Wal-Mart & Target: Fresh Produce Footprint

Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Wal-Mart (NYSE: WMT) Supercenters and Target (NYSE: TGT) have figured out how to keep traffic coming into general merchandise brick and mortar retail.  The answer is: create a long fresh produce footprint, discount-priced.  Both stores made this an add-on to the dry-goods grocery departments already existing in the stores.  Therefore, it was a natural [no pun intended] fit that didn't have to be heavily promoted. 

This is at a time when consumers have growing complaints about shopping in real stores.  Forbes reports that Motorola Solutions found that 41 percent of those interviewed weren't satisified with what was in stock in brick and mortar, and 42 percent had beefs about checkout [no lines online, are there].  Sears (NASDAQ: SHLD) announced it will be shutting down 100 Sears and Kmart stores. Unlike Wal-Mart and Target, its experimentation regarding surviving as the Big Store hasn't panned out.

Yes, fresh produce tends to have lower margins than brandname cosmetics and computers.  But think of them as kinds of loss leaders that boost overall store profitability. Before, during, and/or after loading the cart with fresh produce, there's the inevitable grabbing of other items. I have never ever purchased only groceries at Wal-Mart or Target, even if that was my intention.

Sure there exists online grocery delivery. Touch the screen for this and that and there it appears at the door.  But most folks are conservative about food.  They want to see it, smell it, squeeze it, maybe even taste it. So, they make it their business to get to the store.  Many disabled senior citizens at the 1400-unit Bella Vista complex, New Haven, Connecticut will have their aides bring them to stores to buy food. Special van and bus trips are also scheduled for the elderly to get to the local Wal-Mart and Target to stock up on fresh vegetables and fruits.  Those are in scarce supply in that neighborhood so the two discount stores are positioned as a kind of public service [we'll return to that again].  What a brand-enhancer. Wal-Mart also hires those over-50 as greeters.

Fresh produce has also proven a gold mine because people love to talk about the fluctuating prices of lettuce and pears, creating tremendous word of mouth. Comparison shopping has become a predictable ritual and source of pleasure in the new value economy. "I got green peppers for 68-cents a pound." Web sites focusing on price comparsions for groceries at Wal-Mart, Target, and other discounters are here and here.  This is free advertising. Probably only the Mommy Bloggers discussing their children are more detailed, in earnest, and up-to-date than bloggers who do price checks. 

No surprise then, both Target and Wal-Mart plan to expand the fresh produce footprint.  As they do that, with their low prices they are eating the lunch of traditional supermarkets like Kroger (NYSE: KR) and Safeway (NYSE: SWY).  There is a question if the supermarket as we know it can survive this tactic by general merchandise stores.  In addition, yet another kind of competition for them are discount chains, like private company Aldi, which sell only food. 

The fresh produce footprint also provides a public policy plus. That's because it aligns with Michelle Obama's mission of healthy eating among children. So, they will be bringing vegetables and fruit into locations which usually don't see many cucumbers and apples.  The good news for children is that 1500 other retailers such as Supervalu (NYSE: SVU) Walgreen (NYSE: WAG) plan to do likewise.


I don't own stock in any of the companies mentioned.

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