Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, September 26, 1993 TAG: 9309230012
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: JERRY SCHWARTZ NEW YORK TIMES
DATELINE: LENGTH: Long
Supermarket chains are engaged in pitched battles with their traditional rivals and, on another front, are trying to fend off such fierce retail competitors as Wal-Mart, Kmart and the wholesale buying clubs.
"This industry is facing the stiffest competition ever - certainly in anyone's professional lifetime," said Jeffrey Nedelman, vice president of the Grocery Manufacturers of America, a trade group in Washington. "There are now more than 40 different retail formats where you can buy food. That ranges from the corner convenience store to the club stores and everything in between."
Added Michael Sansolo, editor of Progressive Grocer, an industry trade publication in Stamford, Conn.: "The population is stagnant, and there's very little inflation. So if you're going to have sales growth, you're going to have to go out and steal it from somebody else."
Defending their turf is particularly tough for the big grocery chains with the traditional hard-goods retailers.
"In the last five years, the mass merchandisers have made a dramatic entrance, first into groceries, and then into the fresh-food arena," Nedelman of the manufacturers' group said. His organization represents 140 food makers, which make 85 percent of the products sold in American supermarkets. Among them are giants like Kraft General Foods and the Quaker Oats Co.
"One of the responses of the traditional food retailers has been to set up club-pack aisles, so if you want to buy 48 rolls of toilet paper at a time, you can do that at a supermarket," Sansolo, the editor, said.
At the other end of the scale, the traditional supermarkets are besieged by a swarm of convenience stores and mom-and-pop operations.
"In downtown Cincinnati, we've even got a newsstand which started selling groceries," said Paul Bernish, a spokesman for the Kroger Co., which is based there.
The mushrooming competition has reduced the profit margins to the thinnest of razor's edges, according to the Food Marketing Institute, a Washington trade association representing 1,500 food retailers. In a recent survey it found that food retailers nationwide reported an average net profit margin of about 0.5 percent for the fiscal year that ended in March.
Year-over-year sales increases in stores operating for at least a full year hovered around 1 percent, even for seasoned competitors, the survey said.
Still, several of the largest grocery chains have announced ambitious building and expansion plans, often going into direct competition with well-entrenched rivals.
Consider, as an example, grocery retailing in the Atlanta market:
This year, Lakeland, Fla.-based Publix Super Markets Inc. entered the Atlanta market with 12 stores and it plans to build 50 supermarkets in total in the area by the end of the decade.
Great Atlantic & Pacific Tea Co. of Montvale, N.J., which owned 23 Atlanta stores, strengthened its position in April by acquiring 48 Big Star supermarkets in the Atlanta market for $25 million from Grand Union, and plans to build 10 more stores there.
Kroger, the leader in the Atlanta market with 72 stores and a 30.8 percent market share, fought back, opening an 80,300-square-foot store in Alpharetta, Ga., the same suburb where Harry's Farmers Market Inc.'s 100,000-square-foot flagship store is situated.
At the new Kroger store, apprentice chefs from the Atlanta School of Culinary Arts whip up delicacies to order for shoppers, who are also pampered with a cappuccino and espresso bar, post office, fax service and parcel shipment center, a two-story bank with a commercial loan department, and a shopping mall-style food court that includes a Japanese restaurant with sushi-to-go.
Standing on a catwalk above the shopping floor of his flagship market, Harry Blazer, the president and chief executive of Harry's Farmers Market, looked over the hundreds of shoppers who crowded along a cornucopia of fruits and vegetables that is 900 feet long.
The size of such stores has set consumers in motion throughout the region. "A typical grocery store might draw customers from a three-to-five-mile radius," Blazer said. "Our typical customer is coming from twice that far or farther."
In Cincinnati, such competition has caused grocery prices to drop 1.9 percent in 1992 , the largest decline in any city in the United States, according to the Bureau of Labor Statistics. Nationally, grocery prices have accelerated by 1.2 percent.
With profit margins on food so narrow, why are so many competitors entering the fray?
"It's the ability to draw the shopper to your store that everybody is after," said Jagdish N. Sheth, a business professor at Emory University in Atlanta. "With more two-income families, women are not making 20 shopping trips a week. They're going to make one foray. So if you can offer them the convenience of getting everything in one place, they're going to walk through your door."
Bernish of Kroger added: "What everybody is fighting about is the repeat customer. Somehow, you have to attract a customer and keep them. In 100 years of business, everything we've learned is ultimately geared to retaining the customer and then persuading them they don't need to go anywhere else."
But wars tend to have casualties. "It's one thing to get sales, and another thing to get profits," said Lee D. Wilder, a food retailing analyst with Robinson Humphrey Co., an Atlanta brokerage firm. "People can lose money, and do. Most of the players in the industry do not have to report profits."
Indeed, many of the industry's largest companies are privately held, including Publix, Supermarkets General, Meijer, HEB Grocery, Grand Union, and Food 4 Less Supermarkets, with annual sales of $3 billion to $6 billion. No chain has established a nationwide presence.
There is little agreement on the future of food retailing. While many analysts are predicting significant shake-outs and shallow long-term profit growth, some of the major players are girding for even more expansion.
All agreed, the competition was unlikely to abate.
by CNB