Meet Me In St Louis
Wal-Mart does its usual bulldozer when it comes to pricing against two strong independent supermarket chains. But it stumbles when it meets two limited assortment concepts. Is this picture of one possible future?
As the Produce Business Wal-Mart Pricing Report rolls into its ninth city, things have settled into a pattern: Wal-Mart creams everybody, everywhere — at least when it comes to price.
Actually that is not quite true. As we have worked our way back and forth across the country, we have found that, on occasion, local market conditions can cause supermarkets to compete on price (Salt Lake City) and that alternative concepts can be competitive with Wal-Mart (see Meijer in Detroit), and that sometimes, if you limit the basket sufficiently, some concepts even beat Wal-Mart (see A&P’s Food Basics in Detroit).
In this month’s report, we roll into St. Louis where we picked two local independents, Dierbergs and Schnucks, to evaluate how local chains are pricing vis a vis the Wal-Mart Supercenter. The comeuppance is that although Wal-Mart still wins handily, with Dierbergs coming in almost 22 percent over Wal-Mart and Schnucks coming in at almost 14 percent over Wal-Mart, Schnucks at least is far more competitive than most supermarket chains.
Wal-Mart Supercenter vs 2 Chains
Price Comparison — St. Louis, MO
September 2005 – Prices Available To The General Public
| STORE NAME | WALMART | DIERBERGS | SCHNUKS | ||
|---|---|---|---|---|---|
| Produce Item | Price | Regular Price |
% Over Wal-Mart |
Regular Price |
% Over Wal-Mart |
| Apples – Granny Smith – Large | $1.32 | $1.00 | 20.45% | $1.59 | 20.45% |
| Apples – Red Delicious – Large | $1.06 | $1.59 | 50.00% | $1.59 | 50.00% |
| Asparagus | $2.93 | $2.99 | 2.05% | $2.99 | 2.05% |
| Avocados – Medium | $0.98 | $0.79 | -19.39% | $0.99 | 1.02% |
| Bananas – Yellow | $0.48 | $0.69 | 43.75% | $0.69 | 43.75% |
| Beans – Green | $1.88 | $1.99 | 5.85% | $1.99 | 5.85% |
| Blueberries – Clamshell | $2.44 | $2.99 | 22.54% | $2.99 | 22.54% |
| Broccoli | $1.21 | $1.99 | 64.01% | $1.49 | 22.80% |
| Cabbage – Green | $0.37 | $0.50 | 35.14% | $0.50 | 35.14% |
| Cabbage – Red | $0.64 | $0.69 | 7.81% | $0.69 | 7.81% |
| Cantaloupe – Whole | $1.99 | $2.99 | 50.25% | $2.00 | 0.50% |
| Carrots – Whole 1# Bag | $0.50 | $0.69 | 38.00% | $0.99 | 98.00% |
| Cauliflower | $2.14 | $2.99 | 39.72% | $2.29 | 7.01% |
| Celery | $0.88 | $1.29 | 46.59% | $1.29 | 46.59% |
| Coleslaw – 1# Bag | $1.38 | $1.59 | 15.22% | $1.59 | 15.22% |
| Cucumbers – Regular | $0.62 | $0.69 | 11.29% | $0.69 | 11.29% |
| Dips | $2.97 | $3.59 | 20.88% | $3.59 | 20.88% |
| Dressings | $2.68 | $3.59 | 33.96% | $3.59 | 33.96% |
| Eggplant | $1.16 | $0.99 | -14.66% | $0.99 | -14.66% |
| Garlic | $1.88 | $2.99 | 59.04% | $2.99 | 59.04% |
| Grapefruit – Red | $0.99 | $1.00 | 0.51% | $0.62 | -37.37% |
| Grapes – Green Seedless | $1.37 | $1.99 | 45.26% | $1.49 | 8.76% |
| Grapes – Red Seedless | $0.98 | $1.99 | 103.06% | $1.49 | 52.04% |
| Green Onions | $0.22 | $0.33 | 47.32% | $0.44 | 96.43% |
| Honeydew – Whole | $2.98 | $3.99 | 33.89% | $2.99 | 0.34% |
| Jar Fruit – Del Monte | $2.98 | $3.99 | 33.89% | $2.50 | 33.89% |
| Kiwi | $0.20 | $0.50 | 150.00% | $0.33 | 65.00% |
| Lemons | $0.25 | $0.33 | 32.00% | $0.25 | 0.00% |
| Lettuce – Boston | $1.28 | $1.66 | 29.56% | $1.39 | 8.83% |
| Lettuce – Green Leaf | $1.06 | $1.00 | 21.52% | $0.99 | -6.74% |
| Lettuce – Iceberg | $0.98 | $0.99 | 1.02% | $0.99 | 1.02% |
| Lettuce – Red Leaf | $1.06 | $1.00 | 21.70% | $0.99 | -6.60% |
