Whole foods vs publix prices

PUBLIX CASE

Case objectives and Structure

The objective of this case is to effectively elevate Publix Super Markets, Inc. over their competitors. To accomplish that, Publix must sustain growth and profitability, regain consumer confidence, expand Publix private label products, lower prices, develop a more aggressive loyalty and rewards membership program, introduce Big Data Analysis, and Artificial Intelligence (AI) Web services. Combining the Big Data Analysis and AI with IBM’s cognitive, intuitive voice interactive personal shopper assistant, will take the company to new heights and set them well above the competition.

The Argument for and Against the Case

In this case study of Publix Super Markets, Inc (Publix); an employee-owned company headquartered in Lakeland, Florida, we will explore a viable theoretical argument to grow the company’s value proposition, sustain long term customer growth, and stakeholder profits while the company currently experiences a decline in market share. A new wave of competitors challenge Publix for their customers, stakeholder value, and profits.

Publix faces its most existential crisis to date. Amazon has recently purchased Whole Foods and they are aggressively employing competitive tactics to push their brand center stage as they prepare to engage the market to win customers’ loyalty and gain as much market share as possible. Amazon’s Whole Foods is equipped with the financial backing, technological power, marketing strategy unseen by the competition since its inception. It is a disruptive time for the entire industry.

Each company’s tactical marketing team will have to employ its most sophisticated strategies in order to win over the customer's ultimate purchasing decision and spend their supermarket dollars.

Amazon’s Whole Foods will be introducing personal shoppers, home delivery services, Big Data analysis, and AI web services together with Alexa’s personal voice interactive shopper assistance across the board. Most effectively, Whole Foods will be cutting prices and expanding their personal private label 365. Other competitors like Walmart and Fresh Market, will be challenging Publix for the market share. As stated by our, MKT 5290 Cases in Strategic Marketing Professor, “Where I live, Publix is also being hammered by The Fresh Market, Safeway, and Lucky's Market. This means they are being attacked from top, bottom and sideways” (Bendixen, 2017).

Effective Aug. 1, 2017, Publix’s stock price decreased from $39.15 per share to $36.05 per share. Publix stock is not publicly traded and is made available for sale only to current Publix associates and members of its board of directors. The value of the Publix stock is set by an external financial consultant based on the level of performance of the peer group of other supermarket chains that are traded publicly. “This has been a tough quarter for supermarket companies in the stock market,” said Publix CEO & President Todd Jones. “We continue to be focused on growing sales and profits while providing premier customer service”. (Publix Supermarket Chain, Inc, 2017)

As e-commerce superpower Amazon postures to challenge Publix as their newest competitor, analysis of Whole Foods stock reveals their sales have peaked and profits have been dropping for the past year. Whole Foods or should we say a “whole paycheck” as it's referred to in the marketplace much like its organic produce is beginning to rot on the shelves. Competition in the organic food market has pushed the supermarket companies including Publix and Whole Foods into a plummet which threaten the current marketing models a continual existence and present the opportunity for giant e-commerce companies like Amazon to enter the arena with thirteen billion in investments and a treasure trove of technological resources and take on Publix to win over the customer.

Publix, Sprouts, Walmart, Kroger and many other competitors are entering and ramping up their organic food market, lowering the prices, and introducing private branded labels. Whole Foods is challenged to regain the confidence and its consumers regarding the consumer affairs agencies charges against Whole Foods for overcharging its customers for their products. Amazon has set out to meet the challenge and prove there are continued growth and sustainable profits within the organic, private label, and fresh supermarket industry, as it did similarly with the retail industry and enjoys becoming the world giant leader today. Publix must keep its eye on Amazon’s Whole Foods and other emerging competitors and presents the perfect case study for this theoretical analysis and to further conduct a pragmatic contrast to present as a teaching model.

A protagonist facing a decision

Sustainability and profitability strategies are trending towards digital efficiency. The idea is not only to provide the target customers with all the product lines in the public stores but also to let them purchase online. It is vital to acknowledge that online sales take place irrespective of time and location of the target clients. It is also about the freedom of choice and availability of the target offers for the target audience, which also addresses all the needs and preferences of the target market. As a result of such approach, the company could gain its brand loyalty and also increase the customer awareness in the target niche. In the long run, such strategy could help the company to regain consumer confidence shortly (Kingsnorth, 2016).

