Industry News - AM
By Meatingplace Editors on 6/14/2010
In this article:
With Wal-Mart and Target ramping up their perishable food offerings, Meatingplace asked food industry consultant Jeremy Diamond, of the Diamond Group in Baltimore, to discuss the implications for the meat industry.
What are the ramifications as the discounters expand further into perishables?
It's going to make it even more difficult for the traditional grocery store to compete. They don't make a lot of profit in produce, but meat is a big profit center. The more meat Wal-Mart and Target can sell, the better their profits are going to be. Produce pulls them in because of the freshness and displays. I wouldn't be surprised if Wal-Mart, which just started setting up produce departments, was selling at a loss just to draw in shoppers.
Is Wal-Mart rolling back prices on meat?
I doubt that the price rollbacks are on meat. It's probably cheaper anyway vs. most of the other grocery stores. I don't see them slashing their meat prices. I don't think you are going to see any of that.
How will traditional grocers compete?
In this economy everyone is looking for price as the first thing rather than service and quality. Wal-Mart and Target are known for their cheap prices. They are not known for their service. The service is not where it should be, but the shoppers don't care because their prices beat everybody else's. It's harder for the retailer who has to compete on service and quality because they know they can't compete on price.
So supermarkets will have to compete on quality and service?
Definitely. To survive you have to differentiate yourself. You see these chains consolidating. People are cutting back on basically everything. It's a different climate now. Besides the fact that they are running on such small profit margins as it is. The average grocer is running on a 4 percent profit margin, 5 percent if they are lucky. It is tough to have Wal-Mart and Target put in grocery departments and sell the same products cheaper.
What meat products will Wal-Mart emphasize?
I think you'll see a lot of family pack meat and poultry. I think you'll see a lot of bigger packaging. I don't know what kind of quality they will be selling. When you are talking about meat you have to be very careful. These stores have to sell so much volume. And when you sell so much volume you have to lose quality.
Will Wal-Mart do its own meat cutting?
They haven't done a service deli counter. They have done a meat department, where you have employees in the back room putting up the different cuts of meat rather than it coming in pre-packaged. I think they reverted back to pre-packaged for union reasons. They are a volume retailer. Having more employees cut to order slows everything down. I can see them shipping everything (in).
Will Wal-Mart be successful selling meat?
They will keep selling it. It is a big profit center. If they can convince the consumer it's a good product, it's the same as in the grocery stores and they can sell it cheaper, if they are convincing, then they will make a lot of money.
Jeremy Diamond, Diamond Group, Baltimore