Sprouts Farmers Market Bests Wal-Mart Produce Pricing In Tulsa
The low-price retailer struggles to uphold its position as leader.
Experts in retail point out that Wal-Mart’s positioning is now problematic. The problem? The growth of deep discount concepts such as Aldi and Save-A-Lot seems to pose the danger of positioning Wal-Mart not as a low-price leader but, instead, as somewhere in the middle. Trapped between those offering better assortment and more services and those offering better prices, the middle is usually a rough place to be.
Yet despite this looming issue, the Produce Business Wal-Mart Pricing Report has been remarkably consistent: When it comes to competing with conventional supermarkets, Wal-Mart rarely gets beat. In fact, in 25 separate studies spanning more than a decade, only once did a large scale mainstream supermarket concept beat the prices at the Wal-Mart Supercenter — a singular Kroger in Savannah, GA.
Now as the Produce Business Wal-Mart Pricing Report rolls into Tulsa, OK, we find that Wal-Mart’s position remains strong, but we also see that Wal-Mart’s position is now under siege, everywhere.
Wal-Mart did well in Tulsa. It beat supercenter rival Target, as Super Target’s prices turned out to be 12.9 percent over Wal-Mart’s. As for Winn-Dixie, it came out with prices 17.4 percent over Wal-Mart. The Warehouse Market wasn’t selling wholesale, as its prices ran out as 8.8 percent over Wal-Mart. Reasor’s was just blown out of the water, with prices a full 43.6 percent over Wal-Mart.
Yet Wal-Mart did not win in Tulsa. The low price leader was not Wal-Mart but Sprouts Farmers Market, edging Wal-Mart out of first place with prices 1.9 percent under Wal-Mart.
Now there are always complications. Reasor’s, for example, offers a frequent shopper program that earns customers discounts on gasoline that others don’t offer. This particular Sprouts Market has been open less than six months, so some of its pricing may be influenced by its “just-opened” status.
Still, there is this disturbing fact for the executives in Bentonville: for the first eight years of the Produce Business Wal-Mart Pricing Study, the Wal-Mart Supercenter won 17 out of 20 editions of the study — and another edition was won by a Wal-Mart Neighborhood Market, which was running some specials. So Wal-Mart’s low-priced leadership won in 18 out of 20 editions of the Produce Business Wal- Mart Pricing Report.
Yet in the last five editions of the study, in New Jersey; Dallas, TX; Savannah, GA; Lake Worth, FL, and Tulsa, OK, Wal-Mart has never once won the
low-priced banner. Sprouts, the Tulsa champion, also beat Wal-Mart in Dallas, making it two for two in this David and Goliath battle.
Now, of course, there is much we don’t know. The Produce Business Wal-Mart Pricing Report only covers fresh produce, so it is possible that Wal-Mart’s compromised position on produce pricing is a result of strategy shifts among the players; maybe Wal-Mart is more focused on quality — thus all its TV commercials trying to show how great its produce is. Or maybe other retailers see produce as a rare place in the store where they can be price competitive and focus on that.