The next step is to expand the public label of all the product categories offered by Publix. The purpose is to prioritize the needs of the target clients by delivering the highest quality of products and reasonable pricing policies. The best option is to consider the alternatives that can satisfy all the parties involved in the process of delivering value to the target audience. High-quality of products can ensure the target clients are pleased and favorable prices will lead to the fact that the target customers will return for more products on a regular basis (Nour, 2017).

Alternatively, the company could create a different strategy to gain trust and loyalty in the target marketplace. On the one hand, it could be achieved with various benefits that address the most sophisticated needs of the target clients. On the other hand, the company could reward all its employees for their daily contribution to the growth of the business in a given marketplace. An example of a proven strategy is a well-known reward membership that satisfies the target audience to a greater extent (Pride & Ferrell, 2016).

Using the best marketing strategies is always efficient from the position of brand development. For this reason, Publix should reflect the benefits of the Big Data analysis regarding the operations with processing large sets of data across the stores. The idea is to take advantage of the market trends while relying on proven strategies that already satisfy the target customers. The purpose is to understand the critical needs of the target clients and providing them with all the necessary product solutions. Such approach is ideal to help the target customers in making their purchase decisions on a regular basis (Kingsnorth, 2016).

At the same time, the use of Artificial Intelligence is also imperative to strengthen the position of the Publix brand. Today, the vast majority of top brands take advantage of new technologies, which includes Artificial Intelligence and personal shop assistants. In other words, Publix Super Markets could benefit from the same strategies while attracting more target customers and gaining new ones. The idea is not only to capitalize on selling the product lines but to establish a community of highly satisfied shoppers who are willing to make regular purchases both online and offline (Nour, 2017).

Opening section

Publix Super Market, Inc (Publix), is a US based supermarket chain. The major aspects of the Publix service culture is customer service and loyalty. Publix is known for delivering excellent customer service, friendly associates, and quality products at a competitive price. Publix stores are open seven days a week and only close on Easter, Thanksgiving, and Christmas day. The company has managed to open an average of just over one store per month in the last 83 years.

The company thrived by keeping customer experience as its primary focus and it had never disappointed any customer knowingly, said industry observers. Publix is striving to make the lives of their customers easier, they offer pharmacies, ATMs and gift cards to provide a valuable experience. Their stores also offer a range of grocery items from dairy, deli selections, fresh-baked breads, produce, health and beauty, specialty cheeses, and floral. To ensure the freshness of their products, a new selection of merchandise arrives daily, and items are regularly updated to keep up with customer demands (Best Groceries, 2013). Some Publix stores even offer a variety of other in-store options such as cafes, sushi bars, and a liquor stores.

Company background and current information

Publix Super Markets, Inc. was started by George W. Jenkins in 1930 in Winter Haven, Florida. Publix has expanded to well over 1,000 stores in Florida, Georgia, South Carolina, Alabama and Tennessee. George was one of the first individuals who started the grocery business with the intention of providing goods of high-quality and stressing the importance of great customer service. As much as most of his opponents initially concentrated in the productivity and cost, Publix’s mission was based on the satisfaction of the customers with the front of the store reading “where shopping is a pleasure (Figart, 2017).” The company has provided the employees with a significant amount of control over the parts of the store where they work. Publix is the largest employee-owned grocery chain in the United States. Publix is one of the 10 largest-volume supermarket chains in the US, and they currently employee over 188,000 people (Facts and Figures, 2017).

By 1940, ten years from the time of the establishment of the company, Jenkins added 18 other Publix stores. Some of the stores that were opened, Jenkins had obtained from the small All-American chain in 1939. He opened his first supermarket in 1940 having a paved parking lot, electric doors, frozen food-cases and even air conditioning. The supermarket occupied 11,000 square-foot spaces (Mujtaba & Johnson, 2016). The aesthetics that were provided by this supermarket at the time were unusual to the grocery stores in America, reflecting the attempt of the founder to ensure that the shopping experience was enjoyable.

