February 7, 2007
Schnuck’s Prepares for Supercenter Push
Differentiation is the name of the game and the question becomes how best to do that when the competition you fear most is Wal-Mart.
In St. Louis, Schnuck Markets is taking a dual track approach. First, the company looked to increase operational efficiency to lower costs and, ultimately, do the same on price-sensitive staples.
In fact, according to a St. Louis Post-Dispatch report, there is something of a price war going on now over bananas. Schnuck’s, along with Dierberg Markets and Shop ‘n Save, have dropped prices on bananas more than once since the middle of January.
Schnuck Markets’ price-cutting, however, has gone far beyond bananas. Last month, the chain lowered prices on more than 10,000 items sold in its stores.
The second prong of Schnuck Markets’ strategy is to go more upscale with its product offerings and customer service. The chain is expanding its prepared foods area, organic food offerings, recipe kiosks and adding coffee cafes with wireless internet access to some locations.
“They are trying to neutralize price vulnerability and at the same time add
upmarket products and services you wouldn’t find at a low-price retailer,” said Jon Hauptman, a partner at Willard Bishop Consulting.
Scott Schnuck, chairman and CEO of the family-owned chain, said the company’s two-track strategy is the right way to go. “We have to strengthen our food image,” he said. “We have to convince customers we are experts so they will want to come to us for answers on nutrition and entertaining. At the same time, we have to be competitively priced.”
Carrie Thum, a Wal-Mart spokesperson, did not offer a number for the total amount of Supercenters planned for the St. Louis market.
Discussion Questions: Is Schnuck Markets taking the right approach to compete
against Wal-Mart’s Supercenters? Are there other local chains that have successfully
faced a heavy build-up of Wal-Mart Supercenters in other parts of the country?
What can be learned from the experiences of these businesses?
BrainTrust
Recent Discussions
Discussion Questions
Poll
As a St. Louis resident, Retail Industry veteran and past vendor of Schnuck’s and Wal-Mart, I believe Schnuck’s is playing right into the hands of Wal-Mart. My fellow St. Louisians feel with Schnuck’s announcing that they have reduced price on 10,000 items, that they have been overcharging them on these same items for years. This has caused resentment and mistrust of Schnuck’s. So, when the time comes, there will be no loyalty towards Schnuck’s. Schnuck’s will be reduced to a battle of low prices which they cannot possibly win. Their team should have considered a Wal-Mart type “Rollback” program where their lower prices could have been introduced in stages, etc. Or, quietly. This current move is perceived by their customers as strictly a defensive maneuver. I would advise Schnuck’s to overwhelm their customers with service. Wal-Mart cannot compete on this level. Schnuck’s needs to take a lesson from their neighbor, Dierbergs, and increase service. Become the good neighbor they used to be instead of being reduced to fighting price wars they cannot win. They should pick their fight and it needs to be with something they can win with…service.
After nearly half a million price checks, we found that 85% of Wal-Mart’s prices are higher than their competitors as a group. We found that the more consumers shop at Wal-Mart, the more convinced they become that Wal-Mart’s prices are lower than they really are. This leads consumers to see Wal-Mart as better than they are at the other expectations-areas (service, selection, etc.), and seeing price as more important than it is otherwise. I have pages and pages of data to support these conclusions for anyone who is interested.
This means that Wal-Mart’s core competence is not low prices or efficient logistics, but public relations. Wal-Mart succeeds as it does because huge segments of the consumer population buys the idea that their prices are lower. Wal-Mart’s business model in use is NOT low prices, it is public relations to convince consumers that its prices are low. Wal-Mart has been wildly successful as an incredible public relations machine.
To really succeed against Wal-Mart, then, you must make a dent in this public relations strategy. After a statistically valid test showed a way to reverse this mis-perception of Wal-Mart and actually recapture customers (in which we found price promotion did NOT work, by the way), we proposed to the grocery industry that no one need change prices one penny in order to recapture customers from Wal-Mart. We have pages and pages of data on this as well.
Good luck, Schnuck’s! Keep your pluck to buck the Wal-Mart truck.
I guess I’m not a fan of multi-faceted marketing. There are several examples of retailers who have gone upscale and dropped prices at the same time, and most of them ended up hurting both their overall business and their margins.
Schnuck’s is a great operator. What they need to do is hone those things they are already doing well. People seem to forget that Wal-Mart’s growth came not because they tried to be all things to all people (the traditional supermarket approach) but rather because they succeeded in being one thing brilliantly for some people.
One could argue that they began to stumble a bit at the point that Wall Street demanded they maintain their growth multiples–causing them to market outside their target customer base.
