IBS

WITH the rise of Wal-Mart, smaller supermarkets across America have struggled to compete. But not Publix Super Markets, which recently opened its 900th store, in Murfreesboro, Tennessee, and is defying Wal-Mart's market-share success in food sales. Publix is America's largest privately owned grocery chain, with revenues in 2006 of $21.7 billion, up 5% from 2005, and net profits of $1.1 billion, up 11%. Publix has a market share of more than 40% in Florida, its home state, and it is taking business from Wal-Mart and others as it expands into Alabama, Georgia, Tennessee and South Carolina. It has a competitive edge over Wal-Mart because it is strong in precisely the areas where Wal-Mart is vulnerable.

Take customer satisfaction, for example. Publix has ranked number one out of supermarkets on the American Consumer Satisfaction Index, published by the University of Michigan, since it began 14 years ago, whereas Wal-Mart ranks last. Publix employees have a reputation for going out of their way to please customers—testimony to the motivational power of employee ownership, perhaps. Publix employees put your shopping into bags, take it to the car and refuse tips—unless you offer more than once. They own 31% of the firm through an employee share-ownership plan, making Publix the largest employee-owned company in America. (The rest of Publix, established in 1930 by George W. Jenkins, is largely owned by the Jenkins family, which still runs the firm.)

Publix has also tailored its products to fast-growing local markets more successfully than Wal-Mart has, boosting sales while carving a niche for itself. The company has opened Publix Sabor stores in south Florida, seeking to attract shoppers from its large Hispanic and Caribbean populations. As well as offering packaged goods aimed at Hispanic customers, as Wal-Mart does in some stores, these shops sell prepared dishes, including red beans with pig's feet and stewed chicken, and perishables such as yucca root.

In addition, Publix has gained a cult-like following amongst Floridians for its Publix-brand goods such as chocolate-chip cookies, sub sandwiches and sweet tea. Publix began selling organic and natural products in 1996 and will open several stores devoted to such products this year. Wal-Mart began selling organic food only last year, and is now thought to be retreating from its initial ambitious plans. And although Wal-Mart has introduced around 120 Neighborhood Markets—supermarket-sized outlets intended to compete with the likes of Publix—they are far less profitable than its traditional, larger stores.

Even these larger stores do not measure up to Publix. John Heinbockel, a food-retail analyst at Goldman Sachs, an investment bank, notes that Wal-Mart's same-store food-sales growth, though in the mid-single digits, has been falling, and total same-store sales growth slipped to 1.9% in 2006. Meanwhile, Publix's same-store sales growth has been steadily increasing: this week the firm said it had reached 5.1% in the first three months of this year. In a market where margins are slim, Publix makes 40% more profit on groceries than Wal-Mart does, says Burt Flickinger III of Strategic Resource Group, a consultancy.

Publix is not the only private, family-owned regional chain holding its own against Wal-Mart. Others such as H-E-B in Texas and Wegmans in the north-east have respectable market shares within their regions. But Publix is 60% bigger by revenue than the next largest private supermarket, Meijer in the Midwest. It is opening 37 new shops this year, both in Florida and farther afield. Judging by its successful expansion into Georgia, where it has the largest number of stores outside Florida, Publix will continue to give the Bentonville behemoth a run for its money as it expands throughout America's south-east.