FD Buyer: Can Kroger Whip Wal-Mart?

Discussion
Jun 17, 2010

By Warren Thayer

Through a special arrangement, presented here for discussion
is a summary of a current article from Frozen & Dairy Buyer magazine.

Can Kroger whip Wal-Mart? In
a word, “no.” But it certainly seems to be holding its own with nimble pricing
and an aggressive private label program. When I asked vendors to rank, on a
scale of one to 10, whether Kroger was gaining or losing share against Wal-Mart,
the responses were an almost unanimous “five.”

That’s not bad, although Kroger
itself says it gained share last year in 11 of the 12 marketing areas where
it goes head-to-head with Wal-Mart. By Kroger’s count, its divisions compete
with about 1,190 Wal-Mart supercenters, an increase of about 60 new supercenters
over the prior year.

Observers say price is Kroger’s most effective weapon
in competing with Wal-Mart. Dan Raftery, president of Raftery Resource Network,
notes that Kroger is more of a high-low player versus Wal-Mart’s EDLP approach,
which is why Kroger can offer a reward program and why Wal-Mart does not.

“Wal-Mart
can’t, and still claim to be EDLP,” he said.

Several vendors cite Kroger’s VPS
(Very Price Sensitive) program, which maintains competitive pricing on key
items. As one vendor explained it, Kroger deems about 1,500 to 2,500 items
as VPS, and within those items their goal is to be within 10 or 15 cents of
Wal-Mart pricing, depending on the dollar value of the is item.

Are these tactics
100 percent effective? The jury is still out.

Vendors say Kroger always reacts
quickly to Wal-Mart pricing and marketing strategies, and that it easily beats
Safeway and Supervalu on price. They see Wal-Mart and Kroger battling to a
draw in most markets, with the real gains and losses coming out of the hides
of smaller players.

Beyond price, if you throw in incentives such as loyalty
card mailers, fuel rebate programs and perimeter departments that clearly outshine
Wal-Mart’s, you have a pretty compelling competitive story.

The one point of
dispute among observers is the effectiveness of Kroger’s private label program,
which has reached 27 percent in dollars and 35 percent in units. Some observers
praise the program as a competitive differentiator against Wal-Mart. Others
say Kroger has gone too far, slashing regional brands that gave local stores
their flavor and helped build loyalty. These same vendors say Wal-Mart’s private
label program does not provide it with any competitive advantage over Kroger.
As one put it, “I don’t care how big you are. I remember when A&P was big.
None of them stay on top forever.”

Don Stuart, president and CEO of Cannondale
Associates, believes that in most markets, depending on the intensity of Wal-Mart’s
competitive effort, Kroger is holding its share.

“That’s far better than most
grocery retailers,” he noted, adding that H-E-B also is still holding off Wal-Mart
in a really competitive market. Kroger’s strong customer loyalty and market
dominance has prevented any significant loss of share, some observers say.
One added that Kroger’s strength is also based on wise acquisitions over the
years, along with its ability to maintain the volume and profit that was already
there. “We’ve seen what Safeway has done in that department,” he said.

Discussion
Questions: How does Kroger match up against Wal-Mart? What are the advantages
and disadvantages Kroger has versus Wal-Mart?

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19 Comments on "FD Buyer: Can Kroger Whip Wal-Mart?"

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David Biernbaum
Guest
7 years 5 months ago

As always, a fantastic report by fellow BrainTrust panelist, Warren Thayer. In my opinion Kroger’s private label program is very solid in terms of price, but I agree with those that suggested that the program has possibly come at the expense of regional brands, specialties, and niches. Even price conscious consumers will go out of their way to visit stores that carry products not carried by Walmart, and I would encourage Kroger and all other supermarkets to reconsider these types of items that have been inadvertently sledged out with SKU rationalization and private label expansion.

Carol Spieckerman
Guest
7 years 5 months ago

The biggest advantage that Walmart has over Kroger (other than its wider geographic coverage in the U.S. and internationally) is its expansive category portfolio and category synergies. When one category is slipping, another one will be on the uptick…consumer electronics may feature a hot launch one week that ends up driving traffic to Home and the next week, a sale on bicycles will result in additional purchases in toys.

Kroger has done a terrific job articulating a clear value message while bringing in specialty foods that creep into Whole Foods’ territory. However, comparing Kroger to Walmart is like comparing apples to ornaments.

