Wegmans: The New Frontier in Grocery
Wegmans is battling competitors on all fronts – from Whole Foods to Trader Joe's to Walmart. Even so, it's winning the battle to keep prices low and quality high.
Wegmans, a grocery chain founded by John Wegman in 1916, is one of the largest privately run companies in the United States. It operates over 80 stores across the northeast and houses more than half of its stores in its home state of New York. The chain has seen consistent topline growth over the years, from $6.2 billion of revenue in 2011 up to $6.8 billion of revenue in 2013.1 Wegmans’ loyal customer base may be a testament of how a sound business model and a complementary operating model can differentiate a company from its competitors.
Why is Wegmans Different?
The Wegmans business model focuses on three elements:
Competitive Prices: While Wegmans positions itself as a high-end grocery store (competing with the likes of Whole Foods), the prices remain competitive. According to an analysis done by the consumer group Checkbook, Wegmans’ average prices were even lower than those of Giant and Safeway.2 Wegmans’ ability to combine the high-end grocery store ambience with a low pricing strategy reinforces their ability to serve multiple customer segments. This large and loyal customer base, in turn, drives up sales volume.
Large Retail Footprint: The Wegmans store footprint is one of the largest in the industry, from 75,000 to 140,000 square feet.3 In comparison, the median store footprint across the grocery category is about 46,000 square feet.4 The large retail store size not only offers a higher quality shopping experience with spacious aisles, but also allows the grocery store chain to offer a variety of services that mimic a European open-air market. For example, most Wegmans stores offer a café, a restaurant, fresh sushi, a coffee shop, a bakery, a pharmacy, and a floral shop.3 The varied product offering draws customers who would have otherwise visited competitors or smaller specialty stores.
High Quality with More Choice: If customers want a wide variety of product choices, Wegmans is by far the obvious choice. Compared to an average of 40,000 products in most supermarkets, Wegmans carries from 50,000 to 70,000 unique products.3 In addition to product variety, Wegmans prides itself on stocking fresh produce for its customers. However, the high quality element is not isolated to its products. From the layout of the store to the presentation of produce to the displays of organic foods, Wegmans has created a high-quality customer experience. The staff is friendly, helpful, and plentiful.
Alignment between Business and Operating Models
The business model is supported by key elements of the operating model that help Wegmans retain its competitive advantage:
Vertically Integrated Supply Chain: Unlike other supermarkets that outsource their distribution networks, Wegmans controls its own distribution process. Wegmans owns 12 distribution centers in New York and Pennsylvania, and they control the selection, distribution, and transportations for products sold across all the Wegmans stores.6 This strategy allows Wegmans to control costs and insulates them from external entities taking margin.
Inventory Turnover: Wegmans’ high quality offering is in large part supported by its ability to turn over inventory much faster than its competitors. According to Strategic Resource Group, the average supermarket turns over its produce about 18-20 times per year, while Wegmans turns its produce over about 100 times a year.2 Because produce isn’t ever left out on the shelf for long, it can always be restocked with fresh product. This is in large part due to the volumes that Wegmans experiences, and plays hand-in-hand with the competitive pricing strategy that attracts a wide customer base.
Private Label Innovation: The Wegmans private label brand has become a high-quality offering. With the introduction of organic and gluten-free products, the Wegmans private label positions itself as a brand of choice with price-sensitive but quality-conscious consumers. Additionally, Wegmans’ partnership with local farms to produce the private label products serves as a testament to the quality of these offerings.
Employee Focus: The company invests heavily in its workforce – Fortune Magazine ranked Wegmans the fourth best company to work for in the US. It offers college scholarships to its employees and sends its staff around the world to learn about the different types of foods they offer.5 The result is a staff that seems ever willing to make customer service a priority.
Wegmans is well-positioned for sustained and modest growth through the next decade. As a regional player, the operational strategy supports its business goals. If Wegmans’ expansion plans are limited to the northeastern United States, I believe the current operational model can bear this growth. However, if Wegmans has plans to expand across the United States, certain elements of the operating model (such as the internal distribution ownership) need to adapt.
1 “WEGMANS FOOD MARKETS, INC.” Company Profile. Vault.com. Web. Accessed 09 Dec 2015. <http://www.vault.com/company-profiles/retail/wegmans-food-markets,-inc/company-overview.aspx>
2 “Why Wegmans Really Is the Best Supermarket in the U.S.” Washington Post. The Washington Post. Web. Accessed 09 Dec 2015. <https://www.washingtonpost.com/news/wonk/wp/2015/05/13/why-wegmans-really-is-the-best-supermarket-in-the-u-s/>
3 “Wegmans Food Markets, Inc.: An Overview.” Wegmans.com. Web. Accessed 09 Dec 2015. <https://www.wegmans.com/webapp/wcs/stores/servlet/CategoryDisplay?storeId=10052&identifier=CATEGORY_2441>
4 “Supermarket Facts.” FMI. Web. Accessed 09 Dec 2015. <http://www.fmi.org/research-resources/supermarket-facts>.
5 Rohde, David. “The Anti-Walmart: The Secret Sauce of Wegmans Is People.” The Atlantic. N.p., n.d. Web. 9 Dec. 2015. <http%3A%2F%2Fwww.theatlantic.com%2Fbusiness%2Farchive%2F2012%2F03%2Fthe-anti-walmart-the-secret-sauce-of-wegmans-is-people%2F254994%2F>.
6 “Distribution.” Wegmans.com. Web. Accessed 09 Dec 2015. <http://www.wegmans.com/webapp/wcs/stores/servlet/ProductDisplay?productId=758923&storeId=10052&langId=-1>
As a consumer, the Wegman’s experience is always a good one! I never realized how well it compared to both ends of the supermarket spectrum – the every-day-low-price strategy of Walmart and the extremely high-quality shopping experience of Whole Foods. Learning more about it through your post, I wonder if it actually is positioned for increased growth or if it has reached its maximum size to maintain its strategy. Will they be able to control costs and have such high quality if they have a larger geographical footprint? Will their private label still be as high quality if they need to source from farms across the country rather than only in the northeast? It seems like the best way for them to grow outside the northeast (if they determine that is their goal) might be to merge with or acquire other Wegman’s-like grocery chains in other geographies.
This is very insightful!
You have convinced me that Wegmans has really carved out a corner of the Grocery landscape in the Northeast. I agree that expansion far beyond those borders may require a change in their operating model and may therefore erode their advantage. It seems that some other regions of the US also feature a grocer with a similar following (Earth Fare and Publix in the southeast comes to mind). I imagine that a slow and steady growth of these regional chains may bring them closer to the territory of one of their competitors at which point chains like Wegmans may begin to see challenges.