By 1950, there were already 22 Publix supermarkets opened and totaling $ 12.1 million of the total chain sales (Transparency, 2013). In the early 1950s’, Publix started providing S & H green stamps. These green stamps offered the shoppers a fixed number of stamps for every dollar that was spent. These stamps were collected by shoppers who could redeem them for discounted products. This was an essential aspect of the company that led to an increase in the sales volume surpassing the price of the program stamp. The success of this program made Publix the greatest merchant of the S & H tramples in the United States (Mujtaba & Johnson, 2016).

The development of Publix Super Markets, Inc was slow in Florida, and it forced Jenkins to move into a much more competitive market in Miami in 1959. The branch off to Miami, Fl, was followed by the opening of a warehouse in 1963. The intentions of the warehouse were to service the increasing number supermarkets opening in Miami (Mujtaba & Johnson, 2016). In the 1970s, Publix launched its discount chain called Food World. Within a decade, the company had established 24 discount stores. The firm had a sales volume of $2 billion by 1979, 234 stores and approximately 26,000 employees. They also had a tax averaging about 1.7% value that was far ahead of its competitors. The company was the principal chain of grocery in Daytona Beach and St. Petersburg, Florida controlling 30.6 percent of the marketplace. In Miami, it formed the second chief store occupying 26 percent of the market.

Industry information

The US food retail industry includes foods that are sold at food retailers like grocery stores, mass retail merchandisers, pharmacies, convenience stores and foodservice facilities. In 2015 the total retail and foodservice sales in the United States amounted to approximately 5.32 trillion U.S. Dollars. The retail landscape in the United States is characterized by publix competitors such as Walmart, Kroger and Costco. Walmart and Sam’s Club in the U.S. generated net sales in the amount of 298.billion U.S. dollars in 2016 and operated 4,574 stores nationwide.

As described by Stadista “On average U.S. shoppers made about 1.6 weekly trips on average in 2016. According to a recent survey mentioned by Statista, about 65% of all U.S. shopping trips are reported quick trips, while about 10% of shopping trips were driven by pantry re-stocking. On average customers tend to do their grocery shopping between 11AM and 3PM.” As shown in Fig. 1 In 2015, total U.S. retail and food services sales amounted to about 5.35 trillion U.S. dollars, up from about 2.01 trillion U.S. dollars in 1992, not adjusting for inflation. As shown in Fig. 2 grocery store sales in the United States from 1992 to 2016. In 2016, U.S. grocery store sales amounted to about 626.98 billion U.S. dollars. Among the leading grocery retailers in the U.S., were The Kroger Co. and Albertsons, generating around 103 and 58 billion U.S. dollars respectively. As shown in Fig. 3 In 2015, U.S. supermarket and grocery store sales amounted to about 587.88 billion U.S. dollars. The Kroger Co. dominated sales of the leading grocery retailers that year, generating approximately 102.9 billion U.S. dollars.

As mentioned by Fort Mill “Publix Super Markets tops the list of privately owned grocery operators in the US. By emphasizing service and a family-friendly image over price, Publix has outgrown and outperformed its regional rivals. More than two-thirds of its 1,136 stores are in Florida, but it also operates in Alabama, Georgia, South Carolina, Tennessee, and North Carolina (a new market for the company). Publix makes some of its own bakery, deli, dairy goods, and fresh prepared foods at its own manufacturing plants in Florida and Georgia. Also, many stores house pharmacies and banks. Founder George Jenkins began offering stock to Publix employees in 1930. Employees own about 31% of Publix, which is still run by the Jenkins family.”

To be successful in this industry leading company’s strengths relies on the number and location of the different stores serving the different socioeconomic demographic that deliver the highest margins. Currently Publix operates in five U.S. states with high level of population concentrations. Florida, Georgia, Alabama, South Carolina, Tennessee and North Carolina. The total revenue totals $24 billion with a net income of $1.2 Billion and the human capital of 147K loyal employees that are rewarded with a very generous employee stock ownership program. One of the recent trends in the industry is for companies like Publix to offer their own white label brands and its internal manufacturing units for bakery, dairy and prepared foods. Within the industry, Publix is rewarded with one of the best reputations regarding customer service being that their employees are very organized and prepared and empowered to respond to customer issues.

Competitor, customer, and consumer information

Competitors like Amazon and Whole foods within the segment are more advanced with the market’s information technology needs. Competitors in the industry are focusing on the economic return of private brands, standardization of physical stores, performance KPIs. There is also a trend for in-store product sampling, cooking classes and other in-store promotional activities. Some of the leading competitors in the category are, Costco, Kmart, BJ’s Wholesale club, Walmart other competitors in the regions are Winn Dixie, Sedanos Supermarkets, Bi-Lo. Publix prices are high in comparison so most competitors leverage this and take a competitive advantage over price.

