentials up at the 20 percent area open big windows of opportunity for Wal-Mart.

 

 

Since Pathmark was acquired by A&P, one of the open questions was whether it would maintain Pathmark’s reputation for opportunistic buying and merchandising. Craig Carlson, who was Pathmark’s vice president of produce and floral merchandising, is now at Wal-Mart, but he was well known for running an organization that would buy many a sweet deal off the terminal markets in Hunts Point and Philly — and then blast it through the system. The markets loved the business, and consumers loved the bargains. Now Pathmark is coming in at 15.19 percent over Wal-Mart, and with its PAC Card loyalty card applied to eight items in its comparative market basket, the differential breaks the 10 percent barrier and dips to 9.85 percent over Wal-Mart. So Pathmark is in range, but just, and this pricing level may lead to changes in consumers’ perceptions of Pathmark as a store where one finds great bargains.

Warning Sign For Wal-Mart

So in New Jersey, we can say that the tough independent, ShopRite, is going to give Wal-Mart a run for its money. This is a warning sign for Wal-Mart. As supercenters rolled out in most of the country, Wal-Mart seized market share heavily from independents that did not have the capital, the management team or the supply structure to compete.

Yet ShopRite stores are another animal. It is not uncommon for them to do more than 10 times the business of a rural independent store, and Wakefern, as the largest retailer-owned cooperative in the United States, has a motto of “Helping Small Business Succeed in a

Big Business World.” Together, ShopRite and Wakefern will give Wal-Mart a fight in New Jersey that it never experienced with independents in most of the country.

Pathmark is still a bit of a question mark, but it seems to be utilizing its loyalty card program in a highly aggressive way. If it continues down that path, it may find a way to compete with Wal-Mart for regular shoppers even if tourists find it a little on the high side.

 

 

It is also true that Food Basics and other limited-assortment or deep-discount stores, such as Aldi and Save-a-Lot, are in many ways putting Wal-Mart in great peril. The most powerful asset of Wal-Mart is the space it owns in the minds of consumers — that Wal-Mart always offers the lowest prices. With over 1,000 Aldi stores in the United States, Supervalu focusing on Save-a-Lot for expansion, and other deep-discount concepts like Food Basics around, Wal-Mart is on the verge of losing that price identification. That is a priceless asset to lose.

No Wal-Mart Supercenters In Long Island

Of course, for the moment, because of its enormous size, it is still Wal-Mart that poses a great risk to the price image of supermarkets, and our jaunt over to Long Island, where Wal-Mart is not a player, gives us pause as to the enormous influence of Wal-Mart on a market where it operates even just one single store.

In Long Island, we visited Foodtown, Key Food, King Kullen, Stop & Shop and Waldbaum’s, all around the Valley Stream area. Key Food was the most competitive, coming in with prices 15.57 percent over Wal-Mart, followed by King Kullen at 17.46 percent over Wal-Mart, then Stop & Shop at 18.15 percent over Wal-Mart; then it was Foodtown at 25.13 percent over Wal-Mart, with Waldbaum’s coming in at an astonishing 35.21 percent over Wal-Mart.

Of the 51 items in the overall comparative market basket in Long Island, 16 items were affected by one chain or another’s loyalty card program. King Kullen was the only chain that did not offer a loyalty card, but the rest of the chains did. Interestingly enough, it is another independent, Key Food, which claims the low price prize as Key Food’s Savings Club card enabled the store to get within 1.37 percent of Wal-Mart’s pricing.

Stop & Shop’s “My Stop & Shop” card got the store down to 13.93 percent and Foodtown’s “Foodtown Preferred Customer Club” card pushed prices down to 17.31 percent over Wal-Mart. Despite Waldbaum’s Bonus Savings Club card, the store still remained in the stratosphere at 33.06 percent above Wal-Mart.

 

 

Of course, Waldbaum’s has traditionally catered to a different customer, focused heavily on a Jewish clientele, and it sells a different product in a different environment. Its executives may judge that this clientele won’t be easily wooed to discount operations. They may be right.

All in all, the Long Island stores seem focused on utilizing their loyalty programs as the tool to compete, rather than their walk-in price. Waldbaum’s aside, once loyalty card discounts are included, the Long Island stores are mostly pretty competitive.

We take this as a sign that the one northern New Jersey supercenter hasn’t really broken through to Long Island stores. When Wal-Mart built supercenters in Texas and similar places, competitors knew that land was available, zoning was friendly and, although some retailers sat on their hands, many retailers acted to either cut costs and prices or to get out of Wal-Mart’s way by moving upscale. They expected a deluge of Wal-Mart Supercenters.

In New Jersey, where land and labor are typically tight, unions are powerful and it won’t be easy to just roll out supercenters, other retailers have watched and engaged but not thrown out working business models to compete with a concept that only has one store in the area.

In any case, this iteration of the Produce Business Wal-Mart Pricing Study shows some tough competitors ahead for Wal-Mart in New Jersey. Retailers on Long Island have plenty of competition right now, and so are not so worried about competitors they do not have.

With the recession, Wal-Mart is finding a little more receptivity on opening stores in places that have traditionally limited Wal-Mart’s growth. It is hard for a construction union to oppose any new jobs when its members are unemployed. So New York metro retailers would be wise to not assume Wal-Mart just can’t expand.

Of course, with deep discount operations, supermarkets don’t have to wait for Wal-Mart to find tough price competition in the neighborhood.