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Price Savers Challenges Price Co. on Own Turf : Discount Warehouse Chain Dares to Go Where No Other Rivals Have Gone Before

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San Diego County Business Editor

With the start of construction last week on a cash-and-carry outlet in Vista, the Price Savers Warehouse chain has plunged ahead in a market where others in the discount warehouse industry have so far feared to tread.

When its new store opens in November, Salt Lake City-based Price Savers will become the first competing chain to challenge San Diego-based Price Co. on its home turf. The 100,000-square-foot store at California 78 and Emerald Drive, which will be Price Savers’ 15th outlet, should do about $50 million in sales its first full year of business, company officials said.

Up to now, other major discount warehouse chains, notably Costco Wholesale, PACE Membership and Sam’s Wholesale Clubs, have conceded the San Diego County market to the four Price Clubs now open in San Diego, San Marcos, Santee and Chula Vista. Price, which has 42 Price Clubs in all, will open a fifth local location this summer in Southeast San Diego.

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Too Entrenched

Despite the obvious appeal of the county’s affluent and fast-growing population, competing wholesalers viewed Price as too strong and too entrenched to consider coming in, industry sources said. Price Co. founder Sol Price originated the discount warehouse concept in San Diego in 1976 and later guided the chain to its current position of industry leadership.

An example of Price’s predominance is that a typical Price Club location averages more than $110 million in annual sales, twice the average per-store sales of the best-performing competing chain. And Price is thought to be particularly strong in San Diego, and thus understandably protective of its turf, said Ward Lindenmayer, an independent stock analyst from San Francisco who follows the retail industry.

“Let’s face it, there are easier fish to fry that wanting to go right into the home territory of the oldest and best-managed warehouse firm, particularly in San Diego, where Price has an established and well-known name,” he said.

“It’s as if Macy’s were to open a department store in downtown Seattle, which is Nordstrom’s home turf,” Lindenmayer said. “I guarantee you that Nordstrom would behave a little differently than they do in other markets, probably getting more aggressive on pricing and raising their visibility, advertising-wise, in an effort to protect its turf.”

Nevertheless, Price Savers is entering the San Diego County market with both feet. In fact, the membership-only chain is looking to nail down two more locations over the next year in the central and south parts of the county. The Vista store will employ about 150 people.

Can’t Explain It

“I really can’t explain why we are the first” discount chain to challenge Price in San Diego County, Price Savers chief financial officer Richard Eisinger said Monday. “We have no inside information, no easy explanation for it.”

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He declined to comment on the competitive aspects of going up against Price in San Diego, saying only that its rival is “good, honest competition.”

Eisinger said Price Savers chose the Vista location for its high demographics--population growth and income levels--and because the North County coastal area is without a discount warehouse outlet. The nearest Price Club store to the Price Savers site is in San Marcos, 5 miles east on California 78.

Membership for both chains is restricted to government employees, business owners, credit union members and other selected groups.

San Diego is not the first market in which Price Savers has challenged Price Co. head-on. By opening two stores in the Phoenix area last summer, the chain became Price’s first competitor in that market as well. Eisinger said both outlets are “doing well.”

Reached by telephone Monday, Price Co. Executive Vice President Giles Bateman declined to comment on Price Savers’ entry into the San Diego market.

Closely held Price Savers was a subsidiary of Kroger Co. of Cincinnati, a supermarket and food processing company, until April, when the company was bought by five of its top managers, including founder and chief executive Thomas Grimm, with financing assistance from Goldman Sachs. Kroger retained a small interest in the chain.

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With only 13 outlets now open, Price Savers has grown at a “methodical pace” relative to other chains, Eisinger said, but still is the fifth-largest cash-and-carry discount chain--after Price Co., Costco, PACE and Sam’s Wholesale.

The cautious approach has paid off, he said. Unlike some of its competitors, Price Savers has been profitable over the past two years. It will book sales of about $700 million this fiscal year, or about 27% more than 1988, he said. Sales growth at stores open a year or more will be between 18% and 20% this year.

The chain obviously has a liking for California. Of its 13 outlets, five are located in Southern California: Irvine, Montclair, Stanton, South Gate and City of Industry. Over the next several months, new Price Savers will open in Roseville and Rancho Cordova, both near Sacramento. The chain plans to grow to 19 outlets in total by the end of next year.

Price Savers is the anchor tenant of the 30-acre Vista Gateway Regional Shopping Center. At the ground-breaking ceremony Friday, City Manager Morris Vance said the shopping center as a whole should generate up to $1 million in tax revenues for Vista by 1992, thanks in large part to Price Savers.

The city offered Price Savers and the shopping center developers favorable terms on the city-owned land in order to help attract the chain, Vance said.

“Price Savers is going to present Price Club with some good competition,” Vance said. “They lay out their merchandise in a better way. I walked into the Irvine (Price Savers) store and I could tell where things were.”

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Still, Kent Rademacher, Price Savers’ regional manager based in Stanton, has no illusions about competing with Price Clubs.

“If you ask your typical San Diegan where the nearest Price Club is, they could tell you. I doubt if he or she could tell you where the nearest K mart is,” Rademacher said. “Just like McDonald’s is a household word to kids, Price Club is a household word to business members.”

“People are naturally going to ask, ‘Why should we shop with you? What’s going to be different?’ ”

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