Gene Hoffman
Guest
Gene Hoffman
7 years 5 months ago

Kroger is not only a survivor but a continuity. It has many assets: excellent real estate, an established private-label program, well-trained people, excellent merchandising, flexibility and agility, a long and loyal tradition, and a steady focus on how to keep its current customers.

Wal-Mart has many stores, price appeal, EDLP, a wide following and variety, and an image that shines at all times to priced-conscious shoppers. That preserves their position with that segment of the marketplace.

In other words, as things exist now, the SOM of both Kroger and Wal-Mart seem to have steadied among these two giants. Not much magnetizing of the other’s customers now. Next act: When the economy improves, some shoppers will opt for a nice environment. That could be an asset for one or the other of those two capable retailers…but they both will survive.

Ryan Mathews
Guest
7 years 5 months ago

There is a certain paradox of scale at work in the battle between Kroger and Walmart.

On the one hand, Walmart’s greater scale gives it huge advantages in terms of acquisition costs, manufacturer funding, etc.

On the other, Kroger appears to be more nimble.

With all due respect to my good friend Dan Raftery, I think it is flexibility and a firmer grounding in food marketing not high-low pricing that’s helping Kroger stay competitive.

Anyone can offer groceries for sale but as Kroger is proving “selling”–merchandising, effectively using customer intelligence, creativity, etc–is quite a different thing.

Camille P. Schuster, PhD.
Guest
7 years 5 months ago

The fact that Kroger stays nimble with price certainly is a big factor in their success. However, their mission is different from Walmart’s. As such, the variety of brands available and the assortment of products is also different from Walmart. The third differentiator is their consumer loyalty program which helps keep consumer loyalty strong. The fourth factor is being nimble in terms of trying new programs such as the gas rebate partnership with Shell.

There is no one factor keeping Kroger competitive but focus on their mission while testing new strategies are important factors.

Dr. Stephen Needel
Guest
7 years 5 months ago

As both a Wal-Mart and Kroger shopper here in Atlanta, the difference is obvious–selection. If I want a basic national brand (say Cheerios) I know Wal-Mart will have it. If I want a pasta sauce better than the Newman’s or Classicos, it’s off to Kroger for a more upscale selection.

Those who are suggesting Kroger’s private label has succeeded at the expense of regionals and niche brands should come down to Atlanta–that’s not what’s happening in our stores. Quite the opposite–Krogers here have adopted the convex shelf to signify regional and more upscale products and more and more are appearing in stores.

Ross Dudney
Guest
Ross Dudney
7 years 5 months ago

Wal-Mart doesn’t have the unions; Kroger does and that’s why Kroger continues to lose and Wal-Mart continues to win.

Mark Johnson
Guest
Mark Johnson
7 years 5 months ago

Kroger and their relationship with dunnhumby has more insight on their consumers, brand preferences, attitudes and buying behaviors than Wal-Mart will be able to construct for many years.

Len Lewis
Guest
Len Lewis
7 years 5 months ago

Don’t forget Kroger’s partnership with dunnhumby. Lots of information there and both of them know how to use it to the best advantage.

Ed Rosenbaum
Guest
7 years 5 months ago

Not having a Kroger to shop in for at least 500 miles makes it difficult to comment, but from this outsider’s perspective, Kroger’s might be able to hold their own in these minor skirmishes with Wal-Mart. But when Wal-Mart decides to acknowledge Kroger as a competitor, there will be two winners, Wal-Mart and the consumer. Maybe Kroger should pick a more comparable opponent to compete against. This has a David & Goliath sound to it.

What I find unfeasible, given today’s cost of time and travel, is what can be saved by buying some items at one store, then traveling to the other for an additional item or two.

David Livingston
Guest
7 years 5 months ago

Still, the bottom line is Kroger cannot compete on price with Wal-Mart. The best they can do is probably get within 10%. Oddly, they get a lot of credit for that.

What Kroger has done right is use Wal-Mart as muscle to drive out weaker competitors. Chains have pulled out of Wal-Mart/Kroger markets by the bushel — Farmer Jack, Big Bear, Winn-Dixie, Cub, Albertsons, to name a few. Other chains have been brought to their knees, forced to file bankruptcy or sell out, such as Bi-Lo, Scotts, Buehlers (Indiana), Marsh and Ukrops. We could probably name at least a dozen more chains that have succumbed to the Wal-Mart/Kroger punch.