| Lettuce – Romaine | $1.12 | $1.00 | 14.86% | $0.99 | -11.85% |
| Limes – Bulk | $0.24 | $0.25 | 4.17% | $0.50 | 108.33% |
| Nectarines – Regular | $0.97 | $1.48 | 52.58% | $1.48 | 52.58% |
| Onions – Red | $0.50 | $0.99 | 98.00% | $0.99 | 98.00% |
| Onions – Yellow | $0.73 | $0.99 | 35.62% | $0.99 | 35.62% |
| Onions – Yellow 3# Bag | $1.84 | $1.99 | 8.15% | $1.99 | 8.15% |
| Oranges – Navel Bulk | $0.38 | $0.50 | 31.58% | $0.50 | 31.58% |
| Oranges – Navel 4# Bag | $2.88 | $2.99 | 3.82% | $2.49 | -13.54% |
| Papayas | $1.28 | $1.50 | 17.19% | $1.29 | 0.78% |
| Peaches – Regular | $1.44 | $1.48 | 2.78% | $1.48 | 2.78% |
| Pears – Anjou | $1.06 | $1.00 | 21.70% | $1.29 | 21.70% |
| Pears – Bosc | $1.26 | $1.09 | 18.25% | $1.29 | 2.38% |
| Peas – Snow | $2.88 | $2.99 | 3.82% | $2.99 | 3.82% |
| Peppers – Regular Green | $0.68 | $0.79 | 16.18% | $0.69 | 1.47% |
| Peppers – Regular Red | $0.78 | $1.00 | 92.31% | $0.99 | 26.92% |
| Potatoes – Red Bulk | $0.68 | $0.99 | 45.59% | $0.99 | 45.59% |
| Potatoes – Russet 5# Bag | $1.50 | $2.49 | 66.00% | $2.49 | 66.00% |
| Potatoes – Russet 10# Bag | $2.98 | $3.99 | 33.89% | $3.99 | 33.89% |
| Potatoes – Russet Bulk | $0.68 | $0.99 | 45.59% | $0.50 | -26.47% |
| Radishes | $0.68 | $0.89 | 30.88% | $0.89 | 30.88% |
| Raspberries – Clamshell | $2.44 | $3.49 | 43.03% | $3.49 | 43.03% |
| Salad – Caesar – Bag | $2.56 | $3.49 | 36.33% | $3.49 | 36.33% |
| Salad – Garden – Bag 1# | $1.50 | $1.00 | 32.67% | $0.99 | 79.33% |
| Salad – Spring – Bag 5 oz | $2.64 | $3.19 | 20.83% | $3.19 | 20.83% |
| Strawberries – Clamshell 1# | $2.50 | $3.59 | 43.60% | $2.99 | 19.60% |
| Tomatoes – Cherry on the Vine | $2.84 | $2.99 | 5.28% | $2.99 | 5.28% |
| Tomatoes – Hothouse | $2.24 | $1.99 | -11.16% | $1.99 | -11.16% |
| Tomatoes – On the Vine | $2.84 | $2.99 | 5.28% | $2.50 | 5.28% |
| Tomatoes – Roma/Plum | $1.44 | $1.49 | 3.47% | $1.29 | -10.42% |
| MARKET BASKET | $89.43 | $108.90 | 21.77% | $101.77 | 13.74% |
In fact, when it comes to true supermarkets, with the exception of Salt Lake City, which had a virtual price war going on when we visited, just Brookshire’s in Dallas, which came in only seven percent above Wal-Mart, has come closer than Schnucks to matching Wal-Mart’s pricing.
It is interesting that one of the trends emerging through a review of the various regions we have visited is that regional chains, such as Schnucks, Brookshire’s and Harmon’s, often seem to fight harder price-wise against Wal-Mart than do the national chains. It is unclear why this is so. If you listen to the CEOs at major national supermarket chains, they claim it is only through obtaining critical mass that chains can reduce costs sufficiently to compete with Wal-Mart. But other factors may be involved. Perhaps a regional chain that doesn’t have the option of abandoning a specific market may be more focused on keeping customers.
It may also be that unions and local suppliers are more apt to rally around a regional, as their plight is more obvious than a big national company and so these regionals can compete more effectively on price.
It is also possible that these chains, often family-controlled, are prepared to accept returns on capital that the large publicly traded companies simply cannot. One can also imagine those regionals, content to stay in a defined geographic area, might find Wal-Mart pricing less aggressively against them than the big three supermarket chains — Safeway, Kroger and Albertson’s — which could use profits made in any one market to compete effectively in other markets.
