Wal-Mart’s Strengths in Groceries Compared to Competitors
Wal-Mart has an tremendous history of innovating low cost distribution systems. Wal-Mart’s operational efficiencies made the food side itself profitable from the beginning of the supercenter concept. As a result, the supercenters are typically larger, more focused on food, and able to have more side businesses than their competitors. Wal-Mart’s extension to groceries seemed very logical and offers customers a chance for one-stop shopping.
Given the company’s reputation for low-prices, customers can be confident they will also be getting the best prices on food. The success of the grocery side is making the switch to supercenters very easy for Wal-Mart. The company is very enthusiastic to switch to ever larger supercenters. This attitude is reflected in Wal-Mart’s Vice Chairman John Menzer when he said “We would love to wave a magic wand and [make] every one of our discount stores a supercenter.”
Wal-Mart’s Grocery Weaknesses to Competitors
Wal-Mart’s move to groceries was largely pushed by their realization that their standard discount stores had saturated the market. They plan to open 1000 supercenters in the next five years. But this focus on supercenters has problems.
While the grocery side of Wal-Mart was able to turn a profit, the grocery business was already operating on low margins when Wal-Mart entered. This means that Wal-Mart has little advantage to offer prices which are much lower than the competition. Wal-Mart needs to provide value outside of their low prices to attract consumers into the supercenters. In fact the supercenters operated on margins of 6.6% while their discount stores traditionally held margins of 9%-10%. This signals that any growth by Wal-Mart will be of the l ...