The grocery industry is known for its intense competition, partly due to the narrow profit margins with which these stores operate. Every dollar is crucial, prompting stores to stock a wide range of inventory to appeal to a broad customer base. However, this also results in high liability, often with products that have limited shelf lives. For instance, Walmart typically restocks its shelves every two days. Moreover, many customers are highly sensitive to pricing and may become frustrated when prices change, often opting to shop elsewhere for better deals. This lack of brand loyalty means grocery stores must lower their prices to remain competitive, which further strains their already slim profit margins, typically ranging from one to three percent.
In this competitive environment, large retailers such as Sam’s Club and Costco employ a different business model. They charge a recurring membership fee that provides customers access to significant savings within their stores. These warehouse grocers purchase inventory in bulk from suppliers at reduced prices, enabling them to offer lower prices to customers, who also buy in bulk. Furthermore, these retailers provide additional savings opportunities on products like gasoline and airline tickets. Sam’s Club currently has approximately 69 million members, while Costco boasts over 130 million members.
While Sam’s Club is smaller than Costco in terms of both locations and membership numbers, it is rapidly expanding its operations. Sam’s Club, which has been consistently growing, now plans to open 15 new stores annually. This marks an increase from their earlier ambition of opening 30 stores over five years. The retailer has experienced particular success as shoppers look for better value in staple products such as eggs, milk, and paper goods. According to CEO Chris Nicholas, the company performs well even during challenging times, and it plans to renovate its existing 600 store locations. Nicholas stated in a LinkedIn post that Sam’s Club will focus on expanding its reach through new store openings and remodels, aiming for omni-channel engagement and efficiency. The company’s membership has increased significantly, with a 13% growth reported in the fourth quarter.