When it comes to setting the lowest prices in town, nobody plays the game better than the five alternative discount retailers profiled here.
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Wal-Mart gave its supercenters a boost with an efficient logistic system that keeps inventory low with costs minimized throughout the entire supply chain. It's a system that is constantly updated for greater efficiency.
"Everything it does is designed to minimize the costs of operations," said Gary Giblen, senior vice president and director of research for C L King Associates, New York.
Slotting allowances are not a factor. Buyers work on getting supplier prices low through dead-net pricing. Wal-Mart also watches the competition and is quick to pounce when a competitor drops below its low retail prices on price-sensitive items.
Aldi has taken its German-based ingenuity and applied it to buying volume on a very limited assortment of products stacked warehouse-style on pallets in small, bare-bones stores. Said Neil Stern, senior partner, McMillan Doolittle, Chicago, "They are more efficient than Wal-Mart, Carrefour -- anybody in the world."
The action on the part of Save-A-Lot, a subsidiary of Supervalu, to combine the Deal$ format is also strictly structured, with a limited number of stockkeeping units set to turn at high rates. Retail prices average 40% below those at conventional supermarkets, according to Bill Moran, Save-A-Lot's chief executive officer. The addition of general merchandise sets Save-A-Lot apart from Aldi, which just carries consumables.
"What's good about Deal$ for Save-A-Lot is that it gives people an additional reason to visit the store," said Willard Bishop, president, Bishop Consulting, Barrington, Ill.
Costco Warehouse Clubs are efficient right down to the supplier relationship. Volume sales and package sizes are important in achieving low prices. It offers lower-priced merchandise to customers willing to pay for the privilege of shopping its stores and who have the discretionary income to buy high-ticket items, as well as the consumables. Costco's fresh-food department, which contributes about 11% to its sales, has been turned into a frequent-shopper attraction of quality products that offer value. "[Fresh food] brings people in on a more frequent basis, and when they are there, they can't help but pick up a pair of jeans, a dozen golf balls, or a TV," said Richard Galanti, Costco's executive vice president and chief financial officer.
Winn-Dixie's Save Rite is a warehouse format carrying a full mix of grocery products and some general merchandise. Efficiencies are partially achieved through the elimination of in-store services, said Joanne Gage, senior director of consumer and marketing services for the chain. The store also cuts costs by eliminating baggers and carryout services. "If you just stack it high and sell it cheap, you don't have to go in and service the aisles as often," one analyst said about Save Rite.
These everyday-low-price leaders are pulling in the customers and stealing share away from the traditional supermarket operators. In return for low prices, shoppers are willing to sacrifice service, convenient package sizes and, in some instances, a comfortable and familiar food-retail shopping environment.
More details follow on how each of these alternative price players operate and bring its retail prices down.
