Wal-Mart Pricing Report: Round V

Benign Indifference in Portland, Orgeon

Like Balboa inching toward the Pacific, this month Produce Business brings its Wal-Mart Pricing Report series – in which we analyze how local retailers are pricing produce items compared to Wal-Mart Supercenters – to Portland, Oregon.

Since we started our Wal-Mart Pricing Report Study in Connecticut and continued our journey to Utah, Florida and Texas, this month’s study in Portland, Oregon means we have crossed the whole continent and now ask the question: Do retailers on the West Coast have a distinct pricing strategy for dealing with Wal-Mart?

How They Stack Up Against Wal-Mart Supercenter

If they have one, it might be called benign indifference, since the competitors — Albertson’s, Safeway, Fred Meyer and Haggen’s — are simply blasted away by Wal-Mart’s pricing. In fact, it hasn’t been since our very first city in Connecticut — where Wal-Mart is a very small factor — that local supermarkets have been prepared to so completely by undersold by Wal-Mart.

Wal-Mart Supercenter vs 4 Chains
Price Comparison — Portland, OR

March 2004 – Prices Available To The General Public

If we look at the deal available to all consumers who walk in the door, our 46-item market basket shows that Safeway charges over 36 percent more than Was-Mart; Albertson’s charges in excess of 30 percent more than Wal-Mart; Haggen’s comes in at over 26 percent more expensive than Wal-Mart; and Fred Meyer, Kroger’s acquired super center-like concept, is still overpricing Was-Mart by almost 23 percent.

Wal-Mart Supercenter vs 4 Chains
Price Comparison — Portland, OR

March 2004 – Prices Available To Card Holders

That Fred Meyer is content to be seen as so expensive compared to Wal-Mart is a confirmation of our experience in South Florida, where we included a Super Target in our study. In fact, Super Target priced almost identically to Fred Meyer — 22 percent over the local Wal-Mart Supercenter.

Prior to these studies, we considered the possibility that there was something intrinsic to the supercenter format that allowed it to price produce very inexpensively. Some theorized that a supercenter concept, by its very nature as a purveyor of high-margin general merchandise, would benefit if perishables were priced inexpensively, so as to draw more frequent visits by consumers. These consumers, attracted by cheap prices on perishables, would buy high-margin general merchandise while in the supercenter.

But this theory, if true, seems to be recognized only by Wal-Mart, as neither Super Target nor Fred Meyer seems interested in providing any particularly great deals on produce. Portland is a good market to check out another theory — that supermarkets may price high to the general public, who just drop in because of convenience, but perhaps they offer exceptional value to members of their own frequent shopper or loyalty programs.

Alas, for those rooting for the supermarkets, although loyalty programs do provide significant discounts on produce, the programs are nowhere near substantial enough to overcome Wal-Mart’s formidable edge. Albertson’s, Haggen’s and Safeway all have loyalty card programs, but even after these discounts are applied, Wal-Mart still beats Albertson’s by 22.22 percent, Haggen’s by 23.20 percent and Safeway by 29.15 percent.

So, if the price points aren’t competitive to the general public and they aren’t competitive to the loyalty program members, we come to the conclusion that supermarkets in Portland are prepared to give Wal-Mart a phenomenal edge on pricing. Why?

Surely these chains realize that they are placing their businesses at risk in the long run by allowing a competitor to seize the reputation as always providing the best value. So, either the chains can’t be competitive because they have a structurally higher cost basis to their operations, or they don’t want to give up the margins and are content to simply get what profits they can, while they can.

In any case, the future may not be so benign for competitors who can’t — or won’t — compete.

Another Concept: Trader Joe’s

In many cases today, the threat to supermarkets comes not from other supermarkets but from other concepts — be it supercenters, warehouse clubs or food sections in non-traditional food outlets, such as drug stores. While we were in Portland, we decided to visit a Trader Joe’s to see how this fast-growing but distinctive format of mostly private label gourmet foods is stacking up on produce pricing. Because Trader Joe’s carries a minimal assortment, we developed a smaller 14-item basket for this comparison. Although more pricey than Wal-Mart, and slightly more than the other local supercenter concept, Fred Meyer, Trader Joe’s did manage to out-price Albertson’s, Haggen’s and Safeway, thus proving that these chains are quick to surrender when it comes to allowing other concepts to claim the low price leader title.

Wal-Mart Supercenter vs Trader Joe’s and 4 Other Chains

Prices Available to the General Public