FD Buyer: Can Kroger Whip Wal-Mart?
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.
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.
Questions: How does Kroger match up against Wal-Mart? What are the advantages
and disadvantages Kroger has versus Wal-Mart?