This Week's Grocery Store News

Wednesday's Wall Street Journal contained a couple of interesting articles about the grocery business. Unfortunately for this post, the WSJ's website isn't free, so I can't link to them. But I won't let that stop me! (As an aside, the WSJ is just about the only newspaper I know of that has been successful at charging for access to their website. There really is no "across the street" from the Wall Street Journal.)

The first story, starting on the first page of the Marketplace section, is entitled "Not Copying Wal-Mart Pays Off for Grocers."

Earlier this decade, the hidebound supermarket business was expected to fall before Wal-Mart's aggressive supercenter rollout and the rise of membership clubs like Costco Wholesale Corp. and high-end specialty chains like Whole Foods Market, Inc. Many chains did collapse -- 26 filed for bankruptcy earlier this decade, unable to match the falling prices of their better-run rivals -- and a wave of consolidation swept the business. But the survivors rallied by redesigning stores, introducing a more relaxed shopping experience and marrying low-priced staples with higher-margin breads, meats and wine. ow, the stronger chains like Kroger Co. and SuperValu, Inc. are taking market share from weaker, often regional grocers.

Well, of course. It may be possible to compete with Wal-Mart on the basis of price, but it's not likely that such a strategy will succeed. Wal-Mart is more efficient than any of its rivals, often by a wide margin. They have been squeezing efficiencies out of their processes for years, and they are very, very good at it. Competing with them on price plays to their strength. Instead, the smart competitors compete with Wal-Mart on the basis of things that Wal-Mart isn't good at, like offering clean, non-claustrophobic stores that have many unusual items.

The second article, entitled "FTC Deals Setback to Whole Foods", says on page A3 that

[t]he Federal Trade Commission, which said yesterday it plans to file a lawsuit as soon as today in a Wachington federal court to block Whole Foods from purchasing Whole Oats [Markets Inc., a Colorado-based organic food market chain] for $565 million, said the combination would reduce competition and quality and raise prices. It is taking the position that the natural- and organic-foods market is distinct from the wider grocery market.

This strikes me as being an unsound argument. In the first place, it's not the case that Whole Foods is a "natural- and organic-foods market." It is true that they like to portray themselves as being such and that they carry lots of natural and organic foods. But it would be more accurate to call them a high-end specialty market that carries significantly more natural and organic products than a typical grocery store. There are too many non-natural and non-organic on the shelves to argue otherwise with a straight face. In the second place, has anybody at the FTC been to main-stream grocery store in an affluent neighborhood? Have they seen the mountain of natural and organic products that can be had at a Super Kroger. Whole Foods is not fundamentally different from Super Kroger. The difference between them is a matter of degrees. Wild Oats isn't Whole Foods' real competition. Super Kroger is. Whole Foods buying Wild Oats does very little to alter the competitive landscape.