Wholesale Club Stores: The Emerging Challenge
McLaughlin, Edward W.; Hawkes, Gerard; Perosio, Debra
The impact of wholesale club stores on food distribution varies greatly by region and market within the U.S. Until recently, the New York!New Jersey region has experienced limited penetration by alternative food retailing store formats. With the entry of Sam's Wholesale Club into the states of New Jersey and New York during the past 18 months the pace of expansion of wholesale club stores into the northeast has accelerated dramatically. Other recent entrants into the two state area include Pace Membership Club (a division of KMart), Price Club, and Costco Membership Club. The rapid expansion plans and long-term investments being made by these firms require strategic responses from traditional food wholesalers and retailers. Although there have been a wide variety of examples of strategic responses throughout the country, the uniqueness of individual firms and markets may prevent a successful strategy in one market from being transferred to other firms or markets. A mail survey of food wholesaler and retailer executives in New York and New Jersey, augmented by personal interviews with key executives of chain and independent retailers and wholesalers, was conducted to determine the variety and relative success of strategic responses to wholesale membership clubs. Consumer interviews were conducted in supermarkets to attempt to capture the degree to which supermarket shoppers also purchase food at wholesale membership clubs and perceive club stores as alternatives to supermarkets. Clear distinctions in demographic profiles were found between supermarket shoppers who are also wholesale club members and those who are not. Nearly two thirds of wholesale club members surveyed had been members for less than three years. Wholesale club members rated supermarkets a better value for perishable foods but preferred the wholesale club for dry grocery products, general merchandise and health and beauty care products. New York and New Jersey supermarket operators' ratings of supermarket value compared with wholesale club value agreed with those of wholesale club members. Supermarket executives also rated most effective those marketing strategies which emphasize supermarkets' strengths relative to club stores --service, selection, location, etc. A variety of strategic responses concerning pricing although considered not very effective, were considered necessary competitive responses.
A.E. Ext. 92-18
Charles H. Dyson School of Applied Economics and Management, Cornell University