Wal-Mart Pricing Report: Round XIV

Wal-Mart Takes On Canadian Retailers

Our Toronto results show a similar pattern of disengagement from the problem.

There is a good chance Wal-Mart will be very successful in Canada. The results of the 14th iteration of the Produce Business Wal-Mart Pricing Report are in, and we leave the United States for the first time to visit a Wal-Mart Supercenter and its competitors in Toronto, ON, Canada.

Our findings: Despite generous warnings given by Wal-Mart’s roll-out across the United States, Canadian supermarkets are, mostly, making the same mistake their U.S. counterparts did.

Wal-Mart Supercenter vs 4 Chains
Price Comparison — Toronto, CA

July 2007 – Prices Available To The General Public

They are allowing Wal-Mart to establish a reputation as the low-price leader on fresh produce. There are exceptions, of course, but in general, the practice in the United States when Wal-Mart came to town could best be described as “Do nothing until forced to” — certainly on price.

Consumers would visit the Wal-Mart Supercenter and note significantly lower prices. Perhaps the consumers wouldn’t shop there regularly — Wal-Mart might have been too far from their home or inconvenient to their office. But with each visit, consumers would notice value.

The dynamic was well established. Wal-Mart would open one or two Supercenters in a town. With only a few stores, Wal-Mart was not yet a major competitive threat.

This is similar to the situation in Canada where, after all, Wal-Mart only has seven Supercenters. If a chain lowered its price points in all its stores to be within shooting distance of Wal-Mart, it would cost the chain a fortune. So in market after market, local retailers did not go after Wal-Mart in pricing and went for the short-term money by continuing to offer their customary line of higher-priced produce.

In the meantime, consumers would visit the Wal-Mart Supercenter and note significantly lower prices. Perhaps the consumers wouldn’t shop there regularly — Wal-Mart might have been too far from their home or inconvenient to their office. But with each visit, consumers would notice value.

In time, Wal-Mart built more Supercenters. And by that time, the consumers had become predisposed to the notion that Wal-Mart offered good value on fresh produce.

At that point there was always a mad dash to get competitive — but it was usually too late. Only the biggest, strongest chains with the capital to reorganize and reformat generally survived.

Loblaws Comes Closest To Wal-Mart Pricing

Our Toronto results show a similar pattern of disengagement from the problem: All the dollar figures, of course, are in Canadian dollars.

Our experience has been that in many cases it is not necessary to beat Wal-Mart on pricing. Obviously, many other things matter, but 5 percent is one thing, 10 percent might be possible,but at 34.9 percent, A&P will not be competitive for the great middle class.

But it is the percentages that are striking. Metro bought A&P’s Canadian division and seems to feel no compunction to be competitive.

With a price level almost 35 percent higher than the Wal-Mart Supercenter, it is simply not in the ballpark. In fact, A&P was the second most expensive supermarket we have ever studied compared to Wal-Mart. Only a Winn-Dixie beat it out — and that chain promptly filed for Chapter 11 protection.

How They Stack Up Against Wal-Mart Supercenter

Our experience has been that in many cases it is not necessary to beat Wal-Mart on pricing. Obviously, many other things matter, but 5 percent is one thing, 10 percent might be possible, but at 34.9 percent, A&P will not be competitive for the great middle class.

Neither will Bruno’s nor Sobeys, coming in at 28.25 percent and 24.49 percent over Wal-Mart, respectively. It is hard to understand how these chains can just be indifferent to their consumers, who must start to perceive these chains as high priced.

Only Loblaws has a shot — coming in at 12.71 percent over Wal-Mart’s prices, Loblaws is at least approaching a range where superiority in service, convenience, assortment and other factors can compensate for higher prices — although Loblaws should aim to get the differential below 10 percent.

Of course, many retailers successfully co-exist with Wal-Mart. Like Whole Foods, they don’t so much compete with Wal-Mart as get out of its way.

But the numbers don’t lie. If Canadian supermarkets don’t respond more aggressively to remain competitive with Wal-Mart, there will soon be not seven Supercenters but 300.

Forewarned is forearmed.