Wal-Mart's core business is getting crushed
The retailer is plagued by negative customer feedback "due to lack of convenience in shopping Supercenter formats, below-average customer service, and below-average quality, freshness, and breadth of produce," Wayne Hood, an analyst at BMO Capital Markets, wrote in a recent research note.
As a result, Wal-Mart is losing grocery market share to rivals like Kroger and Publix, which have higher customer satisfaction ratings than Wal-Mart, according to Hood.
That's a troubling sign for Wal-Mart, which gets more than half of its revenue from groceries, and has been consistently offering lower prices than its rivals, Hood writes.
Grocery prices at Wal-Mart are approximately 10% to 15% lower at Wal-Mart compared to Kroger, according to Hood.
But the lower prices have failed to spur growth in Wal-Mart's grocery business, as illustrated in the graph below.
Hood blames that in part on competitors' popular loyalty programs, which he says have made it difficult for customers to compare prices against Wal-Mart.Loyalty programs have also helped Wal-Mart's rivals stay better informed on customers' shopping behavior.
Kroger's loyalty program data, for example, has helped the company stay on top of changing food trends, so the chain knows which products should be pulled from stores, as well as which products should be added, Hood notes.
Following 47 straight quarters of same-store sales gains, Kroger is now moving into Wal-Mart's territory with a new concept store that sells shoes and clothing, in addition to groceries, and has beer and wine bars.
"As competitors like Kroger, Publix, H-E-B, Jewel-Osco and others have invested in evolving customer lifestyle trends - by broadening organic and fresh offerings - and in improving customer service, the gap between both comp-store sales growth and customer satisfaction at Walmart U.S. grocery and supermarket competitors continues to widen," Hood writes.
Wal-Mart has announced plans to improve customers' shopping experience by adding more associates to the produce sections of its stores.The company is also expanding its popular Neighborhood Markets stores, which focus primarily on groceries.
The Markets are like compacted Supercenters. They offer the same low prices as Wal-Mart's giant warehouse stores, but in a much smaller and more easily accessible location, giving the Neighborhood Markets a "distinct competitive advantage over virtually anyone," Moody's Vice President Charles O'Shea said in a note to clients this summer.
Wal-Mart didn't respond to a request for comment for this story.