MILAN, Ill. -- Eagle Food Centers here is battling back against a competitive barrage that is dropping 22 new stores into its marketing area this year, Robert J. Kelly, chairman, president and chief executive officer, said here last week.
The company is hoping to fight the influx and boost sales with a combination of increased capital spending, aggressive pricing and more promotional activities in its larger, more competitive stores.
Kelly, who spoke in a phone call with securities analysts following the release of the company's first-quarter earnings report, said he is optimistic about Eagle's prospects. He noted that many of the 22 competitive openings this year will go up against some of Eagle's stronger locations -- stores that he said can withstand the competitive challenge and offset any losses its older stores may experience.
The four competitors affecting Eagle with store openings are Jewel Food Stores, Melrose Park, Ill.; Dominick's Supermarkets, Northlake, Ill.; Hy-Vee, West Des Moines, Iowa; and Wal-Mart, Bentonville, Ark. -- which will open the fewest new units of the four operators, he noted, but which has proven to be Eagle's toughest competitor.
Kelly said some older Eagle stores in the 20,000- to 30,000-square-foot range lose 30% to 40% of their sales to a new Wal-Mart, while sales at newer, larger stores drop less than 10%.
"And we've found it takes us 18 months after a Wal-Mart opening to begin to recover -- not to get back to where we were but just to stop the bleeding," he said.
According to Kelly, Eagle hopes to improve its competitive position in part with an expansion program scheduled to include five new stores, two expansions and six remodelings this year, at a cost approaching $20 million.
Eagle's goal is to make a competitive stand where it can, Kelly said. "We have to pick and choose our spots, and we do well where we have the right box," he declared,
"We're going to get hurt badly at a 20,000-square-foot store that has to go up against a new competitor, but when that competitor is up against one of our newer, larger boxes, we feel confident in our ability to fight back," he said.
"We have a number of older facilities that have not been touched since 1985 or earlier, so trying to heat up competition at those locations wouldn't be a good move," he explained.
"In many cases we don't have the facilities to fight competition, and to put a lot of competitive activity into the wrong box makes no sense."
The 22 competitive openings, including five that have already opened, will affect 32 of Eagle's 90 stores, Kelly said.
"Since January 1996, 56 new competitive openings have impacted 82 of our stores, during a period when we've opened only three new stores and completed a [small] number of remodelings to offset that competitive barrage," Kelly said.
The company said net income for the quarter ended May 2 fell 93.1% to $124,000, while sales dropped 3.5% to $8.4 million .... and same-store sales declined 3.1% overall; sales at core stores -- those open more than a year without any change in competition -- decreased 0.5% for the quarter.
"In spite of disappointing sales in our core stores, we are making some progress," Kelly told the analysts, noting that the negative sales numbers were less negative than the chain's fourth-quarter results, which saw sales down 5.1% and same-store sales off 4.9%.