How They Stack Up Against Wal-Mart Supercenter
|Connecticut-5/02||Super Stop & Shop||23%||Shaws||34%||Big Y||36%|
|Salt Lake City-10/02||Harmon’s||2%||Smith’s||6%||Albertson’s||12%|
|South Florida-2/03||Super Target||22%||Publix||31%||Winn-Dixie||52%|
|Neighborhood Market||—1.2%||Tom Thumb||27%|
|Portland, OR-3/04||Albertsons||30%||Fred Meyer||22%||Haggen||27%|
|Detroit, MI-1/05||A&P Food Basic||—17%||Farmer Jack||24%||Kroger||28%|
|St. Louis, MO-5/05||Dierbergs||22%||Schnucks||14%|
|Houston, TX-9/05||HEB||15%||Kroger||30%||Fiesta Mart||—0.3%|
|Denver, CO-5/06||Albertsons||16%||King Sooper||21%||Safeway||25%|
|Portland, OR-10/06||Albertsons||32%||Fred Meyer||21%||QFC||54%|
|Kansas City, KS-10/07||Dillions||20%||Hen House||15%||Hy Vee||18%|
|Los Angeles-4/08||Fresh & Easy||15%||Stater Bros||8%||Ralphs||25%|
|Orlando, FL-10/08||Publix||32%||Super Target||22%||Whole Foods||38%|
|Phoenix, AZ 4/09||Wal-Mart Marketside||23%||Wal-Mart Neighborhood||7%||Bahas||30%|
|Fresh & Easy||32%||Fry’s||27%||Safeway||37%|
|Raleigh, NC 9/09||Food Lion||24%||Fresh Market||31%||Harris Teeter||35%|
|New Jersey 10/10||FoodBasics||—1%||Pathmark||15%||ShopRite||8%|
|Dallas 10/11||Albertson’s||25%||Central Market||19%||Kroger||21%|
|Sprouts||—7%||Super Target||10%||Tom Thumb||51%|
|Savannah 6/12||Food Lion||7%||Fresh Market||51%||Kroger||— 2%|
|Lake Worth, FL 11/12||El Bodegon||-9.5%||Presidente||-18.4%||Publix||29%|
|Tulsa, OK 10/13||Reasor’s||43.6%||Sprouts||—1.9%||Super Target||12.9%|
|Red is adjusted price|
There may be some truth to the latter. It is difficult for a small player to out-buy Wal-Mart on consumer packaged goods. Heinz Tomato Ketchup and Hellmann’s Real Mayonnaise, Pampers diapers and Campbell’s soup are manufactured products, and smaller players are going to pay the same or more than what Wal-Mart pays.
In procuring produce, though, size is not necessarily an advantage. Retailers in a position to buy that extra load that a shipper has on the floor, or flexible enough to help a wholesaler out when he is hung, often can buy product for less than the price a behemoth like Wal-Mart has to pay. Specifications and merchandising flexibility play a role as well. If a retailer is able to find tasty melons or peaches, but ones that are a different size or variety than it usually specifies and it is flexible enough to accept such product, it can offer consumers a great value, increase its own margins, and help out a shipper or wholesaler — all while creaming Wal-Mart on price.
Food safety and traceability issues play into the picture as well. Every step Wal-Mart might take, say requiring Global Food Safety Initiative (GFSI) participation by its vendors or demanding only Produce Traceability Initiative (PTI) compliant product, serves to constrain its supply chain. This offers a double whammy: Firstly, it means when looking at the supply/demand situation for its own produce purchases, Wal-Mart, by constraining its supply chain de facto, reduces the available supply from which it can purchase. This move raises costs.
Paradoxically, however, Wal-Mart’s decision to not purchase produce that doesn’t comply with its standards means that Wal-Mart, the largest buyer in the world, is no longer increasing demand for the noncompliant product. This creates a secondary produce market, in which Wal-Mart is not a factor. Its absence has the effect of reducing demand for the product in this secondary market. Less demand means lower prices, so Wal-Mart’s actions not only raise its costs, but actually lower the costs that smaller competitors, without these standards, wind up paying for produce.
