Déjà Vu All Over Again!

In March 2004, we characterized the Portland, OR, market as one of benign indifference; not much has changed.

If you read the press, you are bound to think Wal-Mart is a deeply troubled company. At every turn they meet obstacles: In Chicago, in California everywhere they want to grow, people are protesting, and laws are being proposed to block them. It seems like everything has just become so hard for this company.

Though overstated, there is an element of truth to all this. Though broad swathes of the country have Wal-Mart stores, in those areas where they are not entrenched, they face mighty political battles to get in.

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

Oct 2006 – Prices Available To The General Public

The key word is “political” — the truth is that the opposition to the building of new super centers is testimony to the enormous power and appeal of the Wal-Mart Supercenter concept. Opposition to Wal-Mart doesn’t just spring up autonomously. These movements cost money, and the opposition is mostly financed by competitors, unions and a web of special interest groups closely tied to the competitors and the unions. The reason they fight so hard politically to keep Wal-Mart out is because, even now, after Wal-Mart’s massive success has been obvious for years, few large retailers are prepared to counter Wal-Mart’s compelling consumer proposition: low prices.

Having crisscrossed the country going to different cities, we decided to return to Portland, OR, to see if the same retailers had done any better against Wal-Mart.

Price is such a crucial appeal to such a large portion of the population that if Wal-Mart opens a supercenter, it almost always gets loads of shoppers. So, in the absence of an effective tool for countering this low-price appeal, those who are threatened by Wal-Mart’s expansion turn to the political arena to win what they can’t win in competition.

Look, if the stores weren’t going to be successful, nobody would spend a dime to fight them. They would let them open, and then let them go broke and close.

It is only and precisely because its opponents know that Wal-Mart’s low price appeal is so strong that it behooves them to work hard to stop them from ever opening. With this iteration of the Produce Business Wal-Mart Price Reports, we thought we would try something different. Having crisscrossed the country going to different cities, we decided to return to Portland, OR to see if the same retailers had done any better against Wal-Mart.

We were last in Portland during March 2004, and back then Albertson’s and Safeway both took a beating, coming in 30 percent and 37 percent respectively over Wal-Mart in produce pricing. Haagen was par for the course, with its price level up 27 percent over Wal-Mart. We had thought that Fred Meyer, as a fellow supercenter operator, would surely be competitive with Wal-Mart, but even there we found Fred Meyer came in a not-so-insignificant 22 percent over Wal-Mart’s prices. So now we return.

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

Oct 2006 – Prices Available To Card Holders

We decided, for a little variety, to switch out Haagen with Fred Meyer’s fellow Kroger division QFC, but keep Safeway, Albertson’s and Fred Meyer in the mix.

Since everyone was so uncompetitive when we were here last 31 months ago and they have had that same amount of time to strategize a way of fighting Wal-Mart, we wanted to see what had transpired on the price front in 31 months.

The answer: Virtually nothing.

According to our market basket of 58 common items sold by each store, Albertson’s went from being 30 percent over Wal-Mart to being 32 percent over Wal-Mart. Probably meaningless. Safeway became slightly more competitive going from 37 percent over Wal-Mart 31 months ago to 30 percent over Wal-Mart now. Fred Meyer went from 22 percent over Wal-Mart to 21 percent now — once again a meaningless fluctuation.

QFC debuted in our study at a rocking 54 percent over Wal-Mart’s prices. We haven’t been close to that since Jensen’s in Palm Springs came in at 60 percent over Wal-Mart.

Portland is a strong loyalty-card market and that reduces the disparity somewhat. But only somewhat. Safeway gives the strongest reduction in price, so that for a loyalty card holder, Safeway is 13.56 percent more expensive than Wal-Mart on produce.

What this tells us is that at least in Portland, OR where Wal-Mart is a relatively minor player, nobody is rushing to compete on price.

How They Stack Up Against Wal-Mart Supercenter

The problem for Safeway, Kroger and Albertson’s, though, is that if a price difference is so vast, then it is not so much that the stores will compete against Wal-Mart with other attributes — say variety or elaborate prepared foods — as that they won’t compete at all. Instead, they will try to attract a different clientele.

That is fine for a store such as Jensen’s in Palm Springs; it may even be OK for a division of Kroger, such as QFC. But price is too central to the concerns of the vast middle class of America to have these large national chains simply write off that particular clientele.

Yet it doesn’t seem as if they can get within striking distance on price. How can this dilemma be resolved? We’ll have to wait for the next iteration of the Produce Business Wal-Mart Pricing Report to find out.