Sam's pushing food quality, sacrifices margin

BENTONVILLE, Arkansas (Reuters) - Wal-Mart Stores Inc's Sam's Club warehouse division is improving the quality of its fresh produce and meats to lure price-conscious shoppers, even if the efforts leave it with little margin on a product.

"In a wholesale club the magic of being in one is that we don't have to make money off of the merchandise we sell. We make money off the membership," said Shawn Baldwin, vice president of fresh merchandising for Sam's Club.

He made the comments in an interview with Reuters on the sidelines of a media tour of a Sam's Club store.

Warehouse club operators like Sam's Club charge consumers an annual fee to shop in their stores and offer discounts on everything from flat-screen TVs to printer paper to beef tenderloin.

Sam's Club, Costco Wholesale Corp and BJ's Wholesale Club Inc have been attracting shoppers with low prices on food amid a recession that has crimped household budgets. Not only are the clubs trying to win over shoppers who used to eat out, but they are also attempting to take business from grocery stores, like those operated by Kroger Co, SuperValu Inc and Safeway Inc.

By having more flexibility with its margins, Baldwin said Sam's Club can now sell what is usually considered a more expensive "splurge" fruit, like blackberries or raspberries, at a price that could be close to par with common fruits, like bananas.

To do so, it has paired up with Driscoll's to have the grower provide it with premium varieties of berries that it can sell in its clubs on a regular basis. Sam's Club has also added more stand-alone fresh coolers to sell those berries to shoppers.

Baldwin said shoppers' habits are changing, and they are looking for the best bang for their buck.

"You would expect in this market that people are trading down. They really are not. It's just a shift," he said.

"My number one item in the meat case is still a beef tenderloin. But it's a beef tenderloin that everyone else is selling for this amount and I'm at $7 a pound, about 40 percent less than they're selling it for."

To appeal to shoppers looking to save money by bringing their lunches to work, Sam's Club is also rolling out its own line of seven different kinds of Castle Wood cheese to go along with its Castle Wood deli meats.

It said the Castle Wood line is priced at a discount to high-end name brands.

(Reporting by Nicole Maestri and Lisa Baertlein, editing by Dave Zimmerman)