Call it the big squeeze.
Traditional grocery stores, facing increased competition from discounters and upscale players, are caught in the middle.
There's pressure from cost-conscious consumers, who have gotten used to depressed prices during the downturn. Other shoppers are demanding higher-quality products, including organics, but want to save on those, too. On top of this, higher food prices are being instituted and could encourage more consumers to shop discount. So some big chains are having to adjust.
Jewel-Osco parent, Minneapolis-based SuperValu Inc., announced last week that it will close about 20 underperforming stores around the country. The company also confirmed that it has asked corporate employees to take unpaid time off between the beginning of this month and Feb. 26, when the corporation concludes its fiscal year.
Earlier, the company unveiled plans to double the number of its Save-a-Lot dollar stores, to 2,400 locations, over the next five years.
"We're in a very competitive industry and we're looking at every area of the company to lower our operating expenses," a SuperValu spokesman said, adding that "while the decision to close stores is always difficult, SuperValu has to respond to what's best for the long-term success of the overall company."
Going into 2011, shoppers are clinging to promotional prices instituted at the low point of the recession, and major food companies, including Kraft Foods Inc. and Sara Lee Corp., are hoping to pass along higher food costs to consumers.
Lee Peterson, executive vice president of creative services at WD Partners, a Dublin, Ohio-based consulting firm, said traditional grocery stores are seeing increasing competition from discounters such as Wal-Mart and Target, with Walgreens also moving into food and grocery. Meanwhile, Whole Foods and Costco are providing upscale alternatives.
That's forcing changes, Peterson said. "You can almost picture the industry on some kind of ledge, walking into the fog."
Traditional grocery stores "are not the cheapest, they're not the most organic or sustainable, and many of them are set up for the way people used to shop," Peterson said.
In the past, households made one trip for a week's worth of food. Now, he said, it's common to grab staples at one store, additional items at a specialty market and even make quick trips to another grocery store during the week. All these trips may be supplemented by a quarterly trip to a club store for bulk items like toilet paper or trash bags, Peterson said.
Still, the big chains represent the bulk of grocery sales. But that is expected to be tested, and Chicago, home to four of the nation's largest chains, is a key battleground, Janney analyst Jonathan Feeney said.
"If the large alternative players and formats are going to expand share gains, they will have to do it first in Chicago, where Costco, hard-discounter Aldi and Whole Foods each have a meaningful presence," Feeney noted in a December research note.
The Chicago market accounts for 3.3 percent of U.S. grocery sales, he said, adding that the recession has "highlighted the strengths of some of the alternate formats, including both Wal-Mart and Aldi, which were already growing faster in Chicago than other large (markets)."
Signs of trouble have been mounting for some time. Nearly a year ago, Jewel-Osco said it would cut 110 store management jobs. Stores had traditionally operated with two managers but are down to one.
SuperValu appears to be lagging its rivals. In the fiscal quarter ended Sept. 11, SuperValu's same-store sales declined 6.4 percent as the company cited a "difficult operating environment."
Dominick's parent, Pleasanton, Calif.-based Safeway Inc., reported a 2 percent same-store sales decline in October, citing lower prices.
Other chains are faring better. Last month, Cincinnati-based Kroger Co. reported same-store sales up 2.4 percent for its third quarter. Kroger CEO David Dillon said customers were looking for lower prices.
On the upper end, Austin, Texas-based Whole Foods reported an 8.7 percent increase in same-store sales. Chief Executive John Mackey cited progress made in pricing and programs for animal welfare and sustainable seafood.
In a research note last week, Erica Chase, an analyst with Barclay's Capital, commended SuperValu for the store closures but suggested a long recovery awaits.
"The company is making significant changes to its go-to-market strategy to improve both prices and its product offering," she wrote. "Since this will take multiple years to implement, we do not expect to see meaningful upside to earnings or in the stock in the near term."
SuperValu appears to be examining which of its many grocery formats will best serve customers for the short and long term. The company has committed to value pricing with its Save-a-Lot dollar chain expansion.
(Source: Chicago Tribune, 01/06/11)
No comments:
Post a Comment