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STUDY AUGMENTS BASICS OF COMPETING WITH WAL-MART

More words than anyone would care to contemplate have been written about the Wal-Mart effect, specifically the discounter's ability to drain shoppers' dollars from conventional supermarkets.That phenomenon, of course, is driven by the large price spread that exists between the discounter and conventional stores. But there's more to it than that. Wal-Mart prices animate buying decisions of a far larger

More words than anyone would care to contemplate have been written about the Wal-Mart effect, specifically the discounter's ability to drain shoppers' dollars from conventional supermarkets.

That phenomenon, of course, is driven by the large price spread that exists between the discounter and conventional stores. But there's more to it than that. Wal-Mart prices animate buying decisions of a far larger shopper demographic than that which must count pennies. Here's an example: It was reported in the New York Times earlier this month that some shoppers buy upscale product at stores such as Whole Foods, then endeavor to repay their purses by sourcing what they would consider to be commodity product at Wal-Mart. The point to be considered here is that this consumer behavior is now common enough to have warranted attention from mainstream media. More important, this kind of consumer-imposed high-low shopping illustrates the complexity of consumer decision making as they weigh shopping options. Clearly, Wal-Mart's prices motivate customers, but the results can stray far from the expected. Who would have thought a few years back that Wal-Mart's price-point reductions would give shoppers license to shop more costly stores?

With that complexity in mind, take a look at the report on an academic study in this issue of SN. The study seeks to identify what sorts of shoppers are likely to abandon their traditional shopping choice when a Wal-Mart establishes in a market. See Page 32.

Before we look at conclusions, it should be pointed out that the study has limitations, chiefly because its findings are premised on what happened at one unidentified chain supermarket nearly four years ago. The study either discloses, or it can be surmised, that little effort to blunt Wal-Mart's competitive potential was mounted at the laboratory supermarket. More, it was an upscale, suburban unit in the East. Its annual sales volume was about $18 million before Wal-Mart arrived. Upon Wal-Mart's arrival, 17% of sales were lost. The study was largely based on frequent-shopper data.

What's instructive about the study's finding is that most of the sales volume lost (70%) could be attributed to a minority of shoppers (20%). So, while most shoppers didn't defect, those who did evidently were among the biggest spenders. The study shows that the defectors were those who previously shopped on weekends and who frequently bought store brands. Many had an infant in the home and had a pet. In short, people with large and growing families vanished. Those that didn't defect to Wal-Mart had previously shopped the supermarket for product such as produce, seafood and prepared food. Another critical point is that when, on occasion, shoppers who had defected returned to the supermarket, they spent about as much per trip as they did prior to Wal-Mart's arrival.

So, assuming the study's findings can be generalized and remain relevant now, supermarket operators should identify defecting shoppers and determine what products they typically purchase. Then, they should find out what wanted product isn't at Wal-Mart. That will form the means to get defectors back to the supermarket, possibly stemming dollar drains toward both upscale and low price.

TAGS: Walmart