Wal-Mart Supercenter vs 4 Chains
Price Comparison — Tulsa, OK
October 2013 – Prices Available To The General Public
|STORE NAME||WAL-MART||REASOR’S||SPROUTS||SUPER TARGET||WAREHOUSE MARKET|
|Produce Item||How Priced||Regular Price*||Regular Price*||% Over Wal-Mart||Regular Price*||% Over Wal-Mart||Regular Price*||% Over Wal-Mart||Regular Price*||% Over Wal-Mart|
|Apples – Granny Smith (PLU #4139)||Lb||1.24||1.99||60.48%||1.49||20.16%||1.49||20.16%||1.49||20.16%|
|Apples – Other Variety||Lb||1.67||2.29||37.13%||1.69||1.20%||1.79||7.19%||1.49||-10.78%|
|Apples – Red Delicious (PLU #4016)||Lb||1.47||1.69||14.97%||1.49||1.36%||1.49||1.36%||1.19||-19.05%|
|Bananas – Yellow||Lb||0.54||0.56||3.70%||0.49||-9.26%||0.52||-3.70%||0.54||0.00%|
|Cantaloupe – Whole||Each||1.78||2.00||12.36%||0.99||-44.38%||1.99||11.80%||1.29||-27.53%|
|Grapes – Green Seedless||Lb||1.88||2.39||27.13%||1.50||-20.21%||2.19||16.49%||1.89||0.53%|
|Grapes – Red Seedless||Lb||1.88||2.39||27.13%||1.50||-20.21%||1.99||5.85%||1.89||0.53%|
|Lemons – Bulk||Each||0.40||0.79||97.50%||0.50||25.00%||0.49||22.50%||0.29||-27.50%|
|Limes – Bulk||Each||0.25||0.44||76.00%||0.20||-20.00%||0.39||56.00%||0.33||32.00%|
|Peaches – California||Lb||1.48||2.39||61.49%||1.09||-26.35%||1.99||34.46%||1.29||-12.84%|
|Pears – Bartlett||Lb||1.27||1.99||56.69%||1.29||1.57%||1.89||48.82%||1.49||17.32%|
|Beans – Green||2 Lbs||5.88||4.98||-15.31%||3.98||-32.31%||3.98||-32.31%||4.38||-25.51%|
|Carrots – Regular 1# Bag||Package||1.48||1.49||0.68%||0.69||-53.38%||0.99||-33.11%||0.89||-39.86%|
|Corn – Yellow||Each||0.24||0.69||187.50%||0.25||4.17%||0.33||37.50%||0.50||108.33%|
|Cucumbers – Regular||Each||0.68||0.99||45.59%||0.59||-13.24%||0.79||16.18%||0.59||-13.24%|
|Lettuce – Green Leaf||Each||1.58||1.59||0.63%||1.29||-18.35%||1.49||-5.70%||1.59||0.63%|
|Lettuce – Iceberg Bulk||Each||1.48||1.69||14.19%||1.29||-12.84%||1.64||10.81%||1.89||27.70%|
|Lettuce – Red Leaf||Each||1.58||1.49||-5.70%||1.29||-18.35%||1.89||19.62%||1.59||0.63%|
|Lettuce – Romaine Bulk||Each||1.58||1.49||-5.70%||1.29||-18.35%||2.94||86.08%||1.59||0.63%|
|Mushrooms – White Package||1 Lb Pkg||2.96||3.78||27.70%||1.99||-32.77%||3.58||20.95%||3.38||14.19%|
|Peppers – Green Bell||Each||0.58||0.99||70.69%||0.50||-13.79%||0.89||53.45%||0.69||18.97%|
|Peppers – Red||Each||1.68||1.49||-11.31%||0.99||-41.07%||1.79||6.55%||0.99||-41.07%|
|Potatoes – Red Bulk||Lb||0.88||1.09||23.86%||1.29||46.59%||0.99||12.50%||0.99||12.50%|
|Potatoes – Russet||5 Lb Bag||3.57||4.79||34.17%||2.99||-16.25%||3.49||-2.24%||2.99||-16.25%|
|Potatoes – Russet Bulk||Lb||0.98||0.99||1.02%||0.89||-9.18%||0.59||-39.80%||0.79||-19.39%|
|Squash – Zucchini||Lb||1.25||1.79||43.20%||1.49||19.20%||2.99||139.20%||1.29||3.20%|
|Tomatoes – Plum/Roma||Lb||0.94||2.49||164.89%||0.99||5.32%||0.99||5.32%||1.49||58.51%|
|Coleslaw||1 Lb Bag||1.68||1.71||1.79%||1.49||-11.31%||1.69||0.60%||1.29||-23.21%|
|Salad – Caesar||14.6 Oz||3.28||8.32||153.66%||5.74||75.00%||6.72||104.88%||5.69||73.48%|
|Salad – Spring||10 Oz Bag||2.94||5.00||70.07%||6.98||137.41%||5.98||103.40%||7.76||163.95%|
|Red is adjusted price where package weight is different but can be adjusted for proper comparison.|
One saw this dynamic strongly at work in last year’s visit of the Produce Business Wal-Mart Pricing Report to Lake Worth, FL, found that two Latino oriented retailers, El Bodegon and Presidente Supermarkets were able to cream Wal-Mart on produce pricing.
