CTroyMathis
31 August 2003, 05:14 PM
Against the Wal
Grocery chains are honing their strategies as Wal-Mart Supercenters continue their advance in the Metroplex, and consumers are reaping the benefits; 8.06%; 13.11%; 15.89%; 20.44%; 13.26%
By Barry Shlachter
Star-Telegram Staff Writer
http://www.dfw.com/mld/dfw/business/6662386.htm
Nancy Underwood likes to shop for groceries. And how.
The 50-year-old Fort Worth resident hits several stores every week, cherry-picking advertised specials.
"I regularly go to four different supermarkets -- Kroger, Albertson's, Tom Thumb and Brookshire's," Underwood said. She had just made a few careful purchases -- including 15 pounds of potatoes for a bargain $1.79 -- on her first visit to Grocery Outlet, a deep-discount store owned by a California chain that recently took over 17 Yes!Less outlets in North Texas.
Underwood lives in the right place to do what the industry calls "cross-shopping." North Texas is one of the nation's most highly competitive food markets.
This summer, major chains have launched advertising blitzes to attract buyers such as Underwood and win back market share from Wal-Mart, which has been on a building spree locally.
Some chains use cut-rate gasoline and $5 coupons. Albertson's has expanded produce departments at remodeled stores and is offering more goods tailored to local needs. Kroger is devoting more shelves to ethnic foods. Tom Thumb has brought in more upgraded, private-label items. The Minyard's chain has converted some stores to its Hispanic-oriented Carnival format.
All this has been done to differentiate the stores from Wal-Mart and from each other.
"Something has got to give," warned Neil Stern, a Chicago-based retail consultant with McMillan/Doolittle LLP. "If Wal-Mart continues to add more supercenters and neighborhood stores, one of the major chains will crumble. You either try to defend your position, which requires spending some money, or you'll be out."
The scramble for price-conscious shoppers intensified after Winn-Dixie, once the market leader, abandoned the region last year. Meanwhile, Costco, Central Market, Whole Foods and, starting next Wednesday, Market Street in Colleyville are working to wrest wealthier consumers away from traditional grocery chains.
"No doubt, Dallas-Fort Worth is probably one of the most competitive markets I've ever seen," said Bill Breetz Jr., 49, president of Kroger's Texas division and a 31-year employee of the Cincinnati-based chain. "All the major players are here."
The food fight involves three national supermarket chains, two strong regional companies, several niche players and an assortment of independent grocers, as well as the big discounters Wal-Mart and SuperTarget.
"There's pressure on all of us," Breetz said. "And the ones that are going to win are those offering what the customer wants."
This has led to aggressive pricing benefiting North Texas consumers, Breetz and other supermarket executives say.
Milk is frequently under $2.19 a gallon, house-brand bread is less than $1 a loaf and six-packs of top-brand soft drinks often sell for less than $2.50.
"You've got one of the best-served markets in the country," said William Aiken, a division vice president for Tyler-based Brookshire Grocery Co., which re-entered the region last year when Winn-Dixie departed.
By comparison, Aiken saw milk at $2.98 on a recent trip to Alabama, as well as bread for $1.59 and canned drinks for $4.19.
The more chains offer below-cost specials, the more cross-shoppers they'll create, says Minyard's President J.L. "Sonny" Williams. He said his employees are increasingly spotting full grocery bags from more than one supermarket in car trunks when they carry out sacks.
Stern said a recent study by his firm found Metroplex food prices 10 percent cheaper than in Chicago. Data from the U.S. Bureau of Labor Statistics show grocery prices virtually unchanged here in the past three years, compared with a jump of about 12 percent in Miami and 3 percent in Houston.
In the past year, Wal-Mart has added two new supercenters to the 10 it had in the Fort Worth area, and the company added one neighborhood grocery store to the existing four. A Wal-Mart near Hulen Street is being enlarged to a supercenter. Another supercenter is being built in Grapevine, and another is planned for just east of downtown Fort Worth.
The market battle was heightened by traditional grocery chains building more stores, or by acquiring some of about 55 that were sold by Winn-Dixie in May 2002.
Kroger and Tom Thumb picked up some Winn-Dixie locations, as did Brookshire, which specializes in smaller communities, and Houston-based Fiesta Mart, which emphasizes ethnic foods and large produce selections. Some sites were also bought by independent grocers.
