Wal-Mart is hoping to take advantage of the dismal economy, and it's all Chicago grocers Jewel and Dominick's can do to keep their customers from converting.
Wal-Mart Stores Inc. has opened several Supercenters in the suburbs over the past year. The supermarkets have given consumers a cheaper grocery option, and many seem to be taking it.
According to data from researcher Nielsen Co., Wal-Mart gained a 2-percent share of the grocery market at the expense of competitors Jewel and Dominick's.
Wal-Mart has historically had difficulty opening stores in the city, but recently the retailer has pushed to open as many as five new stores. Executives are hoping that the grim economy will change many consumers' minds about the non-union employer.
A January Credit Suisse survey suggests food prices at Jewel and Dominick's are 23 and 26 percent higher (respectively) than at Chicago-area Wal-Mart Supercenters.
In response to the Wal-Mart push, Jewel-Osco has remodeled its stores, equipping them with bigger meat, produce, and deli departments.
"Supermarkets can't compete with Wal-Mart on price, so their only alternative is to try to improve the ambiance and selection," says Mitch Corwin, an analyst in Chicago with Morningstar Inc. "Jewel is clearly playing defensive against Wal-Mart."
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But while Wal-Mart has lower prices, it also has service drawbacks. The retailer usually scores below the supermarket average on the University of Michigan's American Customer Satisfaction Index.
Critics also claim that Wal-Mart underpays its employees and holds back on benefits.
"If organized labor stands on the sidelines, we'll watch what we fought for with Jewel and Dominick's go right down the drain," Dennis Gannon, president of the Chicago Federation of Labor, told the Chicago Tribune.
While Wal-Mart has been held off from opening stores in the city so far, at least six Supercenters are scheduled to open in the surrounding area this year, and six more for 2010.
In this economy, might customers be willing to sacrifice service and good employee karma for cheaper prices?
Matt Bartosik, editor of Off the Rocks' next issue and "between blogs" blogger, wonders how the grocery store near his apartment can always be so busy, no matter what time of day.
