The results are in. After polling its readers, Consumer Reports has announced which three supermarkets are America's favorites -- and which one you should avoid at all costs.
Best of the best
I won't keep you waiting for the results. From a field of 54 separate grocery chains, Consumer Reports readers voted Wegmans America's favorite supermarket. Closely following Wegmans in the scoring were Trader Joe's at No. 2 and Publix at No. 3.
What do these three supermarket chains have in common? First and foremost, they all earn CR's top grade for customer service -- a bright red circle with a white bullseye.
Only one other supermarket in CR's survey earned similarly high marks for service: privately held, Iowa-based Fareway Stores. Wegmans, Trader Joe's, and Publix (but not Fareway) also earned top marks for "cleanliness." And Wegmans and Publix took top honors for "perishables," while Trader Joe's scored best for "prices."
One other thing these top three supermarkets have in common: they're all privately owned. Wegmans, Trader Joe's, or Publix are not publicly traded corporations. (Nor is Fareway, for that matter.)
It makes a shopper wonder: Could it be that privately owned supermarket chains, which are free from Wall Street's incessant demands for lower cost of labor, lower operating costs in general, and fatter profit margins, are also more free than publicly traded corporations to offer better service to their customers?
Worst of the worst
Of course, "wondering" isn't proving. But the theory that privately owned supermarkets might better serve their customers is bolstered by the fact that the supermarket chain sitting in last place on Consumer Reports' list is a publicly traded corporation: Wal-Mart (NYSE:WMT).
More specifically, it is Wal-Mart's Supercenter stores -- behemoths averaging 179,000 square feet in size, selling both dry goods and groceries 24 hours a day. (Wal-Mart's Discount Stores, Neighborhood Markets, and Wal-Mart Express stores are not rated in CR's survey. Its Sam's Club chain of warehouse stores also scored in the bottom half of the 54-chain pack, but higher up at 35th place).
While privately owned Wegmans, Trader Joe's, and Publix all score tops for customer service, Wal-Mart Supercenter received CR's worst possible grade for service (a dead-black circle); same goes for "perishables." Wal-Mart Supercenter also got CR's second-worst grade of a blackened semicircle for store "cleanliness," and eked out a victory only in the category of offering low "prices" -- graded a half-red circle.
Pity the public corporations?
So there you have it, folks: Hands down, the nation's top three most-loved supermarkets are all privately owned. Meanwhile, the one supermarket chain we all love to hate is owned by the publicly traded corporation Wal-Mart.
And yet, not all publicly traded corporations are also poor choices for shoppers. Indeed, following closely on the heels of the three highest-ranked companies are a pair of publicly traded "supermarket" chains that might be worth taking a look at, whether you're shopping for stocks or just shopping.
At Nos. 4 and 5 in the survey, respectively, shoppers rated both Costco (NASDAQ:COST) and Sprouts Farmers Market (NASDAQ:SFM) as equal to top-ranked Wegmans in the quality of their produce (perishables). Costco also took top marks for its prices, on par with Trader Joe's, while Sprouts scored respectably (a half-red circle) in the categories of prices, cleanliness, and customer service.
Investors seem to agree. While Wal-Mart stock currently sells for less than 18 times earnings, investors are happily paying nearly twice that for shares of Costco (30 times earnings), and ante up nearly three times Wal-Mart's price-to-earnings ratio for a share of Sprouts (P/E: 50).
The likely moral of this story? Free from the need to please Wall Street, privately owned supermarkets seem to do the best job of treating their customers right. But if you're a supermarket aiming to please both shoppers and investors, take care of your customers first, and Wall Street will reward you later.
Fool contributor Rich Smith has no positions in the stocks mentioned above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 310 out of more than 180,000 members.
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