How Wal-Mart Stores, Inc. Can Improve Its Grocery Business

Being the subject of consumer ire is a familiar position forWal-Mart Stores. The world's largest retailer has regularly ranked at the bottom of the American Customer Satisfaction Index, andits labor polices and what some see as monopolistic practices have also garnered much criticism. Many communities have gone to great lengths to prevent the superstore chain from opening in their backyard. To date, Wal-Mart still does not have a single store in New York, the biggest city in the country, while rivals likeCostcoandTargethave several.

Now a new survey fromConsumer Reportson the nation's supermarkets has shined yet another unflattering light on the champion of everyday low prices -- Wal-Mart ranked last of all the chains surveyed, with a 67. Privately held Wegman's, meanwhile, led the pack with a rating of 88.

The report listed the 12 most common problems consumers found at grocery stores, with Wal-Mart being the #1 offender in 5 of the categories.Those included:

1. Too few checkout lines open, which 57% of respondents said was a problem at Wal-Mart.

2. Poor selection of locally produced products, which 19% of Wal-Mart shoppers complained about.

3. Uninformed or indifferent staff, a problem 30% of the time at Wal-Mart.

4. Out of stock on basic, non-sale items, which happened 23% of the time at Wal-Mart.

5. Store offers more junk food than healthy food, a problem for 10% of Wal-Mart shoppers.

This survey, and the others that have shown Wal-Mart to be a poor provider of customer service, seem to indicate that consumers are shopping there because they have to, not because they want to. And if they are forced to do their grocery shopping at Wal-Mart, it's either because Wal-Mart offers the lowest prices, or because there are no other good options for shoppers in their area.

As grocery competition has intensified and shoppers remain unsatisfied with Wal-Mart's service, it seems logical then that its comparable sales have flatlined in recent quarters, especially at its core superstore format.

Fortunately, weaknesses in business can often translate into opportunity, and customer service should be a relatively easy area to fix. The complaints above, as well as the results of the ASCI survey, essentially outline a road map for Wal-Mart to improve its customer service, and therefore its underlying business. CEO Doug McMillion has already begun taking steps to address these issues.

Raising wagesIn February, the company said it would raise wages for all employees to at least $9 an hour, or $1.75 above the current federal minimum wage, in April, which will be followed by a wage hike to $10 an hour next February. McMillion explained the decision, saying, "We know what customers want from a shopping experience, and we're investing strategically to exceed their expectations and better position Wal-Mart for the future."

Raising pay should provide Wal-Mart with a better selection of employees, and help boost motivation and lower turnover. That should mitigate problems such as long waits at checkout lines, uninformed staff, and poorly stocked shelves. Improving employee morale and performance is probably the easiest way for Wal-Mart to boost its customer service.

Freshen up the fresh foodsWeakness in the grocery department, Wal-Mart's biggest segment, has also struck McMillon. Late last year, the company sent out a memo urging stores to make improvements on fresh foods, namely in the dairy, meat, and produce sections.

In December, the company created new executive management positions in produce and meat, and shuffled executives in the grocery department again in March, indicating it understands the urgency of the issue.

As the results of theConsumer Reportssurvey show, the company still has a long way to go to improve its customer perception and results. However, the fact that Wal-Mart controls 20% of the U.S. grocery business, despite being the most disliked purveyor, is a testament to the strength of its low-price business model and its economies of scale. If the company can get customer service right, then sales and profits should start moving in the right direction once again.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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