Warehouse Clubs, Grocers Feed the Frenzy for Value : Stores: Shoppers often look to wholesalers for the best deals. To win them back, some chains offer deep discounts.

Sara Cowden is the sort of shopper supermarket executives fret about. Twice a month, the 37-year-old mother of two embarks on a daylong expedition that takes her first to the Price Club, then to another food wholesaler and finally to a grocery store.

“I buy almost everything in bulk,” Cowden said as she and her children emerged from Price Club with two carts filled with groceries. Leading the tiny caravan across the parking lot, Cowden thought hard to remember her last supermarket purchase: a pint of strawberries.

Cowden is among a new wave of shoppers whose obsession with getting the best possible buy is remaking the marketplace. With the economy stuck in the doldrums and the conspicuous consumption of the 1980s fading, value has become the new mantra for shoppers. Nowhere is this more evident than in shopping for groceries--the staples that account for nearly 10% of all family spending.

Consumers are increasingly resisting the lure of bright, neighborhood grocery stores that beckon with mountains of shiny apples, tanks of live lobster and sushi to go. Instead, they are driving miles out of their way to shop in cavernous wholesale clubs, such as PACE Membership Warehouse and Costco Wholesale, selling basics at big discounts.

Along with such discounters as Wal-Mart, K mart and Target, warehouse stores have snatched 15% of grocery sales from the nation’s supermarkets. Analysts believe that percentage might double as supermarket rivals accelerate their charge into the food business.

The result is a fight for consumer food dollars pitting stripped-down warehouse stores against traditional supermarkets, which have long thrived on convenience and service. It is a rivalry that threatens the survival of some of the region’s weaker grocery chains and is leading to big changes in the way groceries are sold.

In Southern California, supermarkets are clearing aisles and ripping out salad bars to make room for warehouse sections in direct challenge to the clubs. Vons Cos. has launched a separate chain that offers low prices and reduced service: Shoppers at the new Expo stores are even encouraged to bag their groceries.

Warehouse stores are expanding fresh produce and baked goods and beefing up dismal service. This summer, wholesaler Smart & Final Co. issued cents-off coupons, a supermarket tactic rarely used by warehouse stores, which emphasize everyday low prices.

The changes stand to benefit consumers, who are likely to find better value for their money wherever they shop. But consumers could ultimately lose if stores close and consolidation permits prices to rise, albeit a distant scenario.

“Competition is as intense as it’s ever been,” said Al Marasca, president of Ralphs Grocery Co., which has unleashed an arsenal of discounts and promotions to entice price-conscious shoppers. “I think this emphasis on value is going to be with us for quite a while.”

Los Angeles has long had an image as a food shopping heaven. Unlike other U.S. cities, it has no dominant grocer, and intense rivalries among the chains have forced supermarkets to continually upgrade, improve and expand. Hoping to entice the free-spending consumers of 1980s, supermarkets erected vast food emporiums with long, wide aisles of exotic fruits, specialty meats and a seemingly endless variety of cereals, snacks and beverages.

In a national survey of supermarket shoppers published this month, Southern California chains ranked highly in customer satisfaction: a combination of prices, cleanliness, courtesy and checkout speed. Consumer Reports magazine said Smith’s Food & Drug, Ralphs and Albertson’s are among the 10 best in the nation.

In the tight economy of the 1990s, though, fewer shoppers are willing to pay for the selection and atmosphere of Southern California’s vaunted supermarkets. Grocery store sales are down significantly as more recession-weary Southern Californians look to wholesalers and discounters for bargains. At the same time, upscale markets such as Bristol Farms, Gelson’s and Irvine Ranch Market are attracting the more affluent shoppers who like a little pampering with their purchases.

Stepped up promotions--triple coupons, cut-rate specials and two-for-one deals--have failed to reverse the slide for the big supermarkets. The situation is so bad that some grocers, including highly rated Smith’s Food & Drug, are not making money here.

“Our industry is waking up to the fact that we don’t hold people hostage,” said Shelley Thomas, a vice president with Smith’s Food & Drug. “The market has changed and the consumer has changed. They care about price first, second and third.”

Warehouse stores are formidable competitors. Prices are low because costs are low: There are fewer cashiers and stock clerks, no fancy displays or eye-catching signs. A case of Coca-Cola at a club may cost $5.89, compared to $7.56 for four six-packs at a supermarket, a savings of more than 20%.

The people snapping up those savings belong to a coveted group: upscale shoppers who spend a lot on groceries. The Chicago research firm of Willard Bishop Consulting reports that half of club shoppers--but only one-third of supermarket shoppers--earn more than $35,000 a year. Other research shows that on a typical shopping trip, consumers spend $150 at a club--$90 of that on food--but only $18 at the supermarket.