Of course, it is one thing for small ethnic retailers to beat Wal-Mart, the highly specialized offers at these stores — especially in grocery — tend to limit their appeal. Produce is particularly troublesome to larger retailers because anyone can buy the apples, pears, onions or potatoes at these ethnic markets, but the grocery brands and flavor profiles tend to be specialized and make the stores not viable shopping options for large segments of the population.
Our Tulsa champion is different though, Sprouts has almost 150 stores in eight states. The fact that it won both our Dallas and Tulsa editions indicates its not a question of us hitting a particular special, but that the concept itself is low priced.
Sprouts has a complicated and intriguing history but traces its roots back to a fruit stand. In an age when farmers markets are booming, Sprouts is a supermarket “inspired” by farmers markets. In an age in which all the excitement is built around small format stores, Sprout’s operates stores that average 28,000 square feet.
As Wal-Mart was rolling out across the country, consultants used to preach that retailers should try and be the anti-Wal-Mart. They meant that retailers should move upscale, high service, lots of organic, lots of perishables, be great at everything Wal-Mart was not great at.
Sprouts has put its own spin on being the anti-Wal-Mart, not so much upscale and not so much high-service. For example, Sprouts likes to pre-slice deli meat. Sprouts is heavy into organic and natural, with strong emphasis on produce, and they are the anti-Wal-Mart in physical facility as well as corporate culture.
Sprouts is interesting and may grow into a position to give Whole Foods Market a run for its money. But the basic fact that Sprouts can beat Wal-Mart in pricing in the Wal-Mart pricing study in both Dallas and Tulsa, and the fact that someone has beaten Wal-Mart in the last five match-ups, all indicate that Wal-Mart is in need of a new strategy.
One thinks of the enormous cost of the physical planet that Wal-Mart occupies in thousands upon thousands of Wal-Mart supercenters, and one thinks of the booming business of Internet Shopping. Retailers in general operate with high fixed costs, and Wal-Mart has a huge investment in real estate. It sells a lot of non-food items which means it is heavily exposed to the Amazon.com phenomenon than a typical supermarket. What percentage of retailing has to shift online for it to pose real dilemmas for Wal-Mart’s profitability? The answer: not very much.
Of course before we worry too much about Wal-Mart, we can worry a bit about other players in the market. New management has revitalized a chain like Winn-Dixie, but look at the marketing positioning in Tulsa. If you are 17.4 percent over Wal-Mart, you are going to have trouble attracting the paycheck-to-paycheck crowd. But a store such as Sprouts, with its focus on natural and organic and its fun farmers market atmosphere, is bound to attract a better educated and foodie clientele.
Retail has just become so segmented that each retailer is now finding itself in desperate need of keeping a clear positioning in the minds of consumers. Are they high-end, low-price, organic or a farmers market. One looks at the failure of the U.K.’s Tesco’s fresh & easy concept in the U.S., and in a litany of problems that one can identify, the key failure was an inability to ever seize a clear positioning in the minds of the consumer. Were they a convenience store? A grocery store? An organic / natural / healthy store? Nobody knew, and that fact played a significant role in its demise.
And thus the real dilemma posed by the 25th iteration of the Produce Business Wal-Mart Pricing report. If Wal-Mart is not the low-price leader in Tulsa, or Lake Worth, or Savannah, or Dallas, or New Jersey — if it is not the low price leader in any market any more — well what does mean for Wal-Mart? What is Wal-Mart? Recreating an image in the minds of consumers is fraught with peril. How well Wal-Mart navigates this, and what Wal-Mart decides it wants to be, that will soon be evident in future editions of the Produce Business Wal-Mart Pricing report.