On top of all that, United Groceries of Lubbock is entering the region with a 72,000-square-foot Market Street in Colleyville on Wednesday.
In the past year, Wal-Mart has displaced a traditional grocer, Boise, Idaho-based Albertson's, as the top food retailer in the region, which includes Tarrant, Parker, Hood and Johnson counties.
With its combined 17 supercenters and neighborhood stores, Wal-Mart accounted for nearly 22 percent of the food shopper's dollar, compared with Albertson's 20.5 percent, according to the August Shelby Report Southwest, a grocery trade journal. It is also No. 1 in Dallas County, with 21.3 percent; Albertson's trails there with 18 percent.
Wal-Mart competitors wonder when the discounter will finally saturate the market.
"Too many supercenters? We haven't found that out yet," Tom Williams, a Wal-Mart spokesman in Arkansas, said with a laugh.
"Some analysts say we are cannibalizing ourselves" by building neighborhood stores near the supercenters, he said. "We feel we are giving our customers a choice."
Local vs. national
Most traditional grocers, though all too aware of the Wal-Mart threat, rarely, if ever, acknowledge it in their promotions.
In July, Albertson's launched its "tale of the tape" campaign, comparing its prices for 29 popular items with those of Kroger and Tom Thumb, which is owned by Safeway.
But the ads make no mention of Wal-Mart, the behemoth from Bentonville, Ark. Retail analysts say its lower labor costs, enormous buying power and advanced logistical system help it maintain low prices.
Neither did Kroger speak of Wal-Mart when it responded with ads matching the Albertson's $5 coupons.
While some chains emphasize price, all stress friendly service, cleanliness and various merchandising niches to create points of comparison.
Albertson's is expanding fresh produce in some stores, offering more cook-and-serve entrees and tailoring merchandise to reflect the clientele. A store in Denton, deep in horse country, has an entire aisle of equine grooming products. The bakery at its Fort Worth Cityview store is certified kosher by a Dallas rabbinical panel.
Its Saginaw manager knows that local teen-age girls want their dates to spring for $55 or more on a Homecoming Day "mum," so Sherry Caldwell stocks them, with their long streamers in the colors of Boswell and Northwest high schools.
At the same time, Saginaw, a fast-growing, rural-flavored bedroom community, is acquiring eclectic tastes. So Caldwell also displays sake rice wine and packaged sushi rolls near the meat counter. Though many chains have phased out video rentals, Albertson's embraces the service as a way to keep shoppers popping into its stores.
Caldwell takes pride in cross-merchandising. She'll have free-standing coolers with meat packets, ears of corn and another potential side dish so customers in a hurry can grab an entire meal in one swoop.
Her 9-month-old, 62,000-square-foot store is not just a grocery, but also a weapon against Wal-Mart.
"Wal-Mart is a formidable competitor," said John Colgrove, Albertson's regional vice president of marketing, who disclosed that the company knew a Wal-Mart Supercenter would open across the street in 2005 when it landed the Saginaw property.
"I know how it's going to shake out," he added. "We're going to win. We're very committed to the market."
There's a set game plan whenever a serious rival opens, he explained.
"We try to bolster business before new competition comes in," he said. "We check the physical plant, marketing, advertising. Then there's stealth maneuvers to target particular neighborhoods."
At a far west-side Kroger, just completing its second remodel since 1987, Breetz says the chain deals with the crowded market by keeping up with the region's population growth.
"Due to the competition, we are spending a lot of money in the Metroplex to make sure our stores have all the bells and whistles," he said, adding that Kroger is building four new stores and remodeling 15 others in North Texas this year.
In the stores, Kroger has expanded ethnic food selections, including islands of British items and shelves with 20-pound sacks of Thai jasmine rice.
"We would never have done that 15 years ago," Breetz said.
Minyard's has taken a decidedly different tack: a strategic retreat.
The Coppell-based chain has closed more than 10 stores in the past two years, mostly on the eastern half of the Metroplex. It converted some stores to its Carnival format, creating two more out of former Albertson's stores it acquired.
"If you take them head on, don't be foolish as to think you can outfox these strong [national] chains, which have a lot of money," said Williams, the Minyard president. Minyard plays to its strengths in this hypercompetitive environment.
