ShopRite’s EDLP Strategy Hits Margin Line for Village

Wakefern Food Corp.’s move to lower everyday prices on a variety of the most-frequently purchased items at ShopRite stores showed up on the profit line for one of its largest cooperative operators, Village Super Markets.

The Springfield, N.J.-based operator of 30 ShopRite stores said profit margins in the fiscal second quarter ending Jan. 26 dipped by 54 basis points—and 83 basis points excluding Village’s upscale Gourmet Garage stores—primarily because of decreased departmental gross margin percentages associated with the October introduction of the "Right Price Promise" pricing strategy. Net income for the period of $2 million was down 73.5% from last year’s second quarter, or by 53% excluding an $871,000 noncash charge associated with termination of a company-sponsored pension plan and from costs associated with opening a replacement store in Stroudsburg, Pa., and closing its predecessor.

The new everyday low-price strategy at highly promotional ShopRite is seen as a move to fortify its price image amid an influx of hard-discount competition. A Wakefern spokeswoman said the company would be gradually adding items to the program through October of this year.

Gross margin declines accounted for 67 basis points of the margin dip, along with decreased patronage dividends and rebates received from Wakefern (12 basis points) and higher promotional spending (13 basis points). These were offset partially by decreased warehouse assessment charges from Wakefern and a favorable change in product mix.

Industrywide pressure on prescription reimbursement rates from third-party providers also contributed to pressure on margins.

Sales in the period increased by 2.2% to $437.4 million, primarily due to the November opening of the Stroudsburg, unit, and from the Gourmet Garage units, which Village acquired last summer. Comps inched up by 0.1%, reflecting sales increases at its Bronx, N.Y., store, stronger sales at new and replacement units and an increase in the ShopRite From Home e-commerce offering, which expanded to four new stores during the quarter. A competitive opening, a decrease in promotional spending at Village’s stores in Maryland, and a cycling of early SNAP benefits last year due to the protracted federal government shutdown, offset comp gains, Village said.

The comps fell within the range forecasted by Village for its fiscal year, calling for them to range between a decrease of 0.5% and a 1% gain.

Operating and administrative expense as a percentage of sales increased by 0.61% in the quarter due to increased payroll and occupancy costs—primarily due to the Gourmet Garage acquisition—and higher fringe benefit costs, offset by reduced legal and consulting fees.

Village has bid on five Fairway stores being auctioned as part of that retailer's bankruptcy proceedings.