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Wegmans Grocery Stores

Wegmans grocery stores have generated a cult-like following over their 100-year history; the company received 7,300 “love letters” in 2015 alone, and Market Force named the chain the Best Grocery Store in America in 2016.

On Sunday, May 22, 2016, Midlothian, Virginia, a former coal-mining town with a population of approximately 60,000, hosted one of its biggest events in its 300-year history. Approximately 2,000 people waited patiently in line; some traveled for over 100 miles. And what was all of this excitement for? The answer might not be what one would expect – the opening of a grocery store.

Wegmans grocery stores have generated a cult-like following over their 100-year history; the company received 7,300 “love letters” in 2015 alone, and Market Force named the chain the Best Grocery Store in America in 2016. How does a grocery store generate such deep and fanatic loyalty amongst its customer base? In examining Wegmans service model and core offerings, one finds that the grocery store chain is a brilliant innovator and, in particular, user of the Third Way approach to innovation.

This case study explores how Wegmans innovates around its core product – food. It will examine how Wegmans has executed on the Third Way through the decision-making framework introduced in The Power of Little Ideas. It will also dive into Wegmans family of complementary innovations to explore how they operate together to optimize the customers experience and to ensure Wegmans is a financially sound player in an incredibly low margin industry.

 

Decisions One and Two: What is your key product, and what is the business promise for that product?

In 1916, Jack and Walter Wegman introduced the Rochester Fruit & Vegetable Company when they drove their horse drawn wagon, filled with produce, through the streets of Rochester, New York[1].  At the time, people commonly purchased fruit and vegetables from pushcart peddlers.  From their very first years in the business, the Wegmans brothers identified an opportunity with the current model of produce retailing – the customer experience was poor.  Viewed as a necessary evil and unavoidable part of the meal preparation process, few enjoyed the grocery shopping process.  Passionate about their product, the Wegman brothers believed that shopping for produce could be a more enjoyable and self-directed experience; at the time, all grocery orders were placed through the peddler as an intermediary.  In 1930, the brothers received national attention when they opened a 20,000 square foot store in Rochester, which featured a 300-seat cafeteria, refrigerated food displays, and vaporized spray to keep vegetables fresh.[2]

While they didn’t realize it at the time, the Wegmans were beginning the journey of innovation when they opened their first store by making the first two decisions necessary for the Third Way approach: (1) What was their key product?; and (2) What was their business promise?  The first decision, around key product, was relatively straightforward for the Wegmans brothers.  The “crown jewel” of their company was the produce, or food, itself.   Produce meets all of the Third Way criteria for an appropriate product to innovate around; it is the key good that customers associated with the company, it was critical to the company’s strategic success, and it was relatively stable and unchanging[3].

The second decision that the Wegmans brothers made was around their key promise for their product.  Most people dreaded making the trek to their local store or peddler to purchase the ingredients for a meal; it was just another mandatory errand to run.  In light of this, the Wegman brothers decided to make the food shopping experience a more pleasurable one – one that customers would actually look forward to.  The Wegmans mission statement is still reflective of this core promise, proclaiming, “…Offering choice, quality down every aisle is how we make your shopping experience a genuine pleasure”[4].  Their 1930 “superstore” was the first attempt at delivering on their key promise, but more innovations around the food shopping experience would come as the years rolled on[5].

Wegmans First Self Serve Grocery Store – Opened in 1930

 

To deliver on their key promise and understand how to elevate value during the food shopping experience, the Wegmans brothers had to deeply understand the full customer context in a “jobs to be done” approach [6].   Luckily, through their vast produce retailing experience, the Wegmans brothers were able to observe customers as they walked through the food shopping process for many years.  The Customer Activity Chain for food shopping is depicted below, along with the key things that customers value within each activity:

The Wegmans brothers made the commitment to focus their innovations on the elements customers value throughout their activity chain: quality, variety, ease, and flexibility.  They understood that if they were able to target these drivers of value through complementary innovations, they could differentiate themselves among their competitors.   This approach has proven to be successful; today, the grocery store chain is consistently rated as number one grocery store in the world by Consumer Reports.[7]

By making food shopping a pleasurable experience, the Wegmans brothers knew that they would drive traffic into their stores and generate revenue.  However, revenues didn’t always translate directly to profits, as it is incredibly challenging to make a profit in the supermarket and grocery store industry.  In 2011, average industry margins were just 1.1%, expected to grow to an extremely modest 1.5% in 2016.[8]   In addition to innovating to improve the customer experience, the Wegman brothers also had to make business decisions and create innovations that would preserve margins throughout the experience.  By “following the product”, one can easily see where margins can be made or lost through the grocery shopping experience.

