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BENTONVILLE, Arkansas Sam's Club is trying to keep prices in check despite rising food costs and adding more fresh produce to get its members to buy more of their food and other everyday items at the warehouse clubs.
If the unit of Wal-Mart Stores Inc (WMT.N) could get its members to buy 20 percent of their food and other consumables at the clubs, it would mean $18 billion more in sales, Sam's Club Chief Merchandising Officer Linda Hefner said on Thursday.
The strategy is starting to pay off at the chain, which rang up close to $50 billion of sales last year. Sam's Club comparable store sales rose 4.2 percent in the first quarter, after smaller increases in the preceding periods. Food and beverages were among the strongest growth categories.
A year ago its members did 12 percent of their overall shopping for food and other consumables at Sam's Club. Meanwhile, members at a rival spent 20 percent of their budget on the same goods at the club itself. While Sam's Club did not name the rival, Costco Wholesale Corp (COST.O) is the largest warehouse chain and has also been putting more of an emphasis on sales of food.
The findings, based on Nielsen Homescan data, are based on sales of food and the consumables category of items such as paper towels and cleaning products.
Now, as Sam's Club sells smaller packages of frozen and prepared meals and maintains prices on items such as All and Gain laundry detergents, it is starting to see that percentage rise, Hefner said
Members doing more of their food and household products shopping at Sam's Club could siphon some sales away from Wal-Mart's other stores.
But Hefner was not concerned, saying that Sam's Club expects most of the shift to come from the purchases members make at sellers of groceries other than Wal-Mart.
The company is trying to maintain prices, rather than raise them. Sam's Club kept the price of its prepared rotisserie chicken under $5 even though poultry prices have gone up. Hefner declined to discuss the impact on margin that would occur as a result.
It also cut three bottles out of a 35-pack of Nestle bottled water in order to keep the price at $3.98.
"We're not seeing huge trade down," Hefner said of the company's overall sales as she walked around a Sam's Club in Wal-Mart's hometown of Bentonville, Arkansas.
Warehouse club profits are typically driven by the membership fees their customers pay in order to shop at the clubs.
Sam's showcased some of its 500 new private brand items during a tour on Thursday. The Artisan Fresh line of baked goods and prepared foods has started to show up in stores, and the Simply Right line of household goods and Daily Chef foods will start to appear later this summer, said Maurice Markey, Sam's Club vice president of proprietary brands.
(Editing by Steve Orlofsky)
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