Wal-Mart Supercenter vs 4 Chains
Price Comparison — St. Louis, MO
May 2005 – Prices Available To The General Public
| STORE NAME | WALMART | ALDI | DIERBERGS | ||
|---|---|---|---|---|---|
| Produce Item | Price | Regular Price |
% Over Wal-Mart |
Regular Price |
% Over Wal-Mart |
| Bananas – Yellow | $0.48 | $0.29 | -39.58% | $0.69 | 43.75% |
| Broccoli | $1.21 | $0.79 | -34.89% | $1.99 | 64.01% |
| Cabbage – Green | $0.37 | $0.79 | 113.51% | $0.50 | 35.14% |
| Cauliflower | $2.14 | $1.59 | -25.70% | $2.99 | 39.72% |
| Grapefruit – Red | $0.99 | $0.49 | -50.51% | $1.00 | 0.51% |
| Grapes – Green Seedless | $1.37 | $1.40 | 1.82% | $1.99 | 45.26% |
| Grapes – Red Seedless | $0.98 | $1.40 | 42.86% | $1.99 | 103.06% |
| Kiwi | $0.20 | $0.17 | -13.13% | $0.50 | 150.00% |
| Lettuce – Iceberg | $0.98 | $0.89 | -9.18% | $0.99 | 1.02% |
| Onions – Yellow 3# Bag | $1.84 | $0.79 | -57.07% | $1.99 | 8.15% |
| Oranges – Navel 4# Bag | $2.88 | $1.69 | -41.32% | $2.99 | 3.82% |
| Peaches – Regular | $1.44 | $0.79 | -45.14% | $1.48 | 2.78% |
| Peppers – Regular Green | $0.68 | $0.30 | -56.25% | $0.79 | 16.18% |
| Potatoes – Russet 5# Bag | $1.50 | $1.19 | -20.67% | $2.49 | 66.00% |
| Strawberries – Clamshell 1# | $2.50 | $2.19 | -12.40% | $3.59 | 43.60% |
| Tomatoes – Roma/Plum | $1.44 | $0.99 | -31.25% | $1.49 | 3.47% |
| MARKET BASKET | $21.00 | $15.75 | -25.03% | $27.46 | 30.72% |
| STORE NAME | WALMART | SAVE-A-LOT | SCHNUKS | ||
|---|---|---|---|---|---|
| Produce Item | Price | Regular Price |
% Over Wal-Mart |
Regular Price |
% Over Wal-Mart |
| Bananas – Yellow | $0.48 | $0.29 | -39.58% | $0.69 | 43.75% |
| Broccoli | $1.21 | $1.29 | 6.32% | $1.49 | 22.80% |
| Cabbage – Green | $0.37 | $0.19 | -48.65% | $0.50 | 35.14% |
| Cauliflower | $2.14 | $1.79 | -16.36% | $2.29 | 7.01% |
| Grapefruit – Red | $0.99 | $0.50 | -49.66% | $0.62 | -37.37% |
| Grapes – Green Seedless | $1.37 | $1.49 | 8.76% | $1.49 | 8.76% |
| Grapes – Red Seedless | $0.98 | $1.49 | 52.04% | $1.49 | 52.04% |
| Kiwi | $0.20 | $0.17 | -17.50% | $0.33 | 65.00% |
| Lettuce – Iceberg | $0.98 | $0.99 | 1.02% | $0.99 | 1.02% |
| Onions – Yellow 3# Bag | $1.84 | $0.69 | -62.50% | $1.99 | 8.15% |
| Oranges – Navel 4# Bag | $2.88 | $2.49 | -13.54% | $2.49 | -13.54% |
| Peaches – Regular | $1.44 | $0.99 | -31.25% | $1.48 | 2.78% |
| Peppers – Regular Green | $0.68 | $0.59 | -13.24% | $0.69 | 1.47% |
| Potatoes – Russet 5# Bag | $1.50 | $1.89 | 26.00% | $2.49 | 66.00% |
| Strawberries – Clamshell 1# | $2.50 | $2.49 | -0.40% | $2.99 | 19.60% |
| Tomatoes – Roma/Plum | $1.44 | $0.99 | -31.25% | $1.29 | -10.42% |
| MARKET BASKET | $21.00 | $18.32 | -12.76% | $23.31 | 10.98% |
Of course, many independents, for example Jensen’s in Palm Springs, have chosen an upscale route and simply disregard Wal-Mart as a competitor. In St. Louis, though, if supermarkets battle with Wal-Mart in a fairly predictable way, the whole future of food retailing seems to be in question when we add both Aldi and Save-A-Lot to the mix.
