SHOWDOWN 2004-11-22 (2)

Robert Vosburgh

It's sundown, and there's movement in the aisles.

Dinnertime in Oklahoma City is like any other in the United States, with homeward-bound consumers often shopping for meal solutions and fill-in items. Yet here, they have to duck, while Wal-Mart Stores, Albertsons and several independent retailers fire off prices in a Center Store free-for-all.

Shoppers don't mind the flying numbers. They're able to take advantage of an ongoing price -- and turf -- war that has already left this swath of prairie landscape littered with ghost stores and parking lot tumbleweeds.

"Price is king in Oklahoma City," said an industry source with intimate knowledge of the market. "The average wage is lower. So is the cost of living, but they're still thrifty consumers. That's why Wal-Mart is here in such force, and so many smaller independents have gone out of business. They haven't been able to stay competitive on price."

One independent in particular has attracted widespread attention from other retailers and industry analysts alike for its ability to continually frustrate the nation's largest food retailer. Crest Discount Foods, a four-store operator with two units in Midwest City, and one each in Edmond and Moore, is the zippy prairie dog to Wal-Mart's angry farmer.

"We carried out an image audit telephone survey to determine how consumers view certain operations," said David Rogers, president, DSR Marketing Systems, Deerfield, Ill., a retail research firm. "Crest was perceived to have lower prices than Wal-Mart. The subsequent pricing study we carried out in April of 2003 proves that to be the case. They were about 3% to 4% cheaper."

Rogers noted that Oklahoma City is an ideal area for examining the dynamics of retail grocery prices because it is a large city with both blue- and white-collar employment.

"It is also an area that suffered from a downturn in the oil industry in the 1980s, and has not been the best economy since."

DSR's study in April 2003 showed a tight contest. A basket of 56 grocery items cost $106.85 at a Wal-Mart supercenter just off of Interstate 44. The same groceries cost $98.07 at the Crest store in Edmond.

Earlier this month, SN re-checked four specific items on the 2003 list, representing top Center Store categories (not including Stouffer's Lean Cuisine Salisbury Steak dinner, which was no longer offered at all stores): Kellogg's Raisin Bran (25.5-ounce); Lay's Classic Potato Chips (12-ounce); Classic Coke (24-pack cans); and Edy's Vanilla Ice Cream (1.75-quart). Some 19 months later, the price differential was less, but Crest still won: The four-item basket was $14.60 at the Wal-Mart and $14.19 at Crest (see charts).

"They are relentless in their pursuit of the lowest price, retailer to consumer, and from the manufacturer," said the local source. "They pride themselves on it. If they don't get clients they feel are working with them, they take action at store level. They're sharp operators and, for the most part, very fair. They're just aggressive."

Wal-Mart, Bentonville, Ark., stirred the dust on the road to confrontation in the mid-1990s, when it opened one or two supercenters on the periphery of the city. At that time, in 1997, the retailer had about a 6% market share, according to industry statistics. Today, the take approaches 43% in both Oklahoma City and the state itself, with the store count split between the two.

"It was rather like an attack by the Comanches," said Rogers. "They circled the wagon train first. They learned the market, looking for points of weakness. Then they came into more central locations."

The retailer's current mix in Oklahoma City includes eight supercenters and seven food-only Neighborhood Markets, plus regular discount stores and several Sam's Club units.

The rollout had a profound impact on grocery prices. In the short term, several independents went out of business. Most notably, Homeland Foods, the former Safeway division bought out by management in the 1980s and turned into one of the most popular local supermarket options, was forced into bankruptcy -- twice. During this time, Boise, Idaho-based Albertsons, the only national retailer present, closed several stores. However, it remains a primary player today.

Wal-Mart saved its most difficult competitor for last -- Crest, the "Home of Rock Bottom Prices." Rogers noted that executives in Bentonville waited before taking on the independent's home turf.

"They recognized that Crest was going to be tough. So they left the eastern suburbs alone," he said. "They picked off the soft edges first, and saved the hardest for last."

The price fight has been raging ever since. Early on, in 2000, Crest sued Wal-Mart after a manager stopped and questioned a group of men in business suits wandering the aisles. One of them was alleged to have been David Glass, at that time Wal-Mart's chief executive officer. The case was settled out of court in March 2003, and the terms have never been disclosed. The effects of such raids, however, quickly became apparent, according to Rogers.

"Wal-Mart supercenters that were close to Crest reduced their prices close to Crest levels. What we ended up finding [in our price surveys] were different prices at different supercenters and Neighborhood Markets within the immediate area."

