March 12 (Bloomberg) -- A push to get rid of wilted lettuce and rotten tomatoes is paying off for Wal-Mart Stores Inc.

Beverly Crisp shopped the produce section of a Wal-Mart supercenter in Greensboro, North Carolina, for the first time in four years this month, picking up bananas, carrots, celery, romaine lettuce and green onions.

“I was surprised it wasn’t a mess,” said Crisp, 46, who racked up a $240.73 bill on items ranging from shaving cream to canned soup. “They have improved.”

Wal-Mart plans to advertise its produce in coming months to win over more customers after efforts to tidy displays, buy food locally and automate purchasing, executives said in interviews last month at the company’s headquarters in Bentonville, Arkansas. Groceries account for more than 40 percent of sales at Wal-Mart’s U.S. stores and have outpaced the growth of most other products in the past year.

The changes at Wal-Mart’s 2,600 supercenters are designed to keep shoppers from going to the competition for fresh foods. Customer ratings on meat and produce have trailed the rest of the store, said Bill Simon, Wal-Mart’s chief operating officer for U.S. stores.

“You’re in our store anyway buying Cheerios, Oreos and milk,” Simon said. “We want to keep you from making another trip.”

Competition

Wal-Mart has outperformed the shares of its three biggest supermarket competitors, Kroger Co., Supervalu Inc. and Safeway Inc., in the past 12 months, declining 2.7 percent. The stock rose $1.48, or 3.1 percent, to $48.94 at 4:15 p.m. in New York Stock Exchange composite trading.

The retailer’s focus on lower prices has drawn more shoppers in the recession. In terms of customer satisfaction, Wal-Mart’s grocery business ranked worst in the fourth quarter compared with six major supermarket chains, according to the University of Michigan’s American Customer Satisfaction Index.

The company, which is the largest U.S. grocery seller, dropped 4.2 percent from a year earlier to a score of 68, according to a survey based on telephone interviews with 20,000 consumers. The average supermarket had a 76 on a scale of zero to 100.

Wal-Mart’s Simon said the University of Michigan Index uses a smaller sampling than the company’s monthly survey of about 500,000 customers and lags behind actual performance.

“Once we deliver the goods for a period, we’ll see this start to change,” he said.

Any improvements by Wal-Mart may threaten traditional supermarkets, said Keri Spanbauer, an analyst at Thrivent Asset Management in Appleton, Wisconsin. The firm manages $61 billion in assets, including 2.4 million Wal-Mart shares as of December.

“A lot of people pick their supermarket based on who has the best produce,” Spanbauer said.

Supervalu, Safeway

Supervalu, the second-largest standalone U.S. supermarket chain after Kroger, lowered its full-year profit forecast in January and said on a conference call that Wal-Mart’s expansion into Chicago cost it market share. Third-biggest Safeway reported last month that profit and sales in the quarter ended Jan. 3 missed analysts’ estimates.

Representatives from the companies declined to comment on competition with Wal-Mart.

Kroger Chief Executive Officer David Dillon said on an earnings conference call March 10 that the Cincinnati-based company gained market share last year in 29 of the 33 markets where Wal-Mart is a major rival. Kroger declined to comment further about Wal-Mart, spokeswoman Meghan Glynn said.

‘Beyond Tomatoes’

In February, sales at U.S. Wal-Marts open at least a year advanced 5 percent, outpacing the company’s quarterly forecast. Grocery gains are helping sell small kitchen appliances, cookware and dining sets as shoppers entertain at home to save money, said Eduardo Castro-Wright, Wal-Mart’s U.S. stores chief.

“In our case it goes beyond your tomatoes and your lettuce,” Castro-Wright said. “It’s also everything you need to prepare your food.”

Buying produce locally also feeds Wal-Mart’s efforts to reduce fuel consumption and trim freight costs, said Castro- Wright, who engineered the retailer’s U.S. turnaround on lower prices, better merchandise and cleaner stores.

For smaller supermarket operators, competition from Wal- Mart in the $46.8 billion-a-year U.S. produce industry ranked fifth among their biggest concerns, according to an August survey by Progressive Grocer. Wal-Mart topped the list a year earlier before slipping behind transportation costs, wholesale prices, food safety and profits, the trade publication said.

Local Suppliers

Wal-Mart says its produce departments have improved after the company expanded its network of local suppliers. Naturipe Farms LLC, a Naples, Florida-based company that supplies Wal- Mart, last year assigned a specialist in Bentonville to help the retailer sell strawberries, blueberries and other berries.

Naturipe plans to increase appearances by local farmers in Wal-Mart stores, such as blueberry growers in Michigan, said Robert Verloop, Naturipe’s vice president of marketing. The two companies are working together on store displays and technology.

Late last year, Wal-Mart also automated the way it stocks produce, using actual sales to dictate reordering of items rather than relying on employees to punch reorders into hand- held devices, operating chief Simon said. The change reduced excessive ordering that led to throwaways, he said.

“It has delivered fresher product to our customer and sales have been better,” Simon said. “It’s been a big help that we’ve lowered prices on tomatoes and some other key items.”

Making Improvements

Wal-Mart will use in-store signs and local radio spots to promote items, said Stephen Quinn, chief marketing officer. In one of the company’s supercenters in Rogers, Arkansas, an overhead circular “Fresh Produce” sign and bright track lighting attract customers as they enter the store.

In late February, papayas, oranges and pineapples, all with reduced prices, were the first display leading to bins of Pacific Rose apples, as well as bananas, sweet potatoes and eight colorful varieties of peppers.

“It’s beautiful,” said Bruce Peterson, who served as Wal- Mart’s senior vice president of perishables until 2007. He now works from Bentonville as a consultant to the fresh produce industry and says Wal-Mart still has catching up to do.

“If you look at the big national chains, they do a good job in produce, a little bit better than Wal-Mart,” Peterson said.

In contrast to the store in Rogers, the green beans in the Greensboro supercenter shopped by Beverly Crisp were showing their age. Marked by dark spots, the beans were spilling over into a bin of broccoli crowns. Customers had picked through Red Delicious apples and grapefruit, leaving bins empty-looking.

Simon said Wal-Mart has yet to enter the same league as grocery store-chains such as Whole Foods Market Inc. and Ruddick Corp.’s Harris Teeter, which are known for the quality of their produce. He says Wal-Mart, however, is “darn good for a whole lot less money.”

“On produce, it’s price and quality,” he said. “We’re trying to balance that.”

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net.

Last Updated: March 12, 2009 16:29 EDT