These boys play by their own rules. In fact, we can’t really put them on the matrix we use to measure produce prices in each market. Here in St. Louis, for example, our standard market basket — items we measured at Wal-Mart, Dierbergs and Schnucks — consisted of 61 items. We went looking for those 61 items and could find only 16 items on our list of 61 items that were comparably carried in Wal-Mart, Dierbergs, Schnucks, Aldi and Save-a-Lot.
Some items, such as asparagus, weren’t carried in the limited assortment stores, and other items, such as apples, were stocked but not in a way we could compare on our matrix. The apples might have been too small, for example, to compare with the items in the supermarkets and supercenter. Still, when we limit our market basket to only those carried by all five of the concepts we looked at, several things become obvious.
Oh, what is a behemoth to do these days? Is it possible that Wal-Mart will be out Wal-Marted?.
Dierbergs clearly isn’t looking to compete on price with Wal-Mart, Aldi or Save-A-Lot. It is pricing independently and shows up priced at almost 31 percent over Wal-Mart. Schnucks is obviously paying closer attention to price. On these 16 hotly contested items, Schnucks is only about 11 percent over Wal-Mart as opposed to the almost 14 percent it was on the larger market basket.
But Save-A-Lot comes in 12.76 percentage points less expensive than Wal-Mart, and Aldi simply creams Wal-Mart on this small selection of items, coming in 25.03 percent cheaper than the Bentonville-based giant.
Oh, what is a behemoth to do these days? Is it possible that Wal-Mart will be out Wal-Marted? That Wal-Mart’s game plan of offering a more limited assortment of produce than big supermarkets offer at superior prices will be the blueprint for people like Save-ALot, Aldi and A&P’s Food Basics, which will offer a more limited assortment of produce than a Wal-Mart Supercenter at superior prices? And these are not small operations.
Save-A-Lot is owned by Supervalu and has over 1,000 stores in the United States. Aldi operates over 700 stores in the United States and 5,000 stores around the world. If you read the Aldi literature for suppliers, it reads like a Wal-Mart brochure: “Aldi requires no rebates, coupons, discounts or slotting fees.
Payment is guaranteed to be on time without unwarranted deductions.” And Save-A-Lot’s latest innovation is a store redesign that puts more — get this — general merchandise on the floor. The prototype is being rolled out, and the Save-A-Lot people claim that it is very profitable. Obviously Wal-Mart has been content to let these formats beat it on price. It is not obvious that this is a wise strategy.
Save-A-Lot will tell you that its target customer group is households with income up to $35,000 annually and that this market niche represents about 44 percent of the U.S. population.
Obviously Wal-Mart has been content to let these formats beat it on price. It is not obvious that this is a wise strategy.
The stores are typically 12,000 to 14,000 square feet and they handle approximately 1,250 of the most frequently purchased grocery items.
Aldi states it clearly: “Aldi may not be the only store you shop, but it should be the first. Aldi customers find they can do 90 percent of their weekly shopping at Aldi.” Which means that neither of these concepts are niche concepts in the way, say, Whole Foods is. These guys are going after mainstream consumers with mainstream items.
How They Stack Up Against Wal-Mart Supercenter
| Region | Store | % Over Wal-Mart |
Store | % Over Wal-Mart |
Store | % Over Wal-Mart |
|---|---|---|---|---|---|---|
| Connecticut | Super Stop & Shop | 23% | Shaws | 34% | Big Y | 36% |
| Salt Lake City | Harmon’s | 2% | Smith’s | 6% | Albertson’s | 12% |
| South Florida | Super Target | 22% | Publix | 31% | Winn-Dixie | 52% |
| Dallas, Texas | Albertson’s | 23% | Brookshires | 7% | Kroger | 19% |
| Neighborhood Market | -1.2% | Tom Thumb | 27% | |||
| Portland, OR | Albertson’s | 30% | Fred Meyer | 22% | Haggen | 27% |
| Phoenix, AZ | Albertson’s | 22% | Bashas’ | 25% | Fry’s | 15% |
| Palm Springs, CA | Albertson’s | 19% | Jensen’s | 60% | Ralphs | 16% |
| Detroit, MI | A&P’s Food Basics | -17% | Farmer Jack | 24% | Kroger | 28% |
| Meijer | 3% | |||||
| St. Louis, MO | Dierbergs | 22% | Schucks | 14% |
Right now Wal-Mart doesn’t seem to have an answer. This is one of the dangers of being so successful. Currently, the Wal-Mart Supercenter is an enormous growth engine, both on the sales and profit side of the ledger. It is hard to imagine anything that could interfere. But concepts like Aldi and Save-A-Lot can help can help compromise Wal-Mart’s most valuable asset — an assumption by the consumer that everything in Wal-Mart is priced both well and correctly.
In the months and markets to come, we’ll keep our eye out on these limited assortment concepts. For the Produce Business Wal-Mart Pricing Report, we will always remember that we met these concepts in St. Louis.