The SN source concurred, saying Wal-Mart consistently promotes loss leaders at stores around Crest units just to undercut them. He said he believes Wal-Mart's superb buying and distribution skills were honed here as a blueprint for future expansion in other markets. By 2002, after nearly 10 years in the grocery business, Wal-Mart earnestly began applying best practices and priced its goods not only in relation to the market, but also within the market itself.

Crest, founded by Nick Harroz in 1964, was a three-store operation at the time of Wal-Mart's arrival in 1997. It opened a fourth store in 2002, and is expected to open a fifth by the end of this year. Industry estimates placed its market share at 8.5%.

"They're very clean, very neat and they have displays on all endcaps," SN's source said of the stores. "They're sensitive to what Wal-Mart is selling, and for what price, and they try to match it and stack it out for the consumer to visibly see."

Following the philosophy of "stack it high, and sell it cheap," the stores are extremely popular with local consumers, some of whom are nearly fanatical about their loyalty. Each units enjoys about $1 million a week in sales volume, the source said.

Part of the retailer's success is based on its no-nonsense buying policies, which are smaller in scale than Wal-Mart's, but just as effective: They don't charge free goods or slotting for new items, and they don't charge ad monies.

"This is an independent retail grocer who pursues a dead-net pricing formula. They buy opportunistically wherever they can, and they are not tied to one wholesaler," Rogers told SN. "They are showing everyone else how to deal with Wal-Mart. Frankly, a lot of the big chains could go and learn from them."

Crest is also making a heavy investment in technology to drive out costs, and not just at the warehouse level. SN's source recently saw labor-saving, gravity-feed systems deployed in dry grocery, covering the condiments and jams/jellies categories, among others.

Oklahoma City is certainly not a two-horse town. Other independents with slightly different business strategies have also been able to co-exist with Wal-Mart, and in many cases, succeed in conducting a strong business. Albertsons, the biggest traditional chain in the area, operates 14 stores, and has a 13% market share. The combined DSR/SN price survey showed them to be the highest-priced operator in the market. As such, it has cast itself as the upscale food destination with wider variety and greater service. It's a position Rogers said he believes hasn't hurt the chain as much as it could in other regions.

"Everyone parrots the mantra 'quality and service' to get around Wal-Mart. What our research shows in Oklahoma City is that the quality and service market is of a very limited size. Not many people can escape into that corner of the room."

Prices for the target items are generally higher. However, in the year between the 2003 DSR survey and the SN price check earlier this month, Albertsons met or beat the others -- including Wal-Mart and Crest -- on select products, such as the Coke 24-pack and the Edy's vanilla ice cream.

"Everything I see from a share-of-market gain or loss monthly, Albertsons holds its own," noted the source. "I think they've done a fair job of capturing the higher-end consumers in this market, and are hanging onto them."

Looking at the market basket of four items, Albertsons was the highest-priced retailer. However, by the time of the November 2004 SN check, prices had not only dropped, Albertsons' basket was actually cheaper than the one from Buy For Less.

Buy For Less, founded by Hank Binkowski in 1988, has gradually grown from one unit to nine, primarily by acquiring stores as other owners have backed out of the market. Currently, it is a steady, reliable player with a 7% share. The stores operate in a warehouse format, averaging 30,000 square feet to 62,000 square feet.

"Hank's has smaller stores than Crest, but they have their mind set that they're going to buy direct as much as they can," observed SN's market source.

For his part, Rogers described Buy For Less as a retailer that takes on the convenience proposition more than Crest, and is aggressive with high-low pricing.

"They're not as low as Crest's or Wal-Mart's, but they have a very promotional position." Again, price is the winning factor.

In the 2003 DSR survey, Buy For Less was 40 cents less expensive than Albertsons, but at least $2.31 more expensive than Wal-Mart and Crest. In the latest SN survey, however, Buy For Less was actually 3 cents more expensive than even Albertsons, making it the most expensive of all four retailers visited.

Pricing It Right

Stores were rated on the price of a five-item market basket from top-volume Center Store categories, checked during the week of Nov. 7: carbonated soft drinks, cereal, ice cream and salty snacks. Letter grades were derived by calculating how far off the competitor's price was from the low-cost leader (Crest), using the following ranges: $0.01 to $1.00 = B, $1.01 to $2.00 = C, $2.01 to $3.00 = D, $3.01 and up = F.

Store: Grade; Market Basket

Crest Discount Foods: A; $14.19

Wal-Mart: B; $14.60

Albertsons: D; $16.47

Buy For Less: D; $16.50

NOTE: A fifth item, Stouffer's Lean Cuisine Salisbury Steak frozen dinner, was also on the list, but could not be included in this tally because Crest and Buy For Less no longer carried it. Therefore, Albertsons and Wal-Mart should be cited for offering all listed products.