"Just everybody and their dog is here," he said. "There's just too many stores. You have to decide what your niche is. If we weren't in such a competitive market, we wouldn't have closed so many stores. But it was the best move we made, and we're holding our own."
Although some market share was lost, the privately held company's profit picture has improved, Williams said. He declined to release figures.
Having said that, Williams insists he that wouldn't back down from a slugfest with Wal-Mart.
Citing a Wal-Mart Supercenter opening in Gainesville behind a Sack-n-Save, Minyard's discount warehouse format, he said: "We lost some volume. You gear to lose 10 percent. You mainly scale back on help, or [labor costs] will eat you alive. You warn employees that we're going to lose volume, but that we're going to come back and kick butt."
Williams' experience was bolstered by a Midwest Research Securities study in April. It found that national chains and independents average an 8 percent sales drop during the first three months after a Wal-Mart Supercenter opening. They're down 5 percent for first six months, down 2 percent for the year, and flat to slightly positive thereafter. Kroger and the independents tend to recover better than Albertson's and Safeway, the study said.
Merrill Lynch, in a May study of Wal-Mart's impact, offered a more dramatic point of reference.
"When the plague comes to your village, everyone gets sick, but not everyone dies, and the strong gain share as the old and the weak die," wrote Mark Husson, a Merrill Lynch retail analyst.
And there may be a limit to Wal-Mart's market potential, Husson said, noting that in Little Rock, Ark., practically home turf, 75 percent of food dollars go elsewhere.
Sizing up the competitor
Tom Thumb has changed direction since being acquired by Pleasanton, Calif.-based Safeway, which had left the market earlier.
The chain has gambled on emphasizing its high-quality -- but largely unfamiliar -- private-label items. In the process, it lost the coveted Boar's Head line of deli meats and cheeses.
Losing Boar's Head was a blunder, Minyard's Williams said of his rival.
"It just has a magic name," he said. "We tried to get it, but Kroger beat us to it.
"Private label is very strong with Safeway," he added. "But they had an upscale business, and your Tom Thumb customer likes [house brands], but not to this extent."
In the past year, Tom Thumb has added one store, but lost 1.3 percent market share, according to the Shelby report.
Safeway's Texas division president downplayed possible missteps.
"Hindsight is 20-20," said Steve Frisby, a 30-year Safeway veteran who also oversees the Houston-area Randalls stores. "Clearly, if we could do it over again, we would do some things differently."
Tom Thumb's 1999 change in ownership, from a Texas-based company to an out-of-state operator, also had an impact, he suggested.
"I guess any time there's a local company with some 50-plus years' history, people are proud of that home player," he said. "It's an emotional thing, especially in Texas, when a company is taken over."
Like other executives interviewed, Frisby said that his chain is in it for the long haul.
"No one is going to stop [Wal-Mart] from buying stores," he said. "And slices of the market-share pie get smaller every time another one opens. We've all come to grips with the fact that the landscape is going to change. And each has to decide what it wants to be."
If Tom Thumb has lost upscale customers to the likes of Central Market, imitating such high-end grocers won't win them back, he said.
"Our mission is not be the specialty store -- the store that doesn't carry Coca-Cola or Tide," Frisby said, citing efforts to reinforce a reputation for service, value pricing and convenience.
"And," he said, referring to Wal-Mart, "we are going to focus on having better perishables than the price operators."
But the chain will compete. A Tom Thumb directly across from a Wal-Mart Supercenter on McCart Avenue in Fort Worth regularly triples the value of a 50-cent manufacturer's coupon. In Cityview, its fuel station sold gas for 3 cents a gallon less than at Costco on a recent weekend. That worked out to 11 cents cheaper than at nearby gas stations. And each purchase came with a coupon for a free pound of Tom Thumb-brand hot dogs.
To Minyard's Williams, these and other marketing measures are signs that the national retailers are hurting.
"Some of the giants are losing money; you can see it in their ads," he said. "There's coupons for $5 off, or you see prices get really ridiculous. You don't do these things when you're making money."
Brookshire's Aiken is less sure. But his own regional chain has minimized competition by putting stores on the periphery of the Metroplex, where it may face just one traditional grocery competitor.
continued...
