GIANT STEP: EDLP ON PRODUCE

JON SPRINGER

QUINCY, Mass. - Stop & Shop/Giant-Landover here intends to rebound by zigging where others have zagged.

The sister chains last month surprised observers and competitors alike by implementing an everyday-low-price strategy in produce, combining ads emphasizing freshness and quality with reduced everyday prices on all fresh fruits and vegetables at all of their 571 stores. The EDLP program is expected to be rolled out to other areas of the store, observers told SN.

The strategy - the first part of the "value improvement program" touted by Ahold officials in recent months - takes advantage of the organization's strengths in volume and distribution and could begin a sales recovery at Giant and Stop & Shop, the observers said. But much will depend on shoppers' sensitivity to the prices and how competitors respond, they added.

"It's an inspired initiative that takes advantage of Stop & Shop's salient strengths in procurement and self-distribution, and dates back to the heritage of its founders," Burt P. Flickinger III, managing director of Strategic Resource Group, New York, told SN. "Produce was once the crown jewel of Stop & Shop."

While building sales behind revamped efforts in produce is common among Ahold's competitors on the East Coast, few have approached the strategy from a pricing standpoint, observers said. Many in fact are using EDLP programs in Center Store to build a price image while using perimeter departments like produce to maintain or grow their margins.

Ahold has an advantage over those that do not self-distribute because its high-volume stores and self-procurement capabilities will win it better deals on produce, particularly in the coming winter months, Flickinger said. This, he predicted, would overcome margin erosion and begin to build sales within a few quarters.

"You'll see noticeable sales and share gains within two quarters as well as better operating profit," said Flickinger, saying that recent studies at his firm indicate pricing in produce is a bigger concern among consumers than many chains tend to acknowledge.

"With so many consumers motivated far more by produce than meat and groceries, produce is a great lead to get primary shoppers to buy more and not switch to the competition, and a good way to get secondary shoppers to make Stop & Shop their primary place to do business," he said.

The program, which kicked off with ad circulars touting the new initiative on Sept. 15, has not drawn significant counter-punches from competitors yet, Flickinger said. And one observer, who asked not to be identified, said it was doubtful chains would react strongly, since consumers may not be swayed by an EDLP message in produce, where prices tend to fluctuate wildly.

"I think the program was a bit surprising, and if anything, welcome news for competitors, since it's not the kind of thing that's going to create a lot of one-upsmanship," the source told SN. "In produce there are so few items of known value, except maybe bananas, that prices will vary even with EDLP."

But the promise of fair pricing in markets where high-low strategies dominate can have a strong impact, said Jon Hauptman, vice president, Willard Bishop, Barrington, Ill.

"By drawing a line in the sand and saying, 'We're not going to play the high-low game in produce, we're just going to give you our best price every day,' they're telling shoppers there's no need to shop around for produce, you're always going to get a good price," Hauptman told SN. "That allows Stop & Shop and Giant to lead with produce. It's a produce-first strategy."

In some areas Stop & Shop/Giant operates, particularly in the New York metro area, competition has traditionally not been kind to EDLP players. Edwards Super Food Stores, which was absorbed by Stop & Shop years ago and converted to a high-low strategy, had "abysmal" results under an EDLP program, observers said. More recently, Pathmark, Carteret, N.J., tried to boost its performance with EDLP on health and beauty care, but the program was a failure and abandoned a year ago, officials said.

More changes to Stop & Shop and Giant's pricing strategy may be on the way. Produce is only the first step in a program to improve the value perception, Stop & Shop spokeswoman Faith Weiner told SN.

"Right now we're focused on produce, but we'll move forward to other departments from there," she said.

Weiner declined to provide an approximate percentage price cut in produce, but said, "We believe the customer will notice it." Flickinger estimated prices were cut between 1.5% and 5%, depending on the item.

Stop & Shop and Giant accompanied the new prices with a message of quality and freshness.

"We have also raised the bar for fresh, high-quality fruits and vegetables so you can expect higher-quality produce," according to Giant and Stop & Shop's weekly sales circular.