As I said, Schnuck’s is already a great operator. Will they lose some sales to Wal-Mart? No question. Is that enough to make them move away from their core competencies? I hope not.
I have a great deal of respect for Schnuck’s and wish them the very best. I have yet to see though where a price-based strategy was the right one against Wal-Mart. Examining their prices for embarrassing ones is fine but across the board price cuts could be better used to enhance service, decor, and selection in my opinion. Dierbergs has staked out the upscale territory and Wal-Mart the low priced one so where does that leave Schnuck’s? They have a great reputation as the home town grocer and I think St. Louis is sensitive to that to a greater degree than many cities. And they have wonderful locations but that alone won’t assure them of success. I believe they could take some lessons from Publix and have the friendliest stores and the stores that people just want to shop at. And carry the larger selections that will set them apart from Wal-Mart.
It’s interesting how Wal-Mart changes the competitive set. Everyone fears and complains about them but human nature being what it is, they don’t change their business model until Wal-Mart is in their back yard. Schnuck’s is a strong regional brand and their differentiation strategy is the right one but it sounds as if they’re just rolling it out. Why didn’t they take some of that extra margin they’ve been making on 10,000 items and plow it back into customer centric store offerings a long time ago? That way their loyal customers would already be entrenched and disinclined to try Wal-Mart. Instead they’re communicating to the marketplace that their prices are too high at the same time they’re scrambling to create a better shopping experience. It’s much harder to win back disaffected shoppers than to keep them in the first place. Hopefully Schnuck’s can scale their model quickly to keep customer defections to a minimum.
Schnuck’s has the right idea, in that consumers react differently across the country, so looking at someone else’s strategy should not be the ONLY course of action. It seems that, in the development of their strategy, they have done just that; testing a mix of upscale and price. But, in my opinion, these days service is often the ignored variable.
Schnuck’s has a lot going for them. They have always had a winning attitude and are not afraid to take a risk. They are privately held, which allows them to make smart business decisions for long term results instead of irresponsible decisions to please short term investors on Wall Street. I’ve had enough experience with Schnuck’s and their highly regarded market research team that I’m not going to second guess their decisions. There is probably going to be some shakeout in St. Louis. We know Wal-Mart, Schnuck’s,and Dierbergs aren’t going anywhere. That leaves Shop ‘N Save–owned by SuperValu. What we have learned is that with a heavy supercenter buildup, SuperValu retail packs up and leaves town. SuperValu seems to have been coming up on the short end recently with regards to running retail stores. Past closures of SuperValu retail in Columbus, Indianapolis, Nashville, Denver, and most recently in Pittsburgh and Milwaukee indicate that outside of the Twin Cities, SuperValu will give it up when pressured. With Schnuck’s, failure is not an option and they have the home field advantage.
Schnuck’s vs. Wal-Mart Supercenters: As Kathryn Hepburn once said, “Enemies (competitors) are so stimulating.” And it seems WM has stimulated–and possibly scared–a very successful and highly focused retailer, Schnuck’s, to become stimulated to do things that they should have either done better or shouldn’t do now.
Years ago, Schnuck’s was like Wal-Mart as it went about penetrating the St. Louis marketplace. A&P, Kroger and National Tea stores hogged the “conventional” market back then and Bettendorf’s and Rapp’s appealed to those wanted the very best. Then Bettendorf and Fred Rapp’s were sold to chains and soon lost their unique luster.
One by one, Schnuck’s opened bigger, better, brighter, cleaner stores with more contemporary offerings than existing competition. Slowly, and with a little help from union strikes against their chain competition, Schnuck’s rose to top of the Greater St. Louis marketplace.
To fend off the impact of Wal-Mart Supercenters they should continue to position themselves as the best place to go and buy–when you care enough of yourself to buy the very best–not the cheapest.
That’s the approach Byerly’s/Lunds has used in the Twin Cities market against CUB, Wal-Mart and SuperTarget and they have carved out a strong market niche that is willing to pay more, frequently much more, for fresh products, better presentation and more upscale merchandising. As Ryan has stated, they will lose some sales to Wal-Mart but their profit opportunity lies in being better and remain different.
Schnuck’s has hit upon the best solution for maintaining market share in the face of Wal-Mart expansion. Too many family own supermarket chains have sacrificed their superior customer service and high quality upscale assortments to compete in the low price arena. Despite competition for price, Wal-Mart will continue to win over the low price consumer who does not mind the limits on selection and quality or the lack of friendly sales help. The key to survival is providing quality, assortment, and service for the rest of the consumers in the region who don’t mind paying a few cents more to be treated like a valued customer.
