Sam’s Has a Grocery Plan
Okay, we admit that at first reading that Sam’s Club’s goal of capturing 20 percent of its club members’ grocery expenditures made us think of pigs trying to take flight in costume wings. But perhaps that number is attainable considering Sam’s recent performance. The additional $18 billion it would generate for the warehouse club chain would certainly be good for both its top and bottom lines.
According to a Reuters report, Sam’s used Nielsen Homescan data to determine one of its two major club competitors (BJ’s or Costco) had captured 20 percent of its members’ grocery purchases. Acting on that information, Sam’s, which captures about 12 percent of its members’ purchases, has expanded its grocery offerings. It has also introduced smaller pack size,s a la BJ’s, to encourage individual purchases.
A recent Wall Street Journal piece said the chain has intentionally tried to go more upscale with club remodels, additional fresh foods and pricier items such as jewelry.
"The most noticeable improvements have come in the quality of the merchandise available in clubs," Budd Bugatch, retail analyst at Raymond James, told the Journal. "Previously, there had been a wide real and/or perceived quality gap between Sam’s and its major competition."
Whatever Sam’s has been doing of late appears to be working. The club, which ranked first among its peers in the 2011 Brand Keys Customer Loyalty Engagement Index, saw comparable location sales increase 4.2 percent in the first quarter. Grocery items were among the strongest sellers.
Sam’s is looking to attract new members and keep existing ones by not only offering a greater variety of groceries, but by holding the line on prices. Linda Hefner, chief merchandising officer for Sam’s, said the chain had decided to keep its price for rotisserie chicken under $5 even though its costs had gone up. It also worked with suppliers to downsize products to keep them at certain price points rather than charge members more.
The chain announced yesterday that it was rolling out three new private labels as a means to offer more variety at better prices to its customers. The new brands include Artisan Fresh, a line of baked goods; Daily Chef, shelf-stable grocery items; and Simply Right, a collection of personal care products. The products will be available chain-wide by October.
Discussion Questions
Discussion Question: What are your thoughts on the current direction of Sam’s Club relative to its competitors? What is right, or perhaps misguided, about its grocery strategy?
I’m not so sure that “more” is better for Sam’s Club, in as much as I believe that “better” would be better for Sam’s Club. In my opinion, it’s Sam’s competitors that are offering better quality; at least that’s what people tell me. And you know what they say about perception….
Offering value buys in grocery is a winning strategy in today’s rising food price environment. I also think reducing pack sizes expands their potential customer base to smaller households (people and storage space).
It is not indicated in the article, but I am curious about potential cannibalization of current Walmart Supercenter grocery shopping. Neither Costco nor BJ’s has this potential overlap.
If you doubt the viability of groceries in a price club, go to the nearest Costco. They are doing a marvelous job.
Sam’s will be wise to make this a two-part exercise, 1) the mentioned quality upgrades, combined with 2) more consumer friendly packaging. Personal experience says a two person household of reasonably demanding tastes can find a lot of reasons to shop for food and wine at Costco. The lack of that offering is what drove us away from Sam’s — even before Costco opened in Chicago. If they pay attention to both elements of the equation, this should be a good move for Sam’s.
Let me put it this way: we shopped there Saturday and I dropped $650.00. A few pairs of jeans, but the rest was all grocery and HBA. Excellent selection of frozen entres, wine, beer and a pork loin to die for.
Yes, the selection is expanding and about half of the expenditure was unplanned. Just too good to pass up.
I was to the Manhattan Costco for the first time on Sunday. It was full of activity at 10:00 in the morning. It looked to me that every shopper was shopping groceries. There was no one in the electronics aisles. There were a few people in the apparel aisles (with their baskets of groceries). The produce section was the most crowded.
I have not been to a suburban Costco nor to this Costco on a weekday, so I don’t know if it is different, but I would guess that the majority of sales at this Costco come from groceries.
With regard to Sam’s, if Costco can do it, Sam’s can do it. (Remember when people thought Walmart would never be successful with groceries???)
Actually, it’s not necessarily so that if COSTCO can do it, so can Sam’s. They posess far different corporate mentalities, notwithstanding the many seeming similarities in club design, layout and operations.
COSTCO folks (indeed all those mentored by Sol Price) are awesome ‘item’ merchants, bent on providing great quality, an ‘aha’ factor, and the best possible price to the member.
Sam’s has rightly judged the new direction to take with groceries. Costco has developed the Kirkland Brand very well–causing other “clubs” serious losses. A new focus on Sam’s Private Brand products to provide more value and offer selections that will reflect member interest and purchase patterns can help.
Development of packaging formats that convey product value, with the right level of convenience will go a very long way to differentiate. Large, bulky packages that are hard to open and difficult to store send a very different value signal. As always, execution is critical to success.
Sam’s Club is headed in the right direction. From a perspective of being formerly employed by Costco for 13 years and still in the grocery business, I see Sam’s Club is making great strides. The merchandise is much better and the remodeling has won me over. I never used to shop Sam’s Club and now I’m in there twice a week!