Supermarkets are feeling the pressure of the supercenter onslaught, but many are managing to hold their own under the stress.
Supermarket executives say a combination of persistence and finely tuned strategies is keeping them viable in their markets, and even keeping local supercenters' growth plans in check.
Grocery operators are capitalizing on their natural strengths -- service, selection and quality -- while at the same time taking some cues from alternative formats by adjusting their merchandising and promotion strategies to better compete. Some battle tactics they are using are remodeling or replacing stores, expanding perishables programs and attempting to match prices on key nonfood items.
"In most cases, supermarkets are faring better than expected," said James Demme, president and chief executive officer of Homeland Stores, Oklahoma City. "I think regional chains have been able to capitalize on the strengths that we have in variety, service and quality. And, of course, Wal-Mart is finding out that it's pretty tough to compete against the major national chains -- the Krogers and the Safeways of the world." Demme emphasized that supermarkets need to develop a strategy to help themselves compete against supercenters in the most contested product categories -- general merchandise and health and beauty care items. Because of supercenters' aggressive pricing strategies and their labor-saving business practices, they often have an edge when it comes to these departments.
Homeland Stores is still the market share leader. He projected that Wal-Mart has nearly reached its supercenter capacity in the Oklahoma market, and will assess the stores' performance.
"They will do the same thing they are doing with Sam's. They're trying to figure out if they are attaining the profitability they expected out of those types of stores," he said.
Many of the stores in the large IGA national network are facing supercenters, but they are still standing tall in their markets, said Larry Willis, executive vice president and chief operating officer of the Chicago-based operation.
IGA's Hometown Proud campaign has helped independent units retain their customer bases by demonstrating their commitment to local communities, he said. IGA stores "listen to the consumers and find out what their needs are for the community and they usually work in a particular niche that the supercenters are not as good in," Willis said. "In St. Joseph, Mo., we have stores that compete with a Wal-Mart supercenter. Initially sales declined 15% to 20% but since that time they are higher than expected.
"In River Falls, Wis., [the store owner] worked with Fleming [Cos., his supplier] to determine his top 90 HBC items and he has evolved to where he's competitive with Wal-Mart," added Kevin Burkum, IGA's director of communications.
For stores that do not want to compete on HBC and GM, Willis suggested that they concentrate more on prepared foods and other perishable departments. IGA is currently formulating a strategic plan for its members and initial findings indicate that prepared foods and other perishables departments are areas that could potentially give grocery stores a competitive edge.
Roy Flood, president of the P&C Foods division of Penn Traffic Co., Syracuse, N.Y., stressed that Wal-Mart is a powerful entity and must be taken seriously.
For a single Wal-Mart discount store that is already bringing in $300,000 to $500,000 a week in sales, the addition of food could increase its business by as much as 50%, Flood said.
"People are saying [about the typical Wal-Mart operator] 'he doesn't know anything about food, he's a nonfoods-type guy.' Everybody says, 'The regular supermarket will eat his lunch because he doesn't know how to work the perishables.' He's the best nonfoods retailer in the U.S. and food is just a supplement to his business. He doesn't have to know a lot about the food business -- all he has to do is sell it."
He made his remarks at the Executive Forum of the New York State Food Merchants Association recently held in New York.
Flood placed much of the blame on supermarkets for the rise of supercenters and other alternative formats. He even said that supermarkets' response to conventional discounters is sometimes inadequate.
"We're not too bright as an industry sometimes. We do some really foolish things," he said. A "Wal-Mart [conventional discount store] opens in a little town and he [the Wal-Mart operator] lowers the price of bath tissue and Tide [laundry detergent] and all those non-edible grocery items that have been in our industry for many, many years. And we're going to get even with him so we lower the price of milk and ground beef and lettuce. Sometimes you have to raise prices on those items that he doesn't have to lower the prices on the items that we have as an industry."
As an operator known for its food-service programs, Larry's Markets, Seattle, pays special attention to food merchandising innovations. Larry Andrews, vice president of sales and marketing, said supermarkets need to pay closer attention to trends in customer preferences and buying habits in both local and national markets.
"You're never going to get around the supercenters. It's just how business is done today," he told SN. "I certainly have no crystal ball. We're listening to what our customers have to say and doing our own forecasting."
As an example of innovative merchandising, the six-unit independent began offering Italian sandwiches called panini some time ago. Now panini shops are popping up all over Seattle, Andrews said. The upshot is that new ideas attracts consumers.
"It doesn't take much to look around at retailers in completely unrelated fields to see what good merchandising means. Look at The Gap, Crate and Barrel, Eddie Bauer. We can't be so set in our ways and unwilling to change," he said. "Creating an exciting environment is always part and parcel with the fun and excitement. If you don't have any pizzazz, I doubt you're going to get the attention those products deserve."
Susan Burge, director of public relations and consumer affairs at Schwegmann Giant Super Markets, New Orleans, said her company continues to support its own supercenter concept and has not altered it simply because of the addition of Wal-Mart and Kmart supercenters in the New Orleans metro area.
Schwegmann operates 18 supercenters which carry grocery items, perishables and health and beauty aids, along with clothing, housewares, sporting goods and automotive products.
"We are most definitely a major, major force in that concept," she said, but she noted that not all departments can be found in all stores.
Most importantly, Schwegmann feels strongly about its health and beauty aids departments and pharmacies, Burge said. The company's commitment to these areas is signified by its plans for the 11 That Stanley! stores it recently acquired from Loblaw Cos., Toronto.
"We will introduce HBA products into those stores as soon as we possibly can. The development of the full-service pharmacies will take a little longer," she said.
Schwegmann's battle against local supercenters is helped by a price tactic: extending certain price specials at any one of its local banners to all of the stores it owns.
The company is currently running an advertisement using the tagline "more choices, lower prices" showing grocery bags from each of the different banners, including its own Giant Super Market stores. The ad notifies customers that the company will honor the prices on all featured items at any of its stores, although not all products are available at all stores.