Grocery chains are honing their strategies as Wal-Mart Supercenters continue their advance in the Metroplex, and consumers are reaping the benefits; 8.06%; 13.11%; 15.89%; 20.44%; 13.26%
By Barry Shlachter
Star-Telegram Staff Writer
http://www.dfw.com/mld/dfw/business/6662386.htm
Nancy Underwood likes to shop for groceries. And how.
The 50-year-old Fort Worth resident hits several stores every week, cherry-picking advertised specials.
"I regularly go to four different supermarkets -- Kroger, Albertson's, Tom Thumb and Brookshire's," Underwood said. She had just made a few careful purchases -- including 15 pounds of potatoes for a bargain $1.79 -- on her first visit to Grocery Outlet, a deep-discount store owned by a California chain that recently took over 17 Yes!Less outlets in North Texas.
Underwood lives in the right place to do what the industry calls "cross-shopping." North Texas is one of the nation's most highly competitive food markets.
This summer, major chains have launched advertising blitzes to attract buyers such as Underwood and win back market share from Wal-Mart, which has been on a building spree locally.
Some chains use cut-rate gasoline and $5 coupons. Albertson's has expanded produce departments at remodeled stores and is offering more goods tailored to local needs. Kroger is devoting more shelves to ethnic foods. Tom Thumb has brought in more upgraded, private-label items. The Minyard's chain has converted some stores to its Hispanic-oriented Carnival format.
All this has been done to differentiate the stores from Wal-Mart and from each other.
"Something has got to give," warned Neil Stern, a Chicago-based retail consultant with McMillan/Doolittle LLP. "If Wal-Mart continues to add more supercenters and neighborhood stores, one of the major chains will crumble. You either try to defend your position, which requires spending some money, or you'll be out."
The scramble for price-conscious shoppers intensified after Winn-Dixie, once the market leader, abandoned the region last year. Meanwhile, Costco, Central Market, Whole Foods and, starting next Wednesday, Market Street in Colleyville are working to wrest wealthier consumers away from traditional grocery chains.
"No doubt, Dallas-Fort Worth is probably one of the most competitive markets I've ever seen," said Bill Breetz Jr., 49, president of Kroger's Texas division and a 31-year employee of the Cincinnati-based chain. "All the major players are here."
The food fight involves three national supermarket chains, two strong regional companies, several niche players and an assortment of independent grocers, as well as the big discounters Wal-Mart and SuperTarget.
"There's pressure on all of us," Breetz said. "And the ones that are going to win are those offering what the customer wants."
This has led to aggressive pricing benefiting North Texas consumers, Breetz and other supermarket executives say.
Milk is frequently under $2.19 a gallon, house-brand bread is less than $1 a loaf and six-packs of top-brand soft drinks often sell for less than $2.50.
"You've got one of the best-served markets in the country," said William Aiken, a division vice president for Tyler-based Brookshire Grocery Co., which re-entered the region last year when Winn-Dixie departed.
By comparison, Aiken saw milk at $2.98 on a recent trip to Alabama, as well as bread for $1.59 and canned drinks for $4.19.
The more chains offer below-cost specials, the more cross-shoppers they'll create, says Minyard's President J.L. "Sonny" Williams. He said his employees are increasingly spotting full grocery bags from more than one supermarket in car trunks when they carry out sacks.
Stern said a recent study by his firm found Metroplex food prices 10 percent cheaper than in Chicago. Data from the U.S. Bureau of Labor Statistics show grocery prices virtually unchanged here in the past three years, compared with a jump of about 12 percent in Miami and 3 percent in Houston.
In the past year, Wal-Mart has added two new supercenters to the 10 it had in the Fort Worth area, and the company added one neighborhood grocery store to the existing four. A Wal-Mart near Hulen Street is being enlarged to a supercenter. Another supercenter is being built in Grapevine, and another is planned for just east of downtown Fort Worth.
The market battle was heightened by traditional grocery chains building more stores, or by acquiring some of about 55 that were sold by Winn-Dixie in May 2002.
Kroger and Tom Thumb picked up some Winn-Dixie locations, as did Brookshire, which specializes in smaller communities, and Houston-based Fiesta Mart, which emphasizes ethnic foods and large produce selections. Some sites were also bought by independent grocers.
