Albertsons is set to announce widespread price cuts
Cash-strapped food shoppers in Southern California are spending more of their grocery budgets at discounters and superstores that are rapidly expanding their food selections. And the big supermarkets are fighting back.
Vons has turned to more aggressive pricing in recent months. Ralphs revamped its price structure and customer loyalty program last summer to grab back market share from competitors. Stater Bros. has felt compelled to keep prices in check, even though food manufacturers are charging more.
Today, Albertsons will announce a plan to lower prices for thousands of goods at its 222 Southern California supermarkets. The initiative is aimed at regaining budget-minded customers both from its rivals and those lost to discounters such as Wal-Mart Stores Inc. and Target Corp.
The chains “are trying to get people back in the stores,” said Simeon Gutman, a New York-based analyst at Canaccord Adams, a financial firm with headquarters in Vancouver.
Albertsons’ move comes at a time when “everyone is fighting for traffic right now. They are all aware that consumers are under a lot of pressure,” said Stella Kapur, the supermarket analyst at Standard & Poor’s, the New York corporate credit rating company.
Price is “the No. 1 reason consumers pick which stores they shop,” said Leslie Sarasin, chief executive of the Food Marketing Institute.
The big supermarket chains are reacting to that switch in shopping patterns.
Some shoppers have noticed falling prices of foods they like to buy.
“We’re vegetarians, and they’ve dropped the prices at Pavilions on a lot of the frozen foods we eat like Boca and Morningstar,” said Malibu resident Susan Tellem, referring to the unit of the Vons chain.
Tellem said she was saving $1 and sometimes even more per box, and she had noticed “some great deals on name-brand canned goods, $1 a pop.”
In a study released by the Food Marketing Institute last week, shoppers identified traditional grocers as their primary store 56% of the time compared with 60% last year. They picked supercenters, warehouse stores and discounters 39% of the time, up from 34% a year ago.
The big retailers want to regain customers such as Edith Young, a Hacienda Heights retiree.
Young, who shops for a household of four, splits much of her shopping between Target and Fresh & Easy Neighborhood Market “for better prices” and because it is smaller and easier to navigate.
When Young heads for a mainline grocer, it’s typically Ralphs. “Albertsons is my least favorite market,” she said.
Gutman said it was pretty clear that Albertsons, owned by Supervalu Inc. of Eden Prairie, Minn., needed to make a move.
He analyzed the pricing strategies of the three major chains in the San Diego market last month and found that Albertsons was the most expensive traditional grocer, charging 4.6% more than Ralphs, and 1.4% more than Vons, for a market basket of 80 items. Albertsons also was the least promotional. About 49% of the goods in his test market basket were on sale, compared with 55% for Vons and 64% for Ralphs.
According to estimates by industry analysts, Ralphs, a division of Kroger Co., sells the most groceries in Southern California, controlling 16% to 17% of the market. Vons, part of Safeway Inc., is next with about 15%, Albertsons is third with about 13.5%. Stater Bros., the independent chain based in San Bernardino, is the smallest of the big grocers, with about 11.5%.
“There is no question the whole food industry has lost some customers through this economic downturn to mass merchants. . . . They’re splitting their businesses more, they are shopping around and cherry-picking values where they can,” Jeff Noddle, Supervalu’s chief executive, said in a recent conference call with Wall Street analysts.
Kapur said consumers were also trading down, buying less expensive and private-label goods instead of premium brands and substituting chicken or even beans for more expensive foods such as beef.
Albertsons is calling its new program “the Big Relief Price Cut” and is pitching it as a way for Southern Californians to stretch their grocery budgets.
The chain said prices would be reduced “on thousands of items in dozens of categories across the store . . . including basic stock-up items and staples from peanut butter and pasta to deodorant and detergent.”
Examples include Best Foods mayonnaise going from $4.99 to $3.99, Ragu pasta sauce going from $3.69 to $1.88 and Homelife bath tissue going from $8.99 to $5.99.
Customer “feedback showed that we need to be focused on our day-in and day-out pricing. We’re a great promotional company, but we need to be more competitive in our everyday prices, according to shoppers,” said Stephanie Martin, Albertsons’ spokeswoman.
Some believe that the efforts by the grocers to focus on price will continue after the economy rebounds.
“The recession is affecting shopper decision-making in ways that may endure,” said Sarasin of the Food Marketing Institute, and that means that food retailers will have to continue to focus on “money-saving ideas that appeal to their customers.”