Wal-Mart Pricing Report: Round II

Of Brands and Prices

One interesting pricing practice is the treatment of jarred and semi-perishable branded items. We can use as an example Del Monte brand jarred fruit. Logic would make us expect that supermarkets would be highly competitive on an item like this. After all, it is impossible for a consumer to know the exact quality specifications of a selection of produce without personally inspecting it. And even then, not all shoppers have faith in their own ability to ascertain quality distinctions on fresh produce.

So, even if a shopper knows some other store is less expensive on peaches, the shopper will not necessarily assume he or she is being ripped off. If the consumer believes in a store, then the consumer might just assume that the favored store buys better stuff. So, at least theoretically, we can see that stores might be willing to accept being higher priced on certain bulk items and confident that the consumer will not consider the store high priced, just high quality. But an item like Del Monte jarred fruit would seem to demand a different thought process. As a highly consistent, jarred, branded product, consumers can be expected to assume that all Del Monte jarred fruit is created equal, just like all Campbell’s Soup or Heinz Baked Beans are created equal.

Yet, other than when the item is on sale, as it was at Smith’s in Salt Lake City during our study, every single supermarket has allowed Wal-Mart to consistently portray itself on a parity product as a bargain. Indeed the more competitive a store is with Wal-Mart pricewise, the more out of whack pricing seems to be on an item like this. For example, Harmon’s, which overall comes down to within 2 percent of Wal-Mart’s pricing level in our study, is content to sell Del Monte jarred fruit at $4.29 each, whereas Super Wal Mart finds $2.98 very acceptable.

What accounts for this anomaly? The answer seems to be a search by supermarkets for margin enhancers. These products seem to be viewed as expendable and only valuable if they produce a chance to increase the department’s average percentage profit.

Would profit dollars increase at a lower price point? Perhaps. But certainly if one were in a battle with a Wal-Mart Supercenter, one would be wary of the message this obtuse price sends to consumers. It seems to say that if we can grab a bit, we will.

Of course, Wal-Mart has its own problems with certain kinds of items. Wal-Mart Supercenters do have a more limited range of offerings than the largest supermarkets, but they try to have a broad range. This may get them into trouble sometimes. For example, at the Wal-Mart Supercenter we studied in Salt Lake City, Wal-Mart carried Melissa’s brand jicama. In fact it was the only one of the stores studied to carry a branded jicama at all. But it is also an item where Wal-Mart got creamed on price. Albertson’s, Smith’s and Harmon’s all undersold Wal-Mart on jicama, with prices ranging from 22 percent lower at Albertson’s and 46 percent lower at Harmon’s. Perhaps Wal-Mart just doesn’t care about this comparatively small item or, perhaps, to have some specialty items, Wal-Mart just turns this over to a branded source without worrying about being cheaper. But, still, jicama is eaten both by yuppies doing salads and dips and by Hispanics. Maybe Wal-Mart also is sending a message it hasn’t intended to send.