It’s not like Schnuck’s is dealing with anything new here.
St. Louis is just about 400 miles from Bentonville and there have been Wal-Marts in the area for 30 years and SuperCenters in the St. Louis area for well over a decade. The established customer base for both companies is long term.
The new threat may well be that Wal-Mart continues to improve at a higher rate than Schnuck’s and they’re realizing they’d better get moving.
Let us not forget that Schnuck’s does not just have stores in St. Louis, they have a strong presence in Southern Indiana and Tennessee. The comment that they may have taken too long was lost in the fact that they worked on re-aligning their distribution system more efficiently. A very difficult task for say larger chains like the Kroger’s and Albertsons of the world–and that will help them be more price competitive. Given that, and increasing selection (targeted towards customer clusters) and superior customer service will help keep their customer base in the store in and out of St. Louis.
I live in a market where Wal-Mart, Schnuck’s and Kroger rule the food scene. Out of the three, Schnuck’s has the best atmosphere, aside from one midtown store that needs to be recreated from the ground up. The best thing I see from this is that Schnuck’s will be adding better high-end brands. Not too long ago they added some very bargain brands and I think that tarnished their reputation. Here, they took over some older Albertsons stores which had belonged to a local chain. Albertsons completely killed off anything good from the local chain and Schnuck’s came in and brought back some of the original recipes for the local favorites. Overall, they make good moves.
Schnuck’s already beats Wal-Mart and Kroger on cleanliness and service everyday. In the grocery world, unless you are a super bargain, save-a-lot type of store…the more upscale and uniqueness, the better.
I can see the upgrading as winning move for them but I agree that they should have not publicly announced a lower price on over 10,000 items. It does give bad karma.
One thing I have learned is that if you are going to compete on price, in any industry, you can only do so in the end if you have lowest costs. Companies that try a low price strategy without the lowest cost structures either fail or return insufficient returns to shareholders, which leads to failure again in the end.
The question is, can Wal-Mart get bananas to the shelf at a total cost lower than the competition? If so, matching prices is a limited strategy, though of course you need to be “close enough” to not push away shoppers.
My own (emerging) research is that, while Wal-Mart of course has a very strong supply chain, the main source of its cost advantage comes from buying the goods at a lower price to begin with based on its scale, more so than distribution efficiency.
One model for success here is H.E. Butt Grocery Company. It can be argued that no middle-market grocer has done as good a job of defending their turf against Wal-Mart as H-E-B. And the Schnuck’s strategy has many similarities. Echoing others before me–I think Schnuck’s will be just fine.
The Schnuck’s/Wal-Mart situation will allow shoppers to segment themselves more readily by the store choices they make. Those who are very price conscious will become the core of Wal-Mart’s food shopper base and there is little that Schnuck’s can do about that. However, many (maybe most) shoppers want good prices and good sales but want selection and good shopping experience too. The trick will be to conduct shopper insights research that can be analyzed at a shopper sub-segment level, rather than only in the aggregate so Schnuck’s can identify a sizable target of shoppers who don’t ONLY care about price, and then optimize their retail experience for THEM, not for the average shopper.
More Discussions
Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?Should IKEA Be Flattening Management?
Should IKEA be trimming down its management headcount?Is Legislation the Answer on Visa, Mastercard Swipe Fees as ~$200 Billion Record Is Set?
Is lawmaking the way forward on swipe fees?
As a St. Louis resident, Retail Industry veteran and past vendor of Schnuck’s and Wal-Mart, I believe Schnuck’s is playing right into the hands of Wal-Mart. My fellow St. Louisians feel with Schnuck’s announcing that they have reduced price on 10,000 items, that they have been overcharging them on these same items for years. This has caused resentment and mistrust of Schnuck’s. So, when the time comes, there will be no loyalty towards Schnuck’s. Schnuck’s will be reduced to a battle of low prices which they cannot possibly win. Their team should have considered a Wal-Mart type “Rollback” program where their lower prices could have been introduced in stages, etc. Or, quietly. This current move is perceived by their customers as strictly a defensive maneuver. I would advise Schnuck’s to overwhelm their customers with service. Wal-Mart cannot compete on this level. Schnuck’s needs to take a lesson from their neighbor, Dierbergs, and increase service. Become the good neighbor they used to be instead of being reduced to fighting price wars they cannot win. They should pick their fight and it needs to be with something they can win with…service.
After nearly half a million price checks, we found that 85% of Wal-Mart’s prices are higher than their competitors as a group. We found that the more consumers shop at Wal-Mart, the more convinced they become that Wal-Mart’s prices are lower than they really are. This leads consumers to see Wal-Mart as better than they are at the other expectations-areas (service, selection, etc.), and seeing price as more important than it is otherwise. I have pages and pages of data to support these conclusions for anyone who is interested.