Ready, Aim, Fire

Regular-price comparisons for five, high-volume Center Store items reflect price increases in general, but also reveal how these companies reposition their prices to be more competitive in key categories

Wal-Mart Supercenter (I-44 & Classen, Oklahoma City) 4/03; Wal-Mart Supercenter (I-44 & Classen, Oklahoma City) 11/04; Buy For Less (Pennsylvania & Hefner, Oklahoma City) 4/03; Buy For Less (Pennsylvania & Hefner, Oklahoma City) 11/04; Albertsons (Broadway & 15th, Edmond) 4/03; Albertsons (Broadway & 15th, Edmond) 11/04; Crest Foods (Santa Fe & 164th/15th, Edmond) 4/03; Crest Foods (Santa Fe & 164th/15th, Edmond) 11/04

Kellogg's Raisin Bran (25.5-ounce): $2.98; $2.64; $3.47; $3.67; $2.50; $3.99; $2.50; $2.88

Lay's Classic Potato Chips (12-ounce): $2.00; $2.00; $2.99; $2.00; $2.99; 2.00; $1.50; $2.00

Classic Coke 24-pack (cans): $5.98; $5.98; $5.99; $6.39; $5.99; $6.49; $5.49; $5.98

Edy's Vanilla Ice Cream (1.75-quart): $3.28; $3.98; $4.59; $4.44; $5.99; $3.99; $3.00; $3.33

Lean Cuisine Salisbury Steak Dinner (15.5-ounce): $2.88; $2.88; $2.49; N/A; $3.00; $2.67; $2.89; N/A

Note: Based on regular and sales (non-card), per-unit prices

Sources: DSR Marketing Systems, SN price

Basket Weaving

Here's how the leading Oklahoma City retailers fared on a four-item basket, taken from single stores, comparing a 2003 study with visits this month: Coke 24-pack; Edy's vanilla ice cream; Kellogg's Raisin Bran; and Lay's Classic potato chips

April 2003; November 2004

Wal-Mart (I-44 & Classen, Oklahoma City): $14.24; $14.60

Buy For Less (Pennsylvania & Hefner, Oklahoma City): $17.04; $16.50

Albertsons (Broadway & 15th, Edmond): $17.47; $16.47

Crest Foods (Santa Fe & 164th/15th, Edmond): $12.49; $14.19

Sources: DSR Market Research, SN store visits

Other Players

Besides the four retailers profiled, Oklahoma City is host to other national and local operators that contribute further price pressure to the Center Store aisles, and provide shoppers with even more options:

Homeland Stores: This old Safeway division was bought out by management in the 1980s, and with the arrival of Wal-Mart Stores, has survived two bankruptcies. As the supplier at the time, Kansas City, Mo.-based Associated Wholesale Grocers purchased the group in 2002, and has been able to improve its market share and attract new shoppers to its more than 40 stores. "AWG has considerable history of competing with Wal-Mart and dealing with them in other markets," said Rogers. However, it's Albertsons that should be wary, he added. "If and when Homeland gets its act together, with AWG's help, they could erode Albertsons' position from below."

SuperTarget: A relatively new arrival, with two supercenters in the area. "Their pricing is close to Wal-Mart's, but they get no credit for it," said Rogers, noting the retailer's more upscale image might be keeping local shoppers away.

Save-A-Lot: The limited-assortment chain, a subsidiary of Minneapolis-based Supervalu, is filling a niche in Oklahoma City, where it currently has four or so units. The Save-A-Lots, licensed in this area, offer approximately 1,250 grocery products, including perishables -- which give it an edge over Aldi, a newcomer.

Aldi: Another deep-discount, limited-assortment operator, Aldi has the ability to thrive in and around the Wal-Mart hive. "They're currently going in with a few stores, and they'll be happy with their 3% or 4% market share," said Rogers, noting the format is often found in the immediate vicinity of Wal-Marts, attracting shoppers with convenient locations, smaller stores and parking lots, and prices "that are the same as Wal-Mart or much lower."

Oklahoma Snapshot

State Capital: Oklahoma City

Largest City: Oklahoma City

2000 Population: 3,450,654

2003 Population (est.): 3,511,532

Population Change: (2000-2003): 1.7% (U.S. total: 3.3%)

Per Capita Income: $24,787

State Nickname: Sooner State

State Bird: Scissor-Tailed Flycatcher

State Flower: Mistletoe

State Song: "Oklahoma!"

State Tree: Redbud

Entered Union: Nov. 6, 1907

Land Area: 68,667 miles

Water Area: 1,224 miles

Total Area: 69,891 miles

Web Site: www.state.ok.us

Sources: U.S. Census Bureau, Oklahoma state