Higher-end US supermarket chains managing to compete alongside Walmarts by offering less-value-conscious consumers a more upscale shopping experience, including more brands to choose from, more aisle space

Cindy Allen

OXFORD, Alabama , June 24, 2013 (press release) – As competition increases, grocery stores are adopting new models

When customers step into the Oxford Commons Publix, the first thing they see is avocado and creamy coffee — and those are just the colors on the walls.

Wooden racks in one corner of the store hold hundreds of bottles of wine, from dozens of different wineries. Nearby stands the "Specialty Cheeses" section, and all the sections are advertised with bright signs on walls with wood paneling, or textured stone, or shiny tile.

It's not your grandfather's grocery store. But this Publix, opened in February, may be a sign of things to come. For years, experts say, the rise of the Walmart Supercenter has put the squeeze on traditional grocery stores across the country. But that same squeeze has pushed other chain supermarkets to go more upscale — even in smaller cities like Oxford.

"The grocery business has really changed as a result of Walmart," said Robert Blattberg, director of the Center for Marketing Technology at Carnegie University. Blattberg says pressure from Walmart has forced many grocery stores toward the extremes -- going upscale or taking the discount route, trying to undercut Walmart on prices.

Those forces will likely come into play at the corner of Hamric Drive and Alabama 21, where construction equipment sits on a bare lot just blocks from Oxford's Walmart. The site's developer says a grocery store will be built here — but hasn't said what chain will open a store at the site.

Ten years ago, opening a grocery store in the shadow of a Supercenter might have sounded absurd. The big-box retailer had already sopped up much of the business that once went to small-town or small-chain department stores. Because each supercenter contains a nearly full-size grocery store, grocers saw the superstores as a major challenge to their business as well.

And they were right.

"What we found is that stores tended to lose the best customers, the customers who come back," said Karsten Hansen, a marketing professor at the University of California San Diego. Years ago, Hansen, Blattberg and a colleague did a two-year study of shopping in a market where a Walmart Supercenter had opened. They found that other grocery stores lost an average of 17 percent of their business to Walmart, and those losses came largely from repeat customers, who are the industry's bread and butter.

"The margins in the grocery business are very thin," Hansen said. "Most grocery stores focus on a high-volume, low-profit model. They need a lot of repeat customers."

But Hansen and his colleagues noticed something else. The customers who defected to Walmart fell into certain groups, such as young adults with infants at home, who didn't have a lot of time to shop. Other people wanted more: more brands to choose from, more space in the aisles. Hansen calls them "cherry-pickers" and says they don't mind paying a little more.

Those customers have fueled the expansion of high-end stores such as Trader Joe's and Whole Foods, which have managed to expand alongside Walmart by offering more selection and what Blattberg describes as "a much better shopping experience." Most industry analysts describe Publix, the Florida-based grocery chain, as the biggest upscale store in the South.

Brenda Reid, the Atlanta spokeswoman for Publix, doesn't particularly like the "upscale" label.

"Customers associate cleanliness and user-friendliness with high-end," Reid said. Publix provides those things, she said, but also tries to keep the prices down. Still, Reid said, the Oxford store is designed for a more aesthetic feel, with warm colors and fruit displays designed to make the shopping experience more appealing.

Publix is a relative newcomer to Alabama, with about 50 stores in the state. In Florida, where the store has operated since the 1930s, it's largely known as a good place to work. The company has never had a layoff; Reid said that when a store closes, associates get transferred to another store. The company is employee-owned, with workers earning more shares the longer they stay. Publix routinely ranks high in "best-places-to-work" rankings done by nationwide magazines such as Fortune.

Reid said the employee culture has made the company more competitive. High employee morale has led to better customer service, which has become one of the store's selling points, she said.

Blattberg, the grocery market expert, said that's true.

"Publix has a very good reputation for customer service, and it is tied to their culture," he said. Other high-end stores such as Whole Foods tend to offer better benefits for their employees as well, he said. He said it does help them compete for customers looking for a place with better customer service.

"When someone has better pay and a retirement plan, they're going to be more motivated to help you when you have a question about a hard-to-find brand," he said.

Of course, stores don't have to be new, or part of a big chain, to compete for choosier customers. Rob Gardner, manager of the locally-owned Dorsey's Supermarket in downtown Oxford, says the store has hung on to its customers by offering good service and by keeping meat-cutters on staff, to provide fresher meat than customers can get elsewhere.

Plus, he said, there are still advantages to not being a big-box store.

"Some of our customers are elderly or disabled," Gardner said. "They don't want to park a hundred yards from the store."

Upscale stores sometimes set up shop in smaller, drugstore-sized spaces, grocery experts say. But its not clear whether that will be the fate of the lot under construction at the corner of Hamric and Quintard. That lot, the former site of a Holiday Inn, will eventually be home to a restaurant, a drug store and a grocery store, developer Stacy Holmes told The Star weeks ago. Holmes has yet to reveal the name of the grocery store planned for the site.

Blattberg thinks a Whole Foods or Trader Joe's is unlikely in a smaller market. That could mean a new store would try for the other end of the market -- a discount store like Save-a-Lot that tries to beat Walmart on its own low-price turf.

Attempts to reach Super-Valu, owner of Save-a-Lot, were unsuccessful.

Blattberg said the site would also be a good place for Aldi, a German-owned discount grocery chain.

"Aldi has kind of flown under the radar," he said. "They're expanding but haven't drawn much notice."

In an e-mail to The Star, Aldi spokeswoman Hannah Dewey said the company is "unable to confirm a location in Oxford at this time." She noted that the chain will be opening stores in Cullman and Fultondale this year.

In Gadsden, there's already a drugstore-sized Aldi on Hood Avenue, just a couple of blocks from that city's Walmart. It's clean and has wide aisles, but in some ways, it's as no-frills as the Oxford Publix is fancy. Customers pay a 25-cent deposit to get a shopping cart, saving the store the expense of hiring someone to collect the carts. Inside, there's only one brand of most products, few of them major labels. Customers can pick up and inexpensive box of "Marshallow and Stars" cereal or a $4.99 bottle of cabernet sauvignon.

Blattberg said it's a model that works.

"There's very limited selection, but they've got very low cost and very good prices," he said.

Whether the store at the lot Hamric and Alabama 21 becomes a high-end store or discount place, Hansen doubts the competitors will scare Walmart.

"I don't think Walmart worries a lot of about competition," he said.

The company doesn't rely solely on groceries, he said, and has captured a sizable portion of the grocery market.

In an e-mail to The Star, Wal-Mart Stores spokeswoman Amanda Henneberg said "competition benefits the consumers" and stressed the company's focus on providing the lowest price.

"With more than 60 percent of Americans shopping at Walmart per month, we are confident that if we continue to stay focused on our customers and on providing them with the products they need at everyday low prices, then they will continue to shop at our stores," she wrote.

Still, Hansen sees Walmart making small moves that might be meant to accommodate higher-end customers, such as adding some organic foods to the mix. He doubts it will draw regular customers who prefer the high-end stores.

"The less price-sensitive customers are quite unlikely to go to Walmart," he said.

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Information from: The Anniston Star, http://www.annistonstar.com/