This means that Wal-Mart’s core competence is not low prices or efficient logistics, but public relations. Wal-Mart succeeds as it does because huge segments of the consumer population buys the idea that their prices are lower. Wal-Mart’s business model in use is NOT low prices, it is public relations to convince consumers that its prices are low. Wal-Mart has been wildly successful as an incredible public relations machine.
To really succeed against Wal-Mart, then, you must make a dent in this public relations strategy. After a statistically valid test showed a way to reverse this mis-perception of Wal-Mart and actually recapture customers (in which we found price promotion did NOT work, by the way), we proposed to the grocery industry that no one need change prices one penny in order to recapture customers from Wal-Mart. We have pages and pages of data on this as well.
Good luck, Schnuck’s! Keep your pluck to buck the Wal-Mart truck.
I guess I’m not a fan of multi-faceted marketing. There are several examples of retailers who have gone upscale and dropped prices at the same time, and most of them ended up hurting both their overall business and their margins.
Schnuck’s is a great operator. What they need to do is hone those things they are already doing well. People seem to forget that Wal-Mart’s growth came not because they tried to be all things to all people (the traditional supermarket approach) but rather because they succeeded in being one thing brilliantly for some people.
One could argue that they began to stumble a bit at the point that Wall Street demanded they maintain their growth multiples–causing them to market outside their target customer base.
As I said, Schnuck’s is already a great operator. Will they lose some sales to Wal-Mart? No question. Is that enough to make them move away from their core competencies? I hope not.
I have a great deal of respect for Schnuck’s and wish them the very best. I have yet to see though where a price-based strategy was the right one against Wal-Mart. Examining their prices for embarrassing ones is fine but across the board price cuts could be better used to enhance service, decor, and selection in my opinion. Dierbergs has staked out the upscale territory and Wal-Mart the low priced one so where does that leave Schnuck’s? They have a great reputation as the home town grocer and I think St. Louis is sensitive to that to a greater degree than many cities. And they have wonderful locations but that alone won’t assure them of success. I believe they could take some lessons from Publix and have the friendliest stores and the stores that people just want to shop at. And carry the larger selections that will set them apart from Wal-Mart.
It’s interesting how Wal-Mart changes the competitive set. Everyone fears and complains about them but human nature being what it is, they don’t change their business model until Wal-Mart is in their back yard. Schnuck’s is a strong regional brand and their differentiation strategy is the right one but it sounds as if they’re just rolling it out. Why didn’t they take some of that extra margin they’ve been making on 10,000 items and plow it back into customer centric store offerings a long time ago? That way their loyal customers would already be entrenched and disinclined to try Wal-Mart. Instead they’re communicating to the marketplace that their prices are too high at the same time they’re scrambling to create a better shopping experience. It’s much harder to win back disaffected shoppers than to keep them in the first place. Hopefully Schnuck’s can scale their model quickly to keep customer defections to a minimum.
Schnuck’s has the right idea, in that consumers react differently across the country, so looking at someone else’s strategy should not be the ONLY course of action. It seems that, in the development of their strategy, they have done just that; testing a mix of upscale and price. But, in my opinion, these days service is often the ignored variable.
Schnuck’s has a lot going for them. They have always had a winning attitude and are not afraid to take a risk. They are privately held, which allows them to make smart business decisions for long term results instead of irresponsible decisions to please short term investors on Wall Street. I’ve had enough experience with Schnuck’s and their highly regarded market research team that I’m not going to second guess their decisions. There is probably going to be some shakeout in St. Louis. We know Wal-Mart, Schnuck’s,and Dierbergs aren’t going anywhere. That leaves Shop ‘N Save–owned by SuperValu. What we have learned is that with a heavy supercenter buildup, SuperValu retail packs up and leaves town. SuperValu seems to have been coming up on the short end recently with regards to running retail stores. Past closures of SuperValu retail in Columbus, Indianapolis, Nashville, Denver, and most recently in Pittsburgh and Milwaukee indicate that outside of the Twin Cities, SuperValu will give it up when pressured. With Schnuck’s, failure is not an option and they have the home field advantage.
Schnuck’s vs. Wal-Mart Supercenters: As Kathryn Hepburn once said, “Enemies (competitors) are so stimulating.” And it seems WM has stimulated–and possibly scared–a very successful and highly focused retailer, Schnuck’s, to become stimulated to do things that they should have either done better or shouldn’t do now.
