CLUBS SEEN IN COMEBACK, BUT NOT AS HEAVY HITTERS

Elliot Zwiebach

Membership warehouse clubs appear to have bounced back from protracted periods of problematic same-store sales, and supermarkets continue to take them seriously as competitors.

But while supermarkets continue to actively compete against the clubs, they no longer view these opponents as the fearsome entities of a few years ago. Such status has now been reserved for certain other operators including supercenters.

Indeed, supermarkets have learned a lot from clubs and have in many cases launched their own warehouse stores. (See SN, Jan. 22, Page 1.) While acknowledging that membership clubs may have an edge in customer perceptions of low prices, supermarket warehouse operators said they have the edge in offering more desirable sizes at better prices, greater varieties of groceries and more perishables than the clubs. Today, the membership clubs -- Sam's Club and Price/Costco nationally and BJ's and others regionally -- devote approximately 60% of their selling space to food. A few supermarket warehouse store operators questioned by SN expressed confidence in their competitive stance vs. the clubs. Following are excerpts:

Michael E. Julian chairman, president and CEO

Farm Fresh

Norfolk, Va. The club stores' greatest strength has always been the excitement they generate among customers who find substantially lower prices on products they pay more for elsewhere. What started consumers going to the clubs for food was the frenzy it put them in when they saw the kinds of prices there that they'd never seen before. But the membership warehouse club is not a format that perpetuates frequent shopping, and that's its greatest weakness. Further, supermarket warehouse stores have generally been able to adjust their pricing to be more competitive, so the excitement of the price differences has shrunk in the last few years. The clubs have pretty much bevelled off as a challenge. While it would be a mistake to think they are not a factor, it's clear they don't enjoy the price reactions they once did. George Golleher vice chairman and CEO Ralphs Grocery Co. Compton, Calif. Some of the factors that once made clubs a definite challenge to the supermarket industry are no longer there. For example, supermarket warehouse stores are better able to offer food items in sizes consumers want, with a broad range of supermarket varieties at club-store prices. Food 4 Less has several hundred items in bulk packs that are priced lower than the clubs. There are no longer price breaks for the clubs on multipacks, which means the clubs no longer get special deals but buy, like we do, on an everyday-low-price basis. And when a consumer has a choice of a supermarket size vs. a club size, the vast majority buy the supermarket size. The clubs' strong point will always be price, although we price-check them at Food 4 Less and make sure we're lower on comparable items. The clubs' weak point is their lack of variety and sizing. They've got to sell big items to put a value on it. Herb Dotterer executive VP and chief financial officer Eagle Food Centers Milan, Ill. The clubs are still there, and after a period of negative same-store sales, they seem to be back on positive ground. They certainly provide an additional source of competition, even though they don't advertise or make a lot of noise. They have gone through their initial growth stage, hit the maturity stage of their development and now they appear to be struggling for business like much of the food industry. And we think that, like some supermarkets, clubs are vulnerable to supercenters. Their strength is their pricing, which is significantly different from supermarket warehouse stores, though it's hard to compare because they have different package sizes and carry different items. But the perception is that there's a substantial, noticeable price difference between clubs and warehouse stores, and we're still trying to take costs out of the business to be able to compete with them on pricing. The clubs' weakness is their limited selection and the lack of fresh products. We are carrying more family packs in groceries, meats and produce, which helps with our value image.