Riesbeck's Allows Bigger Price Gap With Wal-Mart

ELLIOT ZWIEBACH

LAS VEGAS — Riesbeck's Food Markets, St. Clairsville, Ohio, has increased its price gap with Wal-Mart over the past two years while still maintaining an EDLP program that also features ad specials.

Speaking at a workshop during the National Grocers Association's annual convention here this month, Leo Braido, director of sales, marketing and store management, said the chain had maintained a gap of between 6% and 10% with Wal-Mart, “but some prices were running too close to parallel.”

“Wal-Mart takes between 60 and 80 items and prices them at levels no one else can meet and still have any gross left, and retailers have to resist the temptation to focus on those items because you won't get close enough to make a difference.”

Over the last 18-24 months, Riesbeck's has allowed the gap to widen to between 10% and 15% above Wal-Mart, “and we believe that gap is right for us,” Braido said.

The chain continues to operate with an EDLP program, “but the money we save [from letting the gap widen] goes into offering additional values in our weekly ads and to running one-, two- and three-day specials to reinforce our value message,” he explained.

Riesbeck's has been utilizing EDLP since 2001, “and it's evolved over the years as consumers and competition have changed,” Braido said. “Today, it involves more than just price alone — it's all about value.

“We know people will go to Wal-Mart to buy motor oil or other nonfood items, and the best we can hope for is to share customers profitably with the competition.”

Braido said he sees extra opportunities for profits now that Wal-Mart is doing more targeting at its supercenters. “We have two supercenters on either side of two of our stores, and one prices milk 50 cents to 60 cents less than the other one because of different demographics.

“As a result, we raised our milk prices once we realized we were 20 cents cheaper per gallon and were giving away margin.”

With Wal-Mart and Kroger moving so heavily toward private label, “that opens up a big opportunity for us to sell more national brands, and we are seeing more and better deals. So we plan to continue to offer private-label goods while adding more national brands.”

Speaking at the same workshop, Sammy Hancock, operations manager for Lawrence Brothers Supermarkets, Sweetwater, Texas, said his 20-store conventional chain incorporates some elements of EDLP, “though we want to give value” by using other pricing programs to draw customers.

For example, the stores display private-label products at eye level rather than on lower shelves “because that's my best product and my best price,” Hancock said. Private-label penetration at Lawrence Brothers is running 26% to 28% at some stores, up to 30% to 32% at the company's most profitable location, he noted.

Lawrence Brothers also runs theme sales three days a week “that get people into my stores and show them what I can do,” Hancock said. The theme days are banana Tuesdays, with bananas selling below market price and boosting produce distribution an average of 20%, he said; hamburger Thursdays, which typically boost volume 5%; and milk Fridays, when all gallons sell below market prices.

The stores also run a “Pick 5” program, which allows customers to buy up to 5 pounds of beef, pork, poultry and cheeses in any combination for $19.99 — a program that has increased sales between 0.5% and 3%; boosted total meat sales by 1.5%; and boosted total meat gross profits 4% over last year, Hancock said.

“The ‘Pick 5’ program drives up our transaction size and accounts for 22% of our meat business,” he added.