Wegmans 101: Industry observers reflect upon the art and science of Wegmans
May. 17, 2013
Industry observers reflect upon the art and science of Wegmans
While Wegmans' measured store growth — it averages around two to four new stores a year — doesn't result in sudden catastrophe for a market, its effects are there from the start, observers say. "Wegmans is one of the few retailers that's savvy enough from a merchandising perspective and sophisticated enough from a technological perspective to move into a new geographical area and be successful from Day 1," one industry observer, who asked not to be identified, said. "That's because they've done their homework, and they employ the lessons learned in their homeland to new markets."
"Most food stores will attract clientele from three miles out. Wegmans doubles and sometimes triples that, easily," said Barry Scher, a retired officer of Ahold's Giant-Landover division who witnessed Wegmans' arrival in Giant's Washington-Baltimore trade area beginning in 2004. "What happens when Wegmans comes along is that companies have to find a second gear. They will start new promotional programs to re-establish their identities in the market. They need remodeling and other in-store activities to hype up the staff."
Giant's response included a marketwide store renovation program along with specific tactics around service and pricing at specific stores in the trade area. But not everyone makes it. Since Wegmans' arrival in the DC market, both SuperFresh and Magruders have pulled out, although industry watchers say a variety of factors contributed to those departures.
"Wegmans has definitely had an effect in pockets of the Baltimore area grocery market given the size, product selection, and pricing in their stores," Jeremy Diamond, a consultant with the Diamond Group, Baltimore, told SN. "I've seen stores like Safeway and Food Lion hurt from Wegmans expansion. The stores that thrive are the stores that have a niche, despite Wegmans massive store size. Competitors who have a niche such as neighborhood grocery store where the associates know their customer's by name, carry an abundance of natural/organic products, or are simply very price competitive can compete effectively with Wegmans."
Looking further ahead, many observers see Wegmans' East Coast markets falling into the hands of still fewer players.
"Wegmans brings a strong merchandising and operating team to every store that they open, and over the last few years they've become even better merchants and offered even better pricing. So they are formidable," one source said. "However, strong operators like ShopRite, that have an established customer base and strong merchandising and pricing programs of their own, can compete very well with Wegmans. But the weaker players will find they have very little in their arsenal to compete."
ShopRite, considered by many to have successfully faced down Wegmans in New Jersey, is now encountering Wegmans around parts of Maryland and New York.
"The most formidable, and only true competitor they have in the Northeast is ShopRite, especially with the new larger format stores they are opening," the observer added. "Wegmans pays attention to Whole Foods, and they pay attention to Fairway, but they pay very close attention to ShopRite. I think ShopRite is the only competitor who can limit Wegmans' growth."
In Massachusetts, where Wegmans has opened a single store in Northborough in 2010 but has plans for at least three additional in the greater Boston area, Demoulas Supermarkets — whose Market Basket stores, like ShopRite, large and price-focused — should also withstand Wegmans' arrival, Flickinger said. But others may need to worry, at least based on the sales volumes Wegmans was showing in Northborough.
"Stop & Shop has some very interesting initiatives in foods that are good for you not only for kids but for seniors with special restrictive diets, so they're drawing from a wider customer base. Market Basket is winning in terms of feeding large families, and it's tough to beat their pricing and promotional discipline," Flickinger said. "But Wegmans can win on all consumer constituencies. It's going to be very difficult for anyone else to gain or hold market share and consistent sales levels once Wegmans opens there."
Factors that may limit Wegmans' growth include its deliberate store-development pace. The company also needs to maintain quality leadership.
"A limiting factor is that their store needs a certain type of trade area and population surrounding the trade area," one industry source said. "So by definition there's a finite number of places they can build, although there are plenty left. A more likely constraint will be the strength of their management team. Can the family develop strong management internally and externally to continue the approach that's been successful? They are to be commended for policies that develop the rank and file but will they be able to have strong senior management?"
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