 

With a clear sense for what customers value during the grocery store experience and clarity on how profits are made, Wegmans was ready to determine which complementary innovations should be offered and how innovation should take place.

 

Decisions Three and Four:  What innovations should Wegmans offer, and how to bring them to market?

Over the years, Wegmans has invested heavily in complementary innovations around food and produce to make the shopping experience as enjoyable as possible – all with an eye for margin.  A clear knowledge of the customer value chain and a keen eye for how the financials of the grocery retailing business work allows Wegmans to focus on the things that matter during each phase of the customer experience.

 

The Planning Phase

Knowing that choice and ease are core drivers of value during first phase of the grocery shopping process, Wegmans has created a set of complementary innovations in order to infuse these elements into the preparation for a visit to the grocery store.  It is estimated that Americans eat at home 72% of the time, and women and men spend an average of 66 minutes and 74 minutes cooking per day respectively[9].   With so much time at the stove, coming up with meal ideas that introduce variety into an American household’s diet becomes a cumbersome task.  To help the grocery shopper overcome this, Wegmans has turned to technology.  Their website contains hundreds of recipes, all made from products sold within their stores.  The majority of the recipes rotate seasonally to ensure variety and freshness of ingredients.  Wegmans also send a monthly magazine, free for Wegmans Shoppers Card holders (the store’s loyalty program) and $5 for customers who purchase it in store, which features new products and new seasonal recipe and prepared food options.

Once a shopper decides on what meals they want to make over a given time period, she works to assemble a grocery list.  Many shoppers also roughly calculate cost during this stage in the process in order to ensure that their grocery order will stay within budget.  Wegmans has also creatively innovated during this step of the process to make it as easy as possible for the customer.   On their website, if a shopper likes a recipe, she can “download” the recipe to her online grocery list.  All of the ingredients will automatically appear in the quantities necessary for the amount of people she is cooking for.  The ingredients will primarily be private label options, bolstering Wegmans margins.  (This will be described in more detail during The Shopping Phase).  The web experience also integrates the shopper’s preferred Wegmans location, allowing for the prices to be imported for each product.  To make the grocery list assembly process equally seamless for staple items that are not necessarily part of recipes, Wegmans mobile app allows customers to scan a barcode on a product and automatically add it to their virtual list[10].

Wegmans also tackled another challenge that arises during the preparation process for a grocery trip – finding the time to get to the store.   Wegmans stores offer innovations that allow for customers to integrate grocery-shopping trips into their daily or weekly routine more seamlessly.  Each store offers a full service restaurant, so that customers can dine before, after, or during their shopping experience.  This makes scheduling trips around meals less of an issue.  The restaurant also features recipes from their web experience, allowing customers to taste test meals before they create them on their own or better yet, encouraging them to make a meal that they hadn’t planned to; this further forces integration between different innovations.  Each restaurant also offers a hot and cold buffet, sushi station, pizza parlor, and deli shop in their Market Café area for customers who want to squeeze in a quick meal on their shopping trip but do not have time to sit down to eat.  In addition to providing convenience, the restaurants and stations serve as a mechanism for leveraging inventory in a different way, preventing waste and preserving margin.  (This will also be discussed in more detail in The Shopping Phase).

A Wegmans Restaurant

 

 

Another deterrent and point of frustration that arises when customers attempt to find time to squeeze in their shopping trips is child-care.  Knowing that shopping with children can be a bear, Wegmans has incorporated child-friendly experiences throughout their stores so that parents feel better about bringing their kids along for the shopping journey.  Some examples including child-friendly seating with cartoon and entertainment in the Market Café, kid-friendly cart designs (e.g. racecars and trucks), and cooking classes for kids.  Some stores offer a supervised play center to allow parents to drop off their children while they shop[11].  Knowing that their children can be sufficiently distracted makes identifying the time to carve out for grocery shopping a less daunting task.

 

 

The Shopping Phase

Arguably, Wegmans has created the vastest set of complementary innovations throughout the in-store shopping experience itself.  In deciding how to innovate, the company focused on the things that customers valued in this phase: ease/speed, quality/freshness, variety/selection, and service/expertise.