Some of the bigger competitors are already expanding internationally like Walmart while Publix is only concentrated in 5 US states. Regarding new trends in technology Publix might be facing an indirect assault. Companies like Amazon and Whole Foods are already penetrating younger demographics indirectly so incumbents like Publix might not notice this until it is too late.

Publix operates within a very competitive retail food industry segment. It competes with national and regional supermarket chains, smaller independent super markets, mega super centers membership warehouse clubs, mass merchandisers, dollar stores, pharmacies, specialty food stores, fast food restaurants, convenience stores and now is facing one of the biggest challenges as the market shifts to the convenience of online retailers. Publix’s capability to remain a leading option for consumers and to attack and retain customers is centered on their ability to source great quality products, provide excellent customer service, competitive prices, convenience, assortment of product mix and the location of their stores.

Competitors that can afford low profit margins or ones that can reduce their operating costs can negatively affect Publix. The highly competitive retail food industry operates traditionally with low profit margins depending on larger volume of sales to be able to be profitable. There has been a trend over the last few years where traditional companies like Publix are losing share of the market to nontraditional competitors. The success of Publix is highly dependent on its ability to meet new challenges that are created by the retail food’s highly competitive environment. Publix will also face increasing competition from existing and new competitors in the areas of pricing, purchasing, increased advertising and promotions spend by its main competitors, as well as technology, business model innovations and expanded retail locations

One important fact that can affect businesses are the general economic conditions as it impacts the level of consumer expending and this will affect adversely the future of the company. Other conditions may include increases in taxes, interest rates, inflation rates high unemployment, weakness in the housing market, instability of the financial markets and the uncertainty of the economic recovery in the US. If the economy does not improve, historically, consumers will reduce their spending. Publix’s brick and mortar model is highly dependent on its labor force. Consequently, it is impacted by minimum wage government mandated increases, increase of split between fulltime and part time workers, health care costs, etc.

The Amazon Whole Foods deal will bring some disruptive changes in the U.S supermarket and e-commerce. The merged company will become a larger player in the supermarket sector, challenging the entire food retail markets including Publix. Publix has had a delivery service since 2012 called Instacart. Instacart enables consumers to place online orders for Publix products, fulfill them through its stores and deliver them to the customer’s home for a fee. Amazon has been leading e-commerce providing the same type of convenience for all types of consumer products and excels in providing the best customer experience. Now with the Whole Foods acquisition, it will expand on the opportunity to delivering an array of food products. The online sales of food related products currently account for a very low percentage of the total grocery sales; Amazon’s entry into this market can accelerate the grocery e-commerce trend in the industry. The ability to order groceries online and have them delivered will bring a lot more convenience to the consumer. Most nonperishable products can be ordered online and delivered without any problem; the challenge is the delivering fresh and prepared foods. One indication of the level of impact that the Amazon deal is related to the value of private and publicly traded supermarket stock. Following the announcement virtually every supermarket stock except for Whole Foods took a hit. Amazon’s reputation for disrupting existing markets has affected the investors’ concerns. The Amazon/Whole Food deal will lead to a new trend of M&A within the supermarket and ecommerce industries.

Area of interest and issues

In order to keep up with a growing number of tech-savvy competitors, Publix began pursuing innovative new programs. Historically, Publix was late to most tech savvy advances, including social media. Several years after competitors like Whole Foods Market and Wal-Mart began using it as a marketing tool, Publix's official Twitter account went live in 2013. Publix was slow in developing its online ordering program for the deli and bakery, which began in 2012. Competitors have been partaking in an evolution in order to remain relevant. For example, Whole Foods Market has brew pubs and restaurants inside and Lucky's Market lets customers drink wine and beer while they shop which lure in millennials. Supermarkets like Whole Foods Market, Trader Joe's, The Fresh Market, Lucky's Market, Earth Fare and Sprouts Farmers Market, are slowly taking Publix’s clientele (Arnold, 2017). Aldi and Save-A-Lot, which are discount grocery brands, are expanding too, making price point even more competitive. In the Orlando to Tampa region, Publix has more than 396 stores, which is more than twice as many as Wal-Mart and Winn-Dixie, but Wal-Mart and Aldi are adding stores and increasing sales (Arnold, 2017). Publix is also facing decreasing costs of groceries across the board. The federal government’s price tracking service shows that grocery costs have dropped 1.5 percent in the last year, led by lower costs for meat, eggs and vegetables (Arnold, 2017).

