Wegmans Food Markets is the 46th largest U.S. private company, with $7.4 billion of annual sales. It is a regional supermarket with only 86 stores. Despite this small footprint, Wegmans has a loyal customer following and a value proposition that helps it disrupt every new market it enters.
Wegmans creates value by pulling the best attributes of its competitors together, giving it the power of 360-degree competition. It is the best of both worlds or – more accurately – the best of four worlds. First, Wegmans stores carry a wide selection of 50,000-70,000 products compared to a competitor average of 40,000. This is possible because its stores are very large, measuring up to 140,000 sqft. Second, Wegmans creates a shopping atmosphere that mimics European open-air markets where customers can see and smell foods being cooked/baked. Third, Wegmans is focused on providing a customer-focused experience, driven by friendly, empowered workforce. Fourth, Wegmans captures value by offering consistent low prices on popular items and bulk purchase options through its Family Packs. An independent study found that average prices are 13% cheaper at Wegmans than Giant or Safeway. To deliver on all four aspects of this business model simultaneously, Wegmans needs a uniquely effective operating model.
Family-Owned: The company has passed through generations of the Wegman family since opening in 1916. It is currently led by CEO Danny Wegman and his two daughters. This leadership is critical because it creates consistency in how the company is managed, which supports the customer-focused experience and atmosphere.
Store Communities: Wegmans has strategically placed most of its stores in affluent suburban neighborhoods. It makes an effort to truly become part of these communities by getting involved with local charities. A core company value is to “make a difference in every community we serve”. Wegmans cannot compete directly on price with Wal-Mart, but it chooses neighborhoods where shoppers care about all four aspects of its business model.
Supply Chain: Wegmans has a mostly vertically-integrated supply chain that allows it to control the distribution process. It owns warehouses instead of outsourcing distribution and sources some food from its 50-acre organic farm. Wegmans is able to manage this unique operating model because it restricts its footprint to only six states. This helps restrain its distribution scope, which is critical since refrigeration increases transportation costs. Additionally, Wegmans has clear requirements for suppliers based on its New Ways of Working Together, which aim to improve communication and data.  For example, Wegmans will not accept backordered items to avoid inventory and process interruptions. This distribution system reduces costs, retaining low prices. It also allows Wegmans to overturn fresh inventory 100 times/year, compared to 20 for competitors, which supports its wide selection.
Assets & Capabilities
Employees: Wegmans attracts strong employees with competitive salaries and unique perks, including a $4.5 million annual scholarship program. These benefits earned Wegmans a spot on Fortune’s 100 Best Companies to Work For every year (#7 in 2015). Wegmans also ensures that its employees are trained in customer service and food preparation. For example, it requires a 40-hour class for new cashiers and sends its chefs all around the world. As the VP for HR stated, “The first question you ask is: ‘Is this the best thing for the employee?’ That’s a totally different model.” This committed workforce delivers the customer-focused experience.
Global Data Synchronization: Wegmans established data synchronization with local and national suppliers in 2006. According to a joint report, this synchronization improved supply chain efficiency, which saved $1 million in labor and inventory costs and led to a 7% increase in productivity from store delivery process improvements. Suppliers also saw direct improvements, including 75% reduction in speed-to-shelf for new items and a decrease in inspection time by five minutes per order. These time reductions dampen the bullwhip effect between Wegmans and its suppliers, which helps ensure low prices. It also encourages new suppliers to work with Wegmans, which increases product selection.
Wegmans will face new competition in 2016 with the launch of Whole Foods chain of cheaper stores. It is important that Wegmans does not react by growing too quickly, which would be easy given that 2,600 people contacted Wegmans asking for a store in their community last year. The benefits of its vertically-integrated supply chain and product selection will be difficult to retain on a national level. A good test for Wegmans will be its Brooklyn store opening in 2017. The urban setting will create new competitive and distribution challenges that test both Wegmans business and operating models.