Grocery shopping can take a tremendous amount of time.  In fact, 66% of Americans say that grocery shopping is the most time consuming chore in their week, making ease and speed a critical attribute to an enjoyable experience[12].  Wegmans has tackled this challenge through several key innovations.  The first is a complementary innovation that is linked to the aforementioned recipe generator on their web experience.  Once a customer completes a grocery list, she can generate a map for the best way to navigate the grocery store to retrieve all of the items that she needs.  This prevents any trips back and forth between aisles, eliminating much of the frustration that can occur during a grocery shopping trip.

Wegmans store design serves as an innovation in itself.  A BuzzFeed article once compared shopping at Wegmans to a “journey through a small, beautifully maintained self-sustaining city.” [13]  Shopping in most grocery stores is not a pleasurable experience for the senses themselves – with fluorescent lighting and packed shelves and aisles.   Knowing this, Wegmans designed their stores to resemble European open-air markets, providing a higher-quality experience than its competitor set.  Food is prepared in front of customers.  Produce is arranged in beautiful displays.  The uniqueness of the Wegmans store design is not only visually appealing, but it makes it easier to navigate through the store, addressing the speed and ease concerns of the grocery store shopper.  Wegmans are roughly double the size of their competitors at 80,000 to 120,000 square feet, allowing for aisles to be wider and providing valuable room for shopping carts.

Another way that Wegmans innovates throughout the store navigate experience is by creating single point meal stations, where a customer can grab all of the components of a meal without having to navigate to multiple aisles.  For example, fresh burgers are served alongside pre-sliced tomatoes, lettuce, and onions, as well as condiments such as ketchup and mustard.  Salmon fillets are presented next to vegetable and starch options.  This enables shoppers to quickly get in and out of the store, all while retaining the ability to eat a healthy meal.

Freshness is another key value within the Shopping Phase of the customer activity chain.  Wegmans has designed complementary innovations around this particular driver of value that both improve the experience and preserve margins for the company.  As shown in the “following the product” diagram on Page Four, grocery store margins are often eroded by the multiple parties involved in the produce distribution channel, from manufacturers to transporters, who all take a cut of the profits.  To prevent this, Wegmans has effectively integrated down into the distribution channel into manufacturing through their private label brands.  Private label sales make up approximately 30% of Wegman’s revenue[14] in comparison to 15% of the average supermarket’s revenues[15].  In some cases, Wegmans integrates all the way through the distribution channel by playing the supplier role.  For example, in 2014, the company opened their own cheese caves in New York[16].  Where they cannot manufacture themselves, Wegmans retains tight control over their chain through their 12 distribution centers that control selection, distribution, and transportation for all stores[17].

Integrating down into the distribution channel serves two purposes for Wegmans: (1) Wegmans is able to enjoy higher margins than many of their competitors by effectively managing costs.  While the private company will not disclose net margins, operating margins are at 7.5% – double that of the average grocery store retailer[18].  (2) Wegmans is able to retain extremely tight quality control to ensure that their customers are getting access to the absolute best produce.

Wegmans has innovated in other ways that contribute to product freshness and also positively impact their bottom line.  One innovation is their Ready-to-Cook E-Z Oven Packages.  These are vacuum packed entrees that can be placed right into the oven or slow cooker to allow for no prep cooking and minimal clean up[19].   These packages are a convenient solution for a busy shopper to be able to eat a healthy, fresh meal.  They also are a powerful inventory and turnover management tool.  Wegmans is able to carefully monitor the amount of time that its meat and vegetables are on the shelves.  After a few days, produce, meat, seafood, and cheese is converted into a Ready-to-Cook E-Z Oven meal or sent over to the Pub or Food Court stations.  This significantly reduces waste, by giving the produce another opportunity to be sold and improving Wegmans bottom line in comparison to their competitive set.  It also significantly increases turnover, ensuring that produce, meat, and cheese is always fresh.  The average supermarket turns over its inventory between 18 and 20 times per year; in contrast, Wegmans turns over produce as many as 100 times per year[20].

Quality service is also a key driver of value within the customer experience.  To deliver on their key promise and to produce quality service, Wegmans knows that employee engagement is critical.  Therefore, the Wegmans management team takes an innovative approach to how they manage their employees.  Heralded as the “anti-Walmart”, Wegmans offers extensive benefits and training that resembles that of a management consultancy, rather than a supermarket.   Wegmans employees take advantage of flexible scheduling, broader career track opportunities into leadership positions, and access to a generous scholarship program, which pays almost $5 million per year in tuition assistance for employees[21].  Wegmans is emphatic about training; employees must have 40 hours worth of training before they can interact with a customer.   To build product expertise, department managers travel all over the world to learn about the wine, cheese, or meat they sell[22].  Employees can launch into exhaustive accounts of where their fish or produce hails from at the drop of a hat.