While Kroger may be gaining market share, I doubt it’s at the expense of Wal-Mart, but rather than with the help of Wal-Mart.

Veronica Kraushaar
Guest
Veronica Kraushaar
7 years 5 months ago

Agree with Dr. Needel, who pointed out the “convex shelving” strategy at Kroger now, that showcases more upscale items; it says it all about where they are heading. The decentralized procurement and merchandising strategy has also benefited them, as it has (will?) Supervalu.

Regional chains we talk to claim an uptick in sales over past months, while the large national chains are flat or down at bit. Experts say that the “nimbleness” of the regional to change pricing and selection to match local customer demand is key.

Mark Burr
Guest
7 years 5 months ago
Basic answer is as stated by Warren Thayer: No. Kroger can’t whip Wal-Mart. However, what they have going for them at the moment is a strong enough program in most areas for sustainability. My perception about Wal-Mart is that they don’t mind another player, they just don’t want and will not accept a competitor. In East Michigan, Kroger is the dominant player as the only national or even large regional in the market besides Meijer and Wal-Mart. Meijer certainly considers Wal-Mart a competitor but not vice versa. Kroger is the play along as the ‘only one left standing’. Over several decades all others (and that’s a significant number) have been cleared out. There are a few others in that market, but they are merely a blip on the radar screen by comparison with no offense to a couple of good ones that exist and do well for their size and scope in the region. What’s the advantage of either? Kroger has a bit more selection. Wal-Mart has price. Neither have spectacular stores. The consumer is… Read more »
Craig Sundstrom
Guest
7 years 5 months ago

“…on a scale of one to 10, whether Kroger was gaining or losing share against Wal-Mart, the responses were an almost unanimous ‘five'”

Huh? This is like being “somewhat pregnant,” either you’re gaining share or you aren’t. Moving beyond that, I note that some of us–one of us in particular–still fixate on exact price parity…get over it: Delmonico’s doesn’t match McDonald’s prices, convenience stores don’t match supermarkets, and Kroger et al don’t have to match WM; they have to offer “similar” prices in a superior environment (location, ambiance, selection). Companies are relentlessly told not to get in a price war with a market leader, let’s not fault them for following the advice.

Jeff Hall
Guest
7 years 5 months ago

In this David vs. Goliath world, Kroger is to be applauded for being nimble and making the commitment to utilizing shopper insights and customer data to creatively build loyalty and retain/gain market share.

Bill Cross
Guest
Bill Cross
7 years 5 months ago

I think this discussion is very interesting–except that it has no basis in reality. If you check the WSJ, you’ll see that Kroger profits are off 14% for Q1. Its focus on quality at the expense of EDLP came back to haunt it as consumers hewed more and more to the Walmart and discounter line.

It’s old news that grocery chains need to differentiate themselves from the Beast of Bentonville, but the Recession has put much of that High-Low marketing strategy in question. While I continue to admire many things Kroger is doing, I would suggest that readers look at the P&L statements of retailers before going ga-ga over them. The same can be said about Target, who remains a media darling despite abysmal sales. Greg Steinhafel, their CEO, admitted the other day that they need to get more like Walmart and sell more food.

Michael Kirkpatrick
Guest
Michael Kirkpatrick
7 years 5 months ago

Although Kroger’s profit may have been down the last few quarters (due to competitive pricing with Wal-Mart for the most part), its Identical Store Sales, the most meaningful measure of market share, have been blowing Wal-Mart away for the last two years. The only players with better IDS have been the dollar format stores. Wal-Mart has continued to grow market share by merely building new stores, while Kroger has gained market share by building loyalty with current customers and therefore increasing basket size.

Kai Clarke
Guest
7 years 5 months ago

Lies, Damn Lies and Statistics. The real truth here is that the largest and most successful grocer (especially in new stores) continues to be Wal-Mart. Yes, Kroger can win a battle on a select number of items, but so long as Wal-Mart continues to wage war on several fronts, including offering lower prices on most items, a large selection of hard goods, more services and of course EDLP, Wal-Mart will continue to win. Their stock numbers show it, their traffic numbers reflect this, and Wal-Mart continues to sit alone, at the top of the retail heap!

John Crossman
Guest
John Crossman
7 years 5 months ago

Kroger’s bigger concern should be Publix. They are a much greater threat to Kroger where they compete head to head. Pricing is similar with better service.

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