On top of all that, United Groceries of Lubbock is entering the region with a 72,000-square-foot Market Street in Colleyville on Wednesday.
In the past year, Wal-Mart has displaced a traditional grocer, Boise, Idaho-based Albertson's, as the top food retailer in the region, which includes Tarrant, Parker, Hood and Johnson counties.
With its combined 17 supercenters and neighborhood stores, Wal-Mart accounted for nearly 22 percent of the food shopper's dollar, compared with Albertson's 20.5 percent, according to the August Shelby Report Southwest, a grocery trade journal. It is also No. 1 in Dallas County, with 21.3 percent; Albertson's trails there with 18 percent.
Wal-Mart competitors wonder when the discounter will finally saturate the market.
"Too many supercenters? We haven't found that out yet," Tom Williams, a Wal-Mart spokesman in Arkansas, said with a laugh.
"Some analysts say we are cannibalizing ourselves" by building neighborhood stores near the supercenters, he said. "We feel we are giving our customers a choice."
Local vs. national
Most traditional grocers, though all too aware of the Wal-Mart threat, rarely, if ever, acknowledge it in their promotions.
In July, Albertson's launched its "tale of the tape" campaign, comparing its prices for 29 popular items with those of Kroger and Tom Thumb, which is owned by Safeway.
But the ads make no mention of Wal-Mart, the behemoth from Bentonville, Ark. Retail analysts say its lower labor costs, enormous buying power and advanced logistical system help it maintain low prices.
Neither did Kroger speak of Wal-Mart when it responded with ads matching the Albertson's $5 coupons.
While some chains emphasize price, all stress friendly service, cleanliness and various merchandising niches to create points of comparison.
Albertson's is expanding fresh produce in some stores, offering more cook-and-serve entrees and tailoring merchandise to reflect the clientele. A store in Denton, deep in horse country, has an entire aisle of equine grooming products. The bakery at its Fort Worth Cityview store is certified kosher by a Dallas rabbinical panel.
Its Saginaw manager knows that local teen-age girls want their dates to spring for $55 or more on a Homecoming Day "mum," so Sherry Caldwell stocks them, with their long streamers in the colors of Boswell and Northwest high schools.
At the same time, Saginaw, a fast-growing, rural-flavored bedroom community, is acquiring eclectic tastes. So Caldwell also displays sake rice wine and packaged sushi rolls near the meat counter. Though many chains have phased out video rentals, Albertson's embraces the service as a way to keep shoppers popping into its stores.
Caldwell takes pride in cross-merchandising. She'll have free-standing coolers with meat packets, ears of corn and another potential side dish so customers in a hurry can grab an entire meal in one swoop.
Her 9-month-old, 62,000-square-foot store is not just a grocery, but also a weapon against Wal-Mart.
"Wal-Mart is a formidable competitor," said John Colgrove, Albertson's regional vice president of marketing, who disclosed that the company knew a Wal-Mart Supercenter would open across the street in 2005 when it landed the Saginaw property.
"I know how it's going to shake out," he added. "We're going to win. We're very committed to the market."
There's a set game plan whenever a serious rival opens, he explained.
"We try to bolster business before new competition comes in," he said. "We check the physical plant, marketing, advertising. Then there's stealth maneuvers to target particular neighborhoods."
At a far west-side Kroger, just completing its second remodel since 1987, Breetz says the chain deals with the crowded market by keeping up with the region's population growth.
"Due to the competition, we are spending a lot of money in the Metroplex to make sure our stores have all the bells and whistles," he said, adding that Kroger is building four new stores and remodeling 15 others in North Texas this year.
In the stores, Kroger has expanded ethnic food selections, including islands of British items and shelves with 20-pound sacks of Thai jasmine rice.
"We would never have done that 15 years ago," Breetz said.
Minyard's has taken a decidedly different tack: a strategic retreat.
The Coppell-based chain has closed more than 10 stores in the past two years, mostly on the eastern half of the Metroplex. It converted some stores to its Carnival format, creating two more out of former Albertson's stores it acquired.
"If you take them head on, don't be foolish as to think you can outfox these strong [national] chains, which have a lot of money," said Williams, the Minyard president. Minyard plays to its strengths in this hypercompetitive environment.