Years ago, Schnuck’s was like Wal-Mart as it went about penetrating the St. Louis marketplace. A&P, Kroger and National Tea stores hogged the “conventional” market back then and Bettendorf’s and Rapp’s appealed to those wanted the very best. Then Bettendorf and Fred Rapp’s were sold to chains and soon lost their unique luster.
One by one, Schnuck’s opened bigger, better, brighter, cleaner stores with more contemporary offerings than existing competition. Slowly, and with a little help from union strikes against their chain competition, Schnuck’s rose to top of the Greater St. Louis marketplace.
To fend off the impact of Wal-Mart Supercenters they should continue to position themselves as the best place to go and buy–when you care enough of yourself to buy the very best–not the cheapest.
That’s the approach Byerly’s/Lunds has used in the Twin Cities market against CUB, Wal-Mart and SuperTarget and they have carved out a strong market niche that is willing to pay more, frequently much more, for fresh products, better presentation and more upscale merchandising. As Ryan has stated, they will lose some sales to Wal-Mart but their profit opportunity lies in being better and remain different.
Schnuck’s has hit upon the best solution for maintaining market share in the face of Wal-Mart expansion. Too many family own supermarket chains have sacrificed their superior customer service and high quality upscale assortments to compete in the low price arena. Despite competition for price, Wal-Mart will continue to win over the low price consumer who does not mind the limits on selection and quality or the lack of friendly sales help. The key to survival is providing quality, assortment, and service for the rest of the consumers in the region who don’t mind paying a few cents more to be treated like a valued customer.
It’s not like Schnuck’s is dealing with anything new here.
St. Louis is just about 400 miles from Bentonville and there have been Wal-Marts in the area for 30 years and SuperCenters in the St. Louis area for well over a decade. The established customer base for both companies is long term.
The new threat may well be that Wal-Mart continues to improve at a higher rate than Schnuck’s and they’re realizing they’d better get moving.
Let us not forget that Schnuck’s does not just have stores in St. Louis, they have a strong presence in Southern Indiana and Tennessee. The comment that they may have taken too long was lost in the fact that they worked on re-aligning their distribution system more efficiently. A very difficult task for say larger chains like the Kroger’s and Albertsons of the world–and that will help them be more price competitive. Given that, and increasing selection (targeted towards customer clusters) and superior customer service will help keep their customer base in the store in and out of St. Louis.
I live in a market where Wal-Mart, Schnuck’s and Kroger rule the food scene. Out of the three, Schnuck’s has the best atmosphere, aside from one midtown store that needs to be recreated from the ground up. The best thing I see from this is that Schnuck’s will be adding better high-end brands. Not too long ago they added some very bargain brands and I think that tarnished their reputation. Here, they took over some older Albertsons stores which had belonged to a local chain. Albertsons completely killed off anything good from the local chain and Schnuck’s came in and brought back some of the original recipes for the local favorites. Overall, they make good moves.
Schnuck’s already beats Wal-Mart and Kroger on cleanliness and service everyday. In the grocery world, unless you are a super bargain, save-a-lot type of store…the more upscale and uniqueness, the better.
I can see the upgrading as winning move for them but I agree that they should have not publicly announced a lower price on over 10,000 items. It does give bad karma.
One thing I have learned is that if you are going to compete on price, in any industry, you can only do so in the end if you have lowest costs. Companies that try a low price strategy without the lowest cost structures either fail or return insufficient returns to shareholders, which leads to failure again in the end.
The question is, can Wal-Mart get bananas to the shelf at a total cost lower than the competition? If so, matching prices is a limited strategy, though of course you need to be “close enough” to not push away shoppers.
My own (emerging) research is that, while Wal-Mart of course has a very strong supply chain, the main source of its cost advantage comes from buying the goods at a lower price to begin with based on its scale, more so than distribution efficiency.
One model for success here is H.E. Butt Grocery Company. It can be argued that no middle-market grocer has done as good a job of defending their turf against Wal-Mart as H-E-B. And the Schnuck’s strategy has many similarities. Echoing others before me–I think Schnuck’s will be just fine.
The Schnuck’s/Wal-Mart situation will allow shoppers to segment themselves more readily by the store choices they make. Those who are very price conscious will become the core of Wal-Mart’s food shopper base and there is little that Schnuck’s can do about that. However, many (maybe most) shoppers want good prices and good sales but want selection and good shopping experience too. The trick will be to conduct shopper insights research that can be analyzed at a shopper sub-segment level, rather than only in the aggregate so Schnuck’s can identify a sizable target of shoppers who don’t ONLY care about price, and then optimize their retail experience for THEM, not for the average shopper.