SAN BERNARDINO, Calif. — Although it already competes with 20 Fresh & Easy locations, Stater Bros. Holdings here has felt minimal impact from its new competitor, according to Jack Brown, Stater's chairman and chief executive officer.
“We have felt almost no impact — maybe $1,000 a week, and that's giving them the benefit of the doubt,” Brown said in a conference call reviewing annual earnings. Brown said his observations of Fresh & Easy indicated the Tesco-owned chain was targeting shoppers whose “frame of mind” differed from that of Stater Bros. shoppers.
Brown acknowledged that the arrival of Tesco has captured the attention of the industry, relating a story of visiting a Fresh & Easy store for the first time only to bump into executives from other companies in the aisles. But Brown also suggested Fresh & Easy might not be meeting the lofty expectations that accompanied the interest.
“We've heard reports that stores that were budgeted for $150,000 [in weekly sales] were bringing in $40,000 or $50,000,” Brown said. “I'm sure they will work their way out of that. But there has been very little impact for us.”
Indeed, Brown sounded more impressed with traditional rival Ralphs, which he said has made strides under its new president, Mike Donnelly, who took over this summer. “We're keeping an eye on them, they seem to be doing the right things,” Brown said.
Brown described a competitive environment where players are fighting to keep a pricing edge amid considerable product cost inflation. Stater, he said, was under particular pressure as it endeavored to maintain price leadership in its markets. Gross profits as a percent of sales were up slightly for the fiscal year that ended Sept. 30, at 27.21%, but dropped in the fourth quarter from the third quarter, the retailer said.
“There comes a time when you get a little too high in gross [margin], and it costs you business,” Phil Smith, Stater's chief financial officer, said. “We also did a marketing initiative that failed and cost us about half a [percentage] point of gross margin.”
Brown said the chain expects such activity will continue into 2008. Stater, he said, will invest cost savings into lower retails to combat price inflation that Brown estimated would be around 2.5%.
Stater reported sales of $3.7 billion for the 53-week fiscal year ending Sept. 30, an increase of 4.7% over fiscal 2006, or 2.9% excluding the extra week. Adjusted same-store sales improved by 1.7% for the year. Net income for the year improved to $49.4 million, an increase of 89.3%. For the 14-week fourth quarter, sales improved 11.5% to $993.8 million, vs. the 13-week quarter in fiscal 2006, the company said. Adjusted for the extra week, quarterly sales increased 4.2% and same-store sales improved 2.2%.