A big part of how Wegmans has decided to innovate is through employee empowerment and experimentation.  Wegmans encourages their employees on the front line to make the right call on behalf of the customer, enhancing quality and service.  In one story, a customer had to miss a family reunion in another state due to her work schedule and wanted to order a cake for the event near her parents’ house. Wegmans policy is not to process orders over the phone, but the employee did it anyway[23].   The customer ended up writing a multiple page “love letter” to the company, heralding its client focus.

Variety is also a key value for customers who are embarking on the food shopping process.  Part of what makes grocery shopping so mundane is an utter lack of variety; American are always challenged to find something “new” to make for dinner.  Compared to the 40,000 unique products that an average grocery retailer sells, a typical Wegmans store offers between 50,000 and 70,000 offerings.  To achieve this level of variety, employee experimentation serves as a powerful innovation tool.  Employees at Wegmans encouraged come up with new food ideas in their respective departments, offering them to customers to determine if they have potential.

One infamous experiment generated “chocolate meatball cookies.[24]” Maria Benjamin, who worked in the Pittsford, NY store told Danny Wegman about the meatball cookie recipe that her Italian ancestor had left her. Danny encouraged her to sell them there.  They remain a store favorite to this day and one of the highest volume items in the local store’s bakery[25]. The experimentation approach allows for Wegmans to keep great variety in their food selection.

 

Paying & Loading Phase

Wegmans’ innovations continue beyond the shopping phase of the customer activity map into the payment and loading phase.  Here, Wegmans continues their focus on innovations that make the customer experience more seamless and pleasurable, while simultaneously bolstering their bottom line.  During the check out and loading phase, customers value speed and ease so they could continue on with their day.  To allow for this, Wegmans has leveraged technology.  For example, they were one of the first grocery retailers to use mobile wallet[26].

Wegmans also strategically places self-check out stations throughout the store to allow for easy entry and exit for those shoppers who plan on making a quick trip.  For example, in most locations, self-check out stations can be found by the E-Z Oven entrees, meal stations, and prepared food sections.

Most grocery stores generate weekly circulars, containing coupons and often using some products as lost leaders in order to drive traffic into the stores.  The presentation of coupons can make the checkout process more cumbersome and time consuming.  Coupons and discounts also erode the profit margins of these stores.  Unlike most grocery stores, Wegmans rarely uses traditional paper coupons.  Instead, they digitally send members of their Shoppers club coupons, based up on their consumption habits.  Most of the discounts are applicable only to private label options, in order to drive traffic to the company’s highest margin products.  Shoppers do not have to print the coupons or bring their smartphones to check out.  Instead, they “clip” the coupons online and apply them to their account with the click of a button.  The once they swipe their Shoppers club card at check out, the coupons are automatically applied.   This innovation helps expedite the check out process and simultaneously protects Wegmans profit margins; Wegmans is able to use data analytics to restrict the depth of the discounts being offered[27].

 

Unpack & Prepare Phase

The final part of the customer activity chain for grocery shopping is unpacking the groceries and preparing the meals throughout the week.  Here, many of the innovations that Wegmans introduced during the shopping phase resurface to support the drivers of value for this last phase, which include high quality and convenience.

Innovations like the E-Z Oven entrees allow for customers to quickly prepare a meal that they know is fresh – given the tremendous turnover of inventory that Wegmans is able to generate.  Recipes give customers clear direction on how to assemble the ingredients that they purchase during the in store experience.  Customers are also able to share direct feedback on recipes on the Wegmans website by writing reviews.  Wegmans uses this feedback to continually optimize their offerings.

Technology also plays a key role during this phase of the activity chain.  As members of the Wegmans Shoppers Club, customer purchases are tracked.  Not only does this allow for Wegmans to carefully personalize discounts, but it keeps a rich online history that shoppers can tap into when they want to repeat a recipe or pick up an item that they really enjoyed.

 

Conclusion

After analyzing the plethora of complementary innovations Wegmans has built around its core product, food/produce, it is clear to see why the brand has generated such a cult-like following.  Wegmans’ success is an exciting case study of the effectiveness of the Third Way approach; in particular, it demonstrates the importance of deeply understanding the customer activity chain and drivers of value, as well as “following the product” to ensure that each innovation is driving profitability.