"Just everybody and their dog is here," he said. "There's just too many stores. You have to decide what your niche is. If we weren't in such a competitive market, we wouldn't have closed so many stores. But it was the best move we made, and we're holding our own."
Although some market share was lost, the privately held company's profit picture has improved, Williams said. He declined to release figures.
Having said that, Williams insists he that wouldn't back down from a slugfest with Wal-Mart.
Citing a Wal-Mart Supercenter opening in Gainesville behind a Sack-n-Save, Minyard's discount warehouse format, he said: "We lost some volume. You gear to lose 10 percent. You mainly scale back on help, or [labor costs] will eat you alive. You warn employees that we're going to lose volume, but that we're going to come back and kick butt."
Williams' experience was bolstered by a Midwest Research Securities study in April. It found that national chains and independents average an 8 percent sales drop during the first three months after a Wal-Mart Supercenter opening. They're down 5 percent for first six months, down 2 percent for the year, and flat to slightly positive thereafter. Kroger and the independents tend to recover better than Albertson's and Safeway, the study said.
Merrill Lynch, in a May study of Wal-Mart's impact, offered a more dramatic point of reference.
"When the plague comes to your village, everyone gets sick, but not everyone dies, and the strong gain share as the old and the weak die," wrote Mark Husson, a Merrill Lynch retail analyst.
And there may be a limit to Wal-Mart's market potential, Husson said, noting that in Little Rock, Ark., practically home turf, 75 percent of food dollars go elsewhere.
Sizing up the competitor
Tom Thumb has changed direction since being acquired by Pleasanton, Calif.-based Safeway, which had left the market earlier.
The chain has gambled on emphasizing its high-quality -- but largely unfamiliar -- private-label items. In the process, it lost the coveted Boar's Head line of deli meats and cheeses.
Losing Boar's Head was a blunder, Minyard's Williams said of his rival.
"It just has a magic name," he said. "We tried to get it, but Kroger beat us to it.
"Private label is very strong with Safeway," he added. "But they had an upscale business, and your Tom Thumb customer likes [house brands], but not to this extent."
In the past year, Tom Thumb has added one store, but lost 1.3 percent market share, according to the Shelby report.
Safeway's Texas division president downplayed possible missteps.
"Hindsight is 20-20," said Steve Frisby, a 30-year Safeway veteran who also oversees the Houston-area Randalls stores. "Clearly, if we could do it over again, we would do some things differently."
Tom Thumb's 1999 change in ownership, from a Texas-based company to an out-of-state operator, also had an impact, he suggested.
"I guess any time there's a local company with some 50-plus years' history, people are proud of that home player," he said. "It's an emotional thing, especially in Texas, when a company is taken over."
Like other executives interviewed, Frisby said that his chain is in it for the long haul.
"No one is going to stop [Wal-Mart] from buying stores," he said. "And slices of the market-share pie get smaller every time another one opens. We've all come to grips with the fact that the landscape is going to change. And each has to decide what it wants to be."
If Tom Thumb has lost upscale customers to the likes of Central Market, imitating such high-end grocers won't win them back, he said.
"Our mission is not be the specialty store -- the store that doesn't carry Coca-Cola or Tide," Frisby said, citing efforts to reinforce a reputation for service, value pricing and convenience.
"And," he said, referring to Wal-Mart, "we are going to focus on having better perishables than the price operators."
But the chain will compete. A Tom Thumb directly across from a Wal-Mart Supercenter on McCart Avenue in Fort Worth regularly triples the value of a 50-cent manufacturer's coupon. In Cityview, its fuel station sold gas for 3 cents a gallon less than at Costco on a recent weekend. That worked out to 11 cents cheaper than at nearby gas stations. And each purchase came with a coupon for a free pound of Tom Thumb-brand hot dogs.
To Minyard's Williams, these and other marketing measures are signs that the national retailers are hurting.
"Some of the giants are losing money; you can see it in their ads," he said. "There's coupons for $5 off, or you see prices get really ridiculous. You don't do these things when you're making money."
Brookshire's Aiken is less sure. But his own regional chain has minimized competition by putting stores on the periphery of the Metroplex, where it may face just one traditional grocery competitor.
continued...