ALL QUIET ON THE HOOSIER FRONT

ELLIOT ZWIEBACH

INDIANAPOLIS -- For local retailers facing the competitive entry of Meijer into this market, less is more. In contrast to the all-out pricing battle that ensued when Cub Foods came to town 11 years ago, retailers here said they do not plan to repeat their past mistakes. Instead, retailers are stressing their strong points, such as service and variety, and employing tactics like direct mailings or selective promotions.

"When Cub came in here in 1983, the market grossly overreacted, and we ended up with a 'scorched earth' policy that made the situation worse than it needed to be, " Joseph Lackey, president of the Indiana Retail Grocers Association, told SN. "This time around, everyone just chilled." Meijer, the Grand Rapids, Mich.-based chain of hypermarkets, opened its first two stores here May 10 -- each covering 220,000 square feet. It reportedly plans two more locations in the metropolitan area in August and three more next year.

Elsewhere in the state, Meijer operates one store in Mishawaka and one in South Bend. It plans six additional Indiana units before the end of the year, including another in South Bend and two in Fort Wayne.

Meijer is locking horns in Indianapolis with two market leaders -- Kroger Co., Cincinnati, and hometown Marsh Supermarkets, each accounting for an estimated 30% of market share, followed by Cub's seven stores with a 20% share. Meijer reportedly hopes to achieve a 25% market share here within three years by generating annual sales of at least $35 million per store, or about $700,000 a week -- the presumed break-even level, local sources said. Can Meijer do it? "With an investment per store of $25 million, the company wouldn't be committing $175 million to the metro area if its executives didn't think they could do it," one competitor said. Another operator told SN that Meijer is expected to end up with a fairly significant local market share, "but they will find the going a lot rougher here because they're going up against two strong players [Kroger and Marsh], and that's one more player than Meijer is used to messing with." Meijer certainly has made its presence known here, blitzing the area with an estimated $100,000 worth of advertising in the weeks prior to and just after its initial opening, local observers said. Included in its promotional efforts were half-hour commercials on several TV stations, a 70-page newspaper insert, billboards, radio and conventional TV spots. In addition, the company mailed out 44,000 videos of 10 minutes each describing its stores and promised a free sports watch to everyone who returned the video on a shopping trip. Although Meijer is pouring so much effort into the market, competitive reaction on pricing has been cautious, both in advance of its opening and after the fact. According to one market observer, "Because we've had such low price levels here for so long, the major effort to hold market share is not going to be waged on the pricing issue but on a service and image issue." Another observer said he expects Meijer to be somewhat less aggressive on pricing here than in some of its other expansion markets because of the low pricing levels that already exist here. Within the first few weeks of Meijer's two openings here, the market experienced some small price erosion, an observer told SN. "It's getting ugly in certain categories," he said, including hot dogs, which were priced at 89 cents a pound for Memorial Day, compared with a holiday norm of 99 cents to $1.49. He also cited packaged luncheon meats -- priced at two for $5 -- as an example of a declining price trend in certain limited categories. While milk prices fell and then bottomed out at reasonable levels within the first couple of weeks after Meijer's entry, the hottest item at Meijer remains eggs priced at 19 cents a dozen -- a price that other operators have chosen not to match. In response to Meijer, Kroger has introduced a new ad feature called Bonus Buys, in which it spotlights manufacturer price reductions. In addition, both Kroger and Marsh are featuring more buy-one-get-one-free offers, and Marsh is emphasizing a point of difference as it introduces the point-of-sale system from Advanced Promotional Technologies at its front ends. Cub, with seven stores here -- four corporately owned by Supervalu, Minneapolis, and three franchised to Wigest Corp., Indianapolis -- plans to stress store service, cleanliness and variety while maintaining its regular price levels, Rusty McKay, Wigest president, told SN. "In Indianapolis we've attempted to keep a level, sane head and not get into an emotional pricing contest at the shelf level or the promotional level. And we've tried to drive our market share up in the year prior to Meijer's opening, so we could better cope with whatever we lost once Meijer opened."

O'Malia Food Stores, Noblesville, Ind., which operates eight conventional units here, plans to emphasize service and shoppability to combat Meijer's size, Danny O'Malia, president and chief executive officer, told SN.

In addition, O'Malia's is using a data-based marketing program to pinpoint customers who have stopped shopping at its stores. The chain sent out letters in June to those customers -- about 5% to 7% of its customer base, O'Malia said -- offering them a gift for coming back to O'Malia's, although he declined to pinpoint the item.