Some of the difference can be explained by the fact that club stores sell only in bulk, so shoppers end up spending more. Also, club membership is open only to certain groups--lawyers and credit unions members, for example--and costs as much as $30 a year.

Club shoppers “are not fixed-income, penny-pinching people. . . . They are ‘smart-value’ people who think it is neat not to overpay,” said Jim Koppenhaven, a vice president with Spectra Marketing Services in Chicago.

Take Laurie Sparks, a 27-year-old mother of four with a family income of more than $40,000 and a sharp eye for value. Gliding her cart through rows of drab cardboard boxes at PACE Membership Warehouse in El Monte, Sparks ticks off the savings: $16 on disposable diapers, $3 on crayons. At the bakery counter, she sees her favorite buy: a dozen fresh muffins for less than $5.

“These cost $2 each in a coffee shop,” she said. “Even if some get stale and I have to throw them away, I save.”

On her way to the checkout, Sparks walks past the towering rows of paper towels and bathroom tissue, offering a ray of hope to supermarket companies. She plans to stop at a grocery for those items because PACE doesn’t sell her favorite brands.

With their new selection of bulk groceries, Southern California’s supermarkets hope to persuade shoppers such as Sparks to buy more. Smith’s has replaced salad bars with a mini-warehouse, Lucky has opened a “club pack” aisle, and Ralphs is offering quantity price discounts. In their zeal to lure warehouse shoppers, grocers are matching and in some cases beating club prices on some items.

“Everyone is trying to see what works,” said Jo Ann Beck, a former food buyer for PACE Membership Warehouse who handles warehouse buying for Smith’s.

Grocery executives are optimistic because they can offer shoppers what warehouse stores cannot: convenience and choice. By continuing to offer groceries in standard sizes, supermarkets permit people to buy bargain-priced “club packs” of milk and paper towels, but small quantities of yogurt and plastic wrap.

What’s more, supermarkets have longer hours and more locations than clubs, so they are easier for most people to get to. And because grocery stores have more cashiers, checkout lines are usually shorter.

“Where supermarkets have an edge is customer service,” said Willard Bishop consultant Jon Hauptman. “What could be better than buying a club pack product at your local supermarket and having it carried to your car?”

Still, the solution isn’t perfect. The selection of bulk groceries at a supermarket is limited, from 100 to 400 items, compared to about 3,000 at a club store. What’s more, because service-oriented supermarkets have higher operating costs than warehouses, they must sell large quantities of discounted club packs to cover expenses.

Some observers doubt that supermarkets will attract die-hard bargain hunters. Babson College marketing professor Douglas Tigert, who is on Smith’s board of directors, said club shoppers don’t care about service. “These people are willing to give up everything--environment, convenience, assortment--for a deal,” Tigert said. Emphasizing that he isn’t talking specifically about Smith’s, Tigert argues that supermarkets should ignore bargain hunters and focus on serving the shoppers who prefer grocery stores.

But with the economy and population stagnant, the only way for supermarkets to grow is to steal sales from competitors. Grocers think they can. “We’ve been in this business 120 years,” Ralphs President Marasca said. “We should be able to sell groceries better” than competitors.

The Club Price

How do prices on club packs compare? To get an idea, we recently surveyed a limited number of items at outlets. Our survey shows that club pack prices at supermarkets are extremely competitive with club stores. One surprise: Sometimes the best buy can be found in the supermarket aisle, not the warehouse section. Lowest prices are in bold.

Item Smith’s Vons Expo Ralphs Price Club S&F; Evian $6.99 NA $6.99 NA $6.84 Pop Tarts $4.99 $4.99 $4.99 $4.89 $4.99 Cheerios $7.45 $6.37 $7.45 $7.45 $7.89 Fruit Stand $5.79 $3.36 $3.88 $4.59 $4.19 Huggies $28.99 $27.97 $27.99 $27.99 NA Charmin $5.99 $5.48 NA $5.32 $5.99 Tide $15.99 NA $16.99 $16.99 NA

Notes on quantities: Pop Tarts 24-count; Honey Nut Cheerios three-pound size; Huggies large, 108-count; Tide Ultra 280 ounce; Fruit Stand punch 24-count size except at Expo, where price reflects four six-packs sold in non-warehouse section. Evian six-count, one-liter bottles except at Smart & Final, where price is half 12-count package. Charmin prices reflect cost of 24 rolls. It is available in packages of 12 rolls (at Expo in non-warehouse section), 24 rolls (at Smith’s and Smart & Final) and 36 rolls (at Price Club).