In Orlando, Wal-Mart Easily Leads The Way On Prices

With Whole Foods thrown into the mix, Wal-Mart’s position as the low-price leader is even stronger.

With the Produce Marketing Association (PMA) Fresh Summit Convention & Exposition taking place in Orlando, FL, this month, we thought we would bring the 18th iteration of the Produce Business Wal-Mart Pricing Study to the theme- park capital of America and see how competitive a market it is. The answer: not very.

To get our finger on the pulse of produce pricing in Orlando, in addition to Wal-Mart we included a Publix, a Winn-Dixie, a Super-Target and, in a first for the Produce Business Wal-Mart Pricing Study, a Whole Foods store. Because Whole Foods added the complication of significant organic offerings to the mix, we thought it most fair to do three separate market baskets:

Wal-Mart Supercenter vs 4 Chains
Price Comparison — Orlando, FL

Excluding Organic Produce – August 2008

Our main basket includes only conventionally grown produce. [See Table above.]

This basket is a bit smaller than we would typically run because we were constrained by the fact that an item had to be carried in a conventionally grown form in all five featured stores to be included in this basket.

Our second basket, ‘Wal-Mart Supercenter vs 4 Chains Price Comparison’ is larger because we decided to include items in which four of the stores had conventional items but one had only organic. In all but one instance, Whole Foods was the retailer with the one organic item. In a sense, this is “unfair” since the products are not comparable. However, if one takes the position that a particular shopper is “organic-neutral”, then this basket does accurately reflect what a consumer would pay in each store for his or her market basket.

Wal-Mart Supercenter vs 4 Chains
Price Comparison — Orlando, FL

Including Organic Produce – August 2008

The third market basket ‘Wal-Mart Supercenter vs 2 Chains Price Comparison’ consists of only organic items. We looked at a basic assortment of six organic items. Because Winn-Dixie and SuperTarget did not offer all these organic items, we narrowed this market basket to include only Wal-Mart, Publix, and Whole Foods.

Wal-Mart Supercenter vs 2 Chains
Price Comparison — Orlando, FL

Organic Produce Only – August 2008

Our “conventional only” basket indicates that Wal-Mart is the low-price leader on produce in Orlando — and by a substantial amount. SuperTarget, which offers a similar super-center-type format as Wal-Mart, came in a hefty 21.95 percent over Wal-Mart’s prices. This was virtually identical to its performance the last time a SuperTarget appeared in our Produce Business Wal-Mart

Our “conventional only” basket indicates that Wal-Mart is the low-price leader on produce in Orlando — and by a substantial amount.

Pricing Study Round III, back in February 2003. In that report, conducted in South Florida, SuperTarget was also about 22 percent over Wal-Mart. Winn-Dixie came in at 28.49 percent over Wal-Mart, a significant improvement from the 52 percent over Wal-Mart that a pre-Chapter 11 Winn-Dixie scored in the same South Florida matchup back in 2003.

This indicates Winn-Dixie has become much more competitive. There is no indication of a dramatic change in the pricing philosophy at Publix. It came in at 31.96 percent over Wal-Mart; as with SuperTarget, this was almost precisely the same result vis-à-vis Wal-Mart that it scored in South Florida.

Few will find it surprising that Whole Foods was the high-price leader in the market with a 38.56 percent premium over Wal-Mart. It is worth remembering that Whole Foods is asking this premium on its conventional produce. This is a potentially problematic positioning during tough economic times.

The broader market basket encompassing organic product didn’t change the outcome very much. SuperTarget did a little better on the broader market basket, coming in at 18.62 percent over Wal-Mart prices. Publix also did better, coming in at 28.55 percent over Wal-Mart.

Winn-Dixie was basically unchanged. However, the addition of organic produce from Whole Foods in comparison to conventional produce from the other markets caused Whole Foods to come in at a whopping 50.20 percent over Wal-Mart’s prices.

Few will find it surprising that Whole Foods was the high-price leader in the market with a 38.56 percent premium over Wal-Mart…on its conventional produce.

Interestingly enough, when we turn to our third market basket, the one focused on just organic items, Wal-Mart comes in as the low-price leader on organics as well.

What many might not have been expected is that on this admittedly limited organic market basket, Publix came in as more expensive than Whole Foods. Whole Foods was 37.49 percent over Wal-Mart on our organic market basket whereas Publix was 44.93 percent over Wal-Mart on the same organic basket.

Different Strokes

Obviously, different retailers have different strategies. And, of course, different consumers will value things differently; some will pay a premium for things they value: quality, service, convenience. It is also true that fresh produce is just one department, and a store that is pricey on produce could offer fantastic values on, say, meat.

Still and all, we see many causes of concern for these retailers. Although Whole Foods is a different offer and consumers expect to pay more, one could, in fact, argue that higher prices are what persuade consumers that the Whole Foods offer is either better quality or more sustainably produced, But when Wal-Mart sells certified organic produce at a price a third less than the Whole Foods’ price, it starts to make consumers question if they are getting something better or just overpaying.

There are certainly services and/or conveniences that might make a consumer pay 5 or even 10 percent more at a local supermarket. But when prices hit around 30 percent higher than Wal-Mart, as with the Winn-Dixie and Publix prices, we have to expect continued market-share growth for Wal-Mart at the expense of these local supermarkets.

We suspect Publix, Winn-Dixie, Whole Foods and SuperTarget need to carefully reassess their value proposition to consumers — and decide whether it is an offer that makes sense for difficult times.

The Target numbers show how quickly a business positioning can change from brilliant to troubled. Two years ago Target was being lauded for its Tarzhay “cheap chic” positioning built around name architects and designers who were creating exclusive lines for Target. This positioning seemed both to put a cap on the affluence of the Wal-Mart consumers — let their income rise a bit and they will switch to Target — and to reserve a “sweet spot” of more affluent consumers willing to allow the company higher profit margins.

How They Stack Up Against Wal-Mart Supercenter

Now, with the world financial system in disarray and deep consumer concern over the possibility of a severe recession, that upscale positioning looks a little showy.

Does anyone really need a Michael Graves wastepaper basket? Is a supercenter that costs 20 percent more than the low-price super-center leader actually going to appeal to consumers?

If things get bad, everyone in the market may have trouble ahead. Aldi, the German deep discounter, built a distribution center in the area, opened 10 stores on Sept. 25, 2008, will open 10 more on Oct, 27, 2008, and has five additional stores slated to open on Nov. 10, 2008. Although this poses a challenge for Wal-Mart in the super-large store sector, Wal-Mart Supercenters and the Aldi stores are sort of opposites. We suspect Publix, Winn-Dixie, Whole Foods and SuperTarget need to carefully reassess their value proposition to consumers — and decide whether it is an offer that makes sense for difficult times.