Publix Feels Threatened by WalMart Supercenters

Case Type: business competition, competitive threat.
Consulting Firm: Roland Berger Strategy Consultants first round job interview.
Industry Coverage: retail; general merchandisers.

Case Interview Question #00418: Publix Super Markets, Inc. is a supermarket chain based in Lakeland, Florida, United States. Publix stands as one of the largest US regional grocery chains. It operates mainly in the southeast states of Alabama, Florida, Georgia, South Carolina and Tennessee, with more than 1,000 retail stores as of July 2011.

The client Publix has have never used strategy consultants before. Recently, however, Publix is concerned about the rapidly changing competitive dynamics in its market and has approached your consulting firm for assistance. Wal-Mart has recently opened up several stores in the southeast market. Should Publix feel threatened by the entry of Wal-Mart Supercenters (NYSE: WMT) into its market? How would you advise Publix to respond?

Additional Information: (to be given to you if asked)

The client Publix is the largest seller of groceries in the southeast US with a 25% market share.

There are two other large grocery chains with shares of 20 percent and 15 percent, respectively. The rest of the market is highly fragmented.

Wal-Mart Supercenters are basically regular Wal-Marts with large grocery stores attached that operate on a 24-hour schedule. With an average of about 197,000 square feet (18,300 m2), these supercenters stock everything a Walmart store does, and also include a full-service supermarket, including meat and poultry, baked goods, delicatessen, frozen foods, dairy products, garden produce, and fresh seafood. Many Wal-Mart Supercenters also have a garden center, pet shop, pharmacy, Tire & Lube Express, optical center, one-hour photo processing lab, etc.

Possible Answer:

Use 3C/4P framework to analyze the competitive threat.

Wal-Mart can exploit economies of scale in many areas (labor, distribution, etc.) to reduce costs and possibly achieve greater margins than regular supermarkets. This is important because the supermarket business traditionally has very thin margin.

The cost economies for Wal-Mart are on a logarithmic experience curve. So, with greater traffic through their stores, their margins on both food AND their traditional product lines will actually grow.

The client Publix should be really worried. Wal-Mart can lose money on its supermarket grocery items and still earn a lot from increased margins on its traditional Wal-Mart goods.