The true beauty in Wegmans approach can be found in the complementary nature of their innovations.  The virtual grocery trip preparation tools are great examples of this.  By digitizing and automating the meal planning, grocery list generation, and store navigation processes, Wegmans makes the shopping experience more pleasurable and easy for consumers – all while driving revenues into its highest margin products and collecting rich data about preferences that can be used in product development.  The in-store dining options are another great example of complementary innovations.  Offering restaurants that serve the recipes promoted on their website, Wegmans is able to enjoy unparalleled product turnover and subsequently highly fresh produce and allow customers to more easily squeeze in a shopping trip into their busy day, all while driving demand for private label products and bolstering their bottom line.

By continuing to focus innovations on the values of driver throughout the grocery shopping process and creating these types of complementary innovations, Wegmans will undoubtedly maintain its position as the best grocery store in the US.

[1] Archives. Wegmans is born: A long time ago in Rochester. 9 March 2009.  Pipe Dream.

[2] Robert B. Wegman: A Great Merchant 1928- 2006. 18 June 2007.  “About Us” www.wegmans.com

[3] Robertson, David. The Power of Little Ideas: Chapters 5 through 8..  Pg. 66.

[4] About Us: Helping families live better, healthier lives through food.  “Company Overview”. www.wegmans.com

[5] Archives. Wegmans is born: A long time ago in Rochester. 9 March 2009.  Pipe Dream.

[6] Robertson, David. The Power of Little Ideas: Chapters 5 through 8..  Pg. 14

[7] Kell, John. Wegmans Was Just Named The Best Grocery Store In America. 15 April 2016. Fortune.

[8] Hurley, Madeline. Supermarkets & Grocery Stores in the US. September 2016.  IBISWorld Industry Report 44511

[9]  Ferdman, Roberto A.  The slow death of the home-cooked meal. 5 March 2015. The Washington Post.

[10] Grossman, Josh. 9 Ways Supermarkets Are Going High Tech. 17 July 2012.  Mashable

[11] McCormack, Kathleen. Kid-Friendly Wegmans: 15 Ways You Didn’t Realize That Wegmans was Helping You Shop with Kids.  2015. Kids Out and About.Com

[12] Durand, Faith. Excuses, Excuses: Americans’ Top Reasons for Not Cooking. 13 September 2011. Kitchn

[13] McCormack, Kathleen. Kid-Friendly Wegmans: 15 Ways You Didn’t Realize That Wegmans was Helping You Shop with Kids.  2015. Kids Out and About.Com

[14]Quelch, John A.  Readings in Modern Marketing. 2007. Chinese University Press. Pg. 317

[15] Hale, Todd.  How 10 Retailers are Pushing Private Label Potential. 11 March 2014. Nielsen.

[16] Ferdman, Roberto A.  The slow death of the home-cooked meal. 5 March 2015. The Washington Post.

[17] AG. Wegmans:  The New Frontier In Grocery. 9 December 2015.  Harvard Business School Open Knowledge: Technology and Operations Management.

[18]Boyle, Matthew.  The Wegmans Way. 24 January 2005.  Fortune.

[19] Wegmans and Family Meals Month: It’s in the Bag!  21 September 2016. www.wegmans.com

[20] Ferdman, Roberto A.  Why Wegmans really is the best supermarket in the U.S. 13 May 2015.  Washington Post.

[21] Hess, Michael. Could This Be The Best Company in the World?  12 September 2011. CBS Money Watch

[22] Nisen, Max. Wegmans is a great grocery store because it is a great employer. 13 May 2015.  Conduent.

[23] Gallo, Carmine. How Wegmans, Apple, and Ritz-Carlton Win Loyal Customers. 11 December 2012. Forbes.

[24] Kaladranis, Janet. Wegmans: A Successful Experimental Brand. Beneath the Brand.

[25] Nelson, Brett. Whole Foods’ Unholy Union. 13 August 2012. Forbes.

[26] Heneghan, Carolyn. 7 grocery store retail technologies to innovate the shopping experience. 22 May 2015. Food DIVE.

[27] Axelson, Ben. Wegmans launches Shoppers Club digital program: Here’s how it works. 11 May 2016. Syracuse.com

Posted by Mackenzie B.
On October 1, 2017
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