Supermarkets Go All Out to Attract Gemco Customers
Placido Dattoma has been shopping at Gemco discount stores for nine years, but he’s never seen bargains quite like these. The Alpha Beta supermarket chain wants to give him free orange juice, Ralphs supermarkets are promising him free eggs and the Lucky grocery chain will pay him $1 for his Gemco membership card.
By the time Gemco grocery departments were closed for good over the weekend, its competitors were already enticing its members with special discounts, instant check-cashing privileges and free food.
“I don’t know where we’ll go,” said Dattoma, thinking it over as he left the Gemco in North Hollywood last week. His wife, Clotide, nudged him. “We’ll go to them all,” she said.
The Gemco chain closed its doors on Saturday as part of a massive corporate restructuring by Lucky Stores, Gemco’s owner. Parts of the discount department store chain, although not the grocery departments, will reopen Oct. 23 for liquidation sales, according to liquidator Sam Nassi. Most of the 80 stores have been sold to Dayton Hudson, the Minneapolis retailer, which plans to convert them to Target discount stores in the middle of next year.
Lucky, which is closing Gemco partly to resist a $1.89-billion corporate takeover attempt, has said it expects to sell the rest of the Gemco store locations eventually. Ralphs, Vons and other grocery chains have been mentioned as potential buyers.
With Gemco gone, thousands of Gemco members will have to go elsewhere for their groceries. In Southern California, the most competitive grocery market in the nation, supermarket chains are courting former Gemco shoppers with a passion.
Vons has mailed flyers to people who live near Gemco stores, inviting them to “have breakfast on Vons” by using special cents-off coupons for bacon and eggs. And just about every major chain is promising Gemco shoppers “instant” check-cashing privileges at the flash of their Gemco cards.
The Gemco closing comes at a time when the grocery business in Southern California is especially volatile. With inflation reduced and food commodity prices lower, supermarkets have been unable to raise prices much.
At the same time, some Safeway stores are expected to be sold eventually to help pay for the $4.25-billion leveraged buyout of the Oakland grocer by Kohlberg Kravis Roberts & Co. in August. “We’re seeing a lot of transition in the market,” said Jonathan Ziegler, an analyst with the Sutro & Co. investment firm in San Francisco.
According to industry sources, Gemco’s grocery sales were dwarfed by those of its competitors. Gemco had been selling between 4% and 5% of the groceries in Southern California, which amounted to around $550 million in sales. Now, “everyone wants to pick up those sales,” said Ziegler.
Unusual Opportunity
“It’s rare when a business entirely closes its doors,” said Joseph F. Raymond, vice president of merchandising for Vons, the second-largest grocer in the Los Angeles area. “Gemco did a fair amount of business. It’s an opportunity for us.”
Ken Johnson, a senior consultant at the Price Waterhouse accounting firm in Los Angeles, says the marketing opportunity afforded by Gemco’s closing is unusual also because grocers know what budget-conscious Gemco shoppers want--low prices.
“It’s an easy audience to target,” he said. For that reason, most of the advertisements directed at Gemco members talk about price, Johnson says.
“What’s going on here is a battle for loyalty,” Johnson said. “At any one time, there may be 5% to 10% of the people interested in changing loyalties. Now there’s a whole pocket of these people all at once . . . and everyone wants them to come over to their side.”
Johnson said he doubts that the supermarket chains’ campaigns to win over Gemco customers would have much impact on grocery prices in general. “The market is so competitive and (profit) margins are already so low, I don’t see how they can go much lower.” But Dick Frederick, marketing vice president for Lucky Stores in Southern California, says a bargain atmosphere may prevail for the next several weeks. “You have all those customers without a store to call their own,” said Frederick. “You are going to see some of the best ads, with everyone trying to attract Gemco shoppers.”
Lucky Stores is trying to lure former Gemco customers by advertising that they carry the same private-label brands. But Frederick acknowledges that some Gemco shoppers may resent Lucky for closing the Gemcos. “I’m sure there is a certain percentage of people who are angry,” he says.
Helen Sheridan of North Hollywood says she’ll miss Gemco and is skeptical of the free offers being dangled by other grocers. In the end, she says, location will probably determine her choice. She drove past a Vons to shop at the North Hollywood Gemco. “I guess now, I’ll go there,” she says.
