In another sign of frenzied Southern California supermarket competition, Ralphs Grocery is making a giant shift in its Giant marketing strategy.
After a year and a half of seeking a separate identity for its Giant warehouse food stores as a low-priced, few-frills operation, the Compton-based supermarket company now plans to consolidate advertising and marketing for the two chains. The move, it says, will enable it to cut prices at its 114 Ralphs stores and offer unlimited double coupons at the 15 Giant locations. The chains will continue for now to operate under separate names.
"Ralphs and the Giant Now Join Together!" is how Ralphs' newspaper advertising proclaimed the change Thursday. "Now Ralphs has thousands of the Giant's low prices! Now the Giant has unlimited double coupons."
Some observers say the change reflects Ralphs' inability to establish a firm identity for its Giant operation, which was rolled out in summer, 1986, after several months' testing in Bakersfield. At 70,000 to 100,000 square feet, with some space leased to other retailers, the Giant stores are two to three times the size of the largest Ralphs stores. They helped establish a new niche in the market: the "upscale" warehouse store with service departments such as deli, bakery and fish.
Ralphs' parent company, Federated Department Stores of Cincinnati, is the subject of a takeover bid by Canadian developer Campeau Corp., and it is widely believed in the industry that Federated may sell Ralphs as part of a plan to avoid a takeover. Ralphs Chairman Byron Allumbaugh said Thursday that the new strategy for Giant and Ralphs stores is not related to the Federated situation.
"Effectively, what we're doing is combining the marketing programs," Allumbaugh said. With the change, he said, Ralphs shoppers will see lower prices while Giant shoppers will get double the face value of coupons and the benefits of some special promotions now limited to Ralphs stores.
The change will enable Ralphs to "save several million dollars" on advertising, according to Allumbaugh. "We were effectively running two ad budgets," he said. "By combining them, we will have a strong ad program but no double budgets."
Industry reports of the Giant's success so far vary, with one competitor saying the chain is "quite a bit short of break-even." Allumbaugh said the chain has a "strong sales base," but would not discuss its profitability. A former Ralphs employee said the chain is "probably not losing money but is not up to expectations."
Some competitors say prices at the Giant, which Ralphs contends were lower than all other competitors', have been creeping up in the last few months as the chain attempts to improve its margins. Clearly, something has to give as supermarket companies support expensive double-coupon promotions, one former executive said.
The marketing consolidation may be just the first step to elimination of the Giant name, said Tom Pirko, president of Bevmark Inc., a Los Angeles consultant to the food industry. "Giant has been cannibalizing part of Ralphs' action," he said. "It's the worst possible thing. Ralphs needs to work on the weaker (competitors)."
The marketing switch is another sign of supermarket companies' feverish efforts to win customers. In recent months, the cutthroat competition among the area's major chains has heated up.
Perhaps the greatest sign of the intensity of competition was Vons' agreement, announced in December, to purchase Safeway's 172 stores in the Southland. Many observers say that deal, which is pending, may reflect Safeway's weariness with the expensive marketing efforts needed to remain competitive.
Last July, after avoiding unlimited double coupons for a time, Ralphs reluctantly succumbed to compete more effectively with Vons, Safeway and others. Then in October, Ralphs and Vons instituted highly touted price cuts.
Last month, Vons launched a short-lived effort to rein in the double coupon strategy by limiting to 50 cents per coupon the amount that could be doubled. But customers complained and, more important, defected to other supermarket chains. Vons soon reinstituted its old policy.
At Vons in El Monte, Ralphs' decision to combine its marketing efforts had been expected.
"I'm only surprised that they didn't do this a year ago," said Stuart A. Rosenthal, Vons' executive vice president of marketing. "We were surprised to see Ralphs try to maintain a separate identity for the Giant stores. It's a very expensive proposition."
Meanwhile, Lucky Stores, based in Dublin, Calif., has decided to stick to its low-price strategy, said Jim Clark, senior vice president of administration in the company's southern food division based in Buena Park. "I would see the activity with Ralphs and Giant being some more churning and changing in the market but not having a great effect on us at this time."
To one Los Angeles management consultant, the change seems to represent a capitulation by Ralphs.
"To a certain degree, they may be admitting that there wasn't as much difference between the Giant and Ralphs as they wanted to communicate there was," said the consultant, who asked not to be identified because he has clients in the industry. "Customers come away saying that this is simply a bigger Ralphs."
Part of the problem, observers say, is that Ralphs moved faster in the opening months of the concept than it would have liked. As the concept was being tested in Bakersfield in early 1986, several attractive sites became available with the closing of the Zodys discount chain. The Giant concept may have been placed in a dozen new locations before all the kinks were worked out.
"The scale got too big too soon," the management consultant said.
But where does this change leave customers?
"I think this is just going to confuse the customer," said Jonathan H. Ziegler, an analyst who follows Lucky for the Sutro & Co. investment house in San Francisco. "Companies will end up shooting themselves in the foot and committing suicide."
Allumbaugh acknowledged that this could contribute to shoppers' confusion. "At the same time," he said, "it's an open market and they can make their own judgments. That's what we encourage people to do."