Small business focus pays off for Sam's: improved food assortment leads way

DSN Retailing Today, Oct 11, 2004 by Debbie Howell, Mike Duff

The current strategy in food merchandising at Sam's Clubs to focus on business members is yielding results, with the division reporting stronger comparable-store sales and profit gains this past year under ceo Kevin Turner's guidance.

Although Wal-Mart doesn't break down sales gains by merchandise category at Sam's, operating profit in the division grew 10% and comps rose 5.3% for the fiscal year ended Jan. 31. This trend has continued in 2004, with an 8.8% comp gain and an operating profit increase of 13.9% for the quarter ended in July.

"Sam's Clubs, led by Kevin Turner and his team, had another good quarter. Their continued focus on being in business for small business is working," said Wal-Mart cfo Tom Schoewe in a second quarter earnings conference call held Aug. 12.

UnderTurner's lead, Sam's has revamped its food mix to focus even more on bulk packs and items of interest to business member groups, identified as foodservice, convenience stores, daycare centers and vending machine operators. While the chain has always offered bulk sizes, just like its rivals, in recent years Sam's had targeted consumer members more with its food assortment. Now the emphasis has returned to business needs, and bulk is predominant.

About 30% of Sam's Club sales come from food, or $10.3 billion for the last fiscal year, making this category the largest revenue generator. The Sam's division has improved its food assortment significantly in recent years, upgrading its fresh offerings in produce, bakery and meat. Upscale and hefty are good words to describe the food mix, with significant attention given to premium cuts of meat and seafood, appetizers and restaurant-size packaging such as 50-pound bags of sugar.

Road shows remain a sales driver in the club channel, such as one offering premium large shrimp, salmon and tilapia sold on a limited-time basis adjacent to meat at this store. Custom-ordered cakes not only offered the expected fare of child birthday party themes, but also suggestions for business card cupcakes or cakes featuring company logos.

Beyond 538 domestic Sam's Clubs, Wal-Mart also runs 80 clubs in five other countries. Much of what Wal-Mart is doing in the United States with food is reflected in new Sam's units in Canada, the sixth of which debuted in the Toronto area last month.

In Canada as well, Sam's caters to the nine business customer designations--including foodservice, vending and janitorial--it has developed by offering products tailored to the particular needs of each. In the meat case, signage informs foodservice customers that they can get more than the conventional packs available in serf-serve just by talking to a meat department employee.

"On the cost savings side, you'll see the meat department by the case," said James Murray, Sam's Club regional sales manager. "If you are a consumer, you Can buy a pack of ground beef from us. If you're a small business owner, you can buy that pack of ground beef. If you're a little bit larger, or maybe you're a burger joint, if you want to buy a case of ground beef from us, we're going to lower that price for you."

Beyond that, Sam's is applying Wal-Mart initiatives, such as store of the community, as pertains to business members. For example, beyond creating more appropriate package sizes for foodservice customers, Sam's Canada has tried to help restaurateurs in Toronto's diverse communities by catering to demographic preferences. In some places, that means understanding what large Asian or Jewish communities prefer. In one club, it meant catering to a large Islamic population.

"In Richmond Hill, we brought Hallal chicken in," said Murray.

By tailoring assortments to demographics and business niches, Sam's appears to be better differentiating its stores from Costco, rated by many to be the superior club retail in food.