Closing

In closing, Publix has made great strides to maintain their level of customer satisfaction which in turn created loyal customers. Every time customers walk into a Publix they know they are going to have a good shopping experience. The customers do not mind paying extra for the products because Publix customer service surpassed the competitors.

With competitors looming, like Amazon and Whole Foods, providing the same quality products, faster technology, and lower prices Publix must find a way to gain market share and keep current customers. While interviewing an IT personnel Riccardo, he said the focus for their department is updating the current technology and researching new technology to help Publix stay competitive and make it value add for consumers. Publix has all the tools they need to remain competitive and overcome the Amazon giant.

Case Questions

What competitive forces are at play between the supermarkets in the industry?

Rank the competitive advantage between Publix, Amazon- Whole Foods, Walmart, Kroger and Sprouts from highest to lowest and state the reasons why you ranked them.

How can Publix make up for “lost time” and gain momentum in an industry that is being disrupted by technology?

How do private label offerings help increase sales and customer value?

Compare the reward- membership programs between Publix and Amazon- Whole Foods. In your opinion which supermarket has the highest value offering?

Is it too late for Publix to invest in Research and Development to develop artificial intelligence to track consumer preferences?

Think about the difference between a consumer that prefers an “in person” vs. “online” experience. Which group will eventually be larger? Will there be an ever growing call for online convenience or a nostalgia for an in person human approach to selling basically anything? Can both preferences equally co-exist? Or will they always be at odds with each other?

Will they stick to their brick and mortar values and loyalty to employees and the labor force or will the industry inevitably force them to depend on technology and AI?

Is there an opportunity in creating a larger space for “in- store” experiences such as cooking classes and micro-breweries? If so, will this model work better for Publix or Amazon- Whole Foods?

How can Publix increase sales volumes and leverage technology in its favor? Do you believe with its current operating model it is ready to meet the challenges it faces in the technology, innovation and retail expansion space?

If Publix is out maneuvered by giants like Amazon Whole Foods should it consider expanding internationally like Walmart or the much smaller chain Aldi? What are the pros and cons of such a move?

How has Instacart helped expand Publix's customer base? Is it using the service offering to its full advantage? Should it consider buying Instacart to exercise more control over how the service can used more efficiently to grow sales?

How can any supermarket survive with lowering costs of groceries? Think of ways that Publix needs to position itself to stay profitable. What is it doing right? What is it doing wrong?

If the in person customer experience is the ace in the hole for Publix, how can it transcend that experience to an ever increasing online/ on-demand world?

Exhibit material

Total retail and food services sales in the United States from 1992 to 2015 (in trillion U.S. dollars)image1.png

Fig. 1 Source: US Census Bureau

This statistic shows the total sales of retail and food services in the United States from 1992 to 2015. In 2015, total U.S. retail and food services sales amounted to about 5.35 trillion U.S. dollars, up from about 2.01 trillion U.S. dollars in 1992, not adjusting for inflation.

Grocery store sales in the United States from 1992 to 2016 (in billion U.S. dollars)image2.png

Fig. 2 Source: US Census Bureau

This statistic shows grocery store sales in the United States from 1992 to 2016. In 2016, U.S. grocery store sales amounted to about 626.98 billion U.S. dollars. Among the leading grocery retailers in the U.S., were The Kroger Co. and Albertsons, generating around 103 and 58 billion U.S. dollars respectively.

Supermarket and other grocery store sales in the United States from 1992 to 2016 (in billion U.S. Dollars)*image3.png

Fig. 3 Source: US Census Bureau

This timeline shows supermarket and other grocery store sales in the United States from 1992 to 2016. In 2015, U.S. supermarket and grocery store sales amounted to about 587.88 billion U.S. dollars. The Kroger Co. dominated sales of the leading grocery retailers that year, generating approximately 102.9 billion U.S. dollars.

References

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