This is how Publix is winning its war with Walmart

Sep 30, 2015, 6:21pm EDT

INDUSTRIES & TAGS

Ashley Gurbal KritzerReporterTampa Bay Business Journal

Publix Super Markets Inc.'s focus on customer service and fresh produce are walloping Walmart, eating up its grocery market share throughout the Southeast.

Publix in recent years has launched a series of pricing promotions to compete with Walmart (NYSE: WMT) — and it's working, Wayne Wood, an analyst withBMO Capital Markets Corp., wrote in a recent research note.

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"Our store visits to various U.S. metro markets indicate that bundling price strategies and growing loyalty programs over the past several years, specifically at Kroger and Publix, make it difficult for consumers to compare prices against Walmart — thereby obscuring WMT’s sizable price advantages from customer consideration," Wood wrote.

Lakeland-based Publix brought in more than $30 billion in revenue in 2014 and has already bagged more than $1 billion in profits in 2015. In 2014, its profits totaled $1.74 billion.

Publix and fellow grocery giant Kroger Co. (NYSE: KR) has been steadily growing their comparable store sales, but that hasn't been the case for Walmart's grocery business, which has been mostly flat, according to Wood.

"Notwithstanding good comp-store sales growth in general merchandise, apparel and seasonal merchandise, the gap in grocery comp-store sales has widened between U.S. Walmart Stores and its supermarket peers over the past two years, implying growing market share loss," Wood wrote.

For the past two years, both Publix and Kroger have seen comp-store sales growth of more than 4 percent each quarter, according to Wood, and have beaten Walmart U.S. comp-store sales by at least 2 percent each quarter over that same period.

Comp-store sales are a key metric of a retailer's financial health, because it measures sales at established stores and does not take into account sales growth from new stores.

Publix controls the majority of grocery market share in each of the four major Florida metros: 37.9 percent in Tampa (Walmart at 24.3 percent); 44.3 percent in Miami (Walmart at 13 percent); 34 percent in Jacksonville (Walmart at 23 percent); and 27.5 percent in Orlando (Walmart at 21.8 percent).

"The sustained success at Kroger and Publix has come as both grocers were early adopters in recognizing the importance of customer experience as part of their value proposition to customers, in addition to competitive pricing and attractive product offerings," Wood wrote.

Both Kroger and Publix have recently "embraced customer data analytics to enable more informed decision making regarding targeted advertising, and understanding how customer demand reacts to discounting across the store," Wood wrote, which is also driving their growth.

Walmart scores poorly on customer service surveys throughout Florida, with an average rating of 2.54 on a scale of one to five. When Wood's team conducted research in Orlando, it found that customers rate Publix a 3.9 out of 5 while Walmart receives a 2.5 out of 5, even though Walmart has a "roughly 12 percent price advantage" over Publix in Orlando.

Publix's success despite its higher price points is due to what Wood calls "bundling promotions" — like the buy one, get one specials Publix is known for.

"We view these bundling strategies as having been effective at obscuring the full value proposition of Walmart’s price advantage in grocery," Wood wrote.