Supermarkets emphasize value over price - East Valley Tribune: Business

Supermarkets emphasize value over price

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Posted: Tuesday, June 1, 2010 9:42 am

For two years, grocery stores have sent customers this message: Shopping here will save you money.

Now -- as some consumers appear once again willing to pay for ready-to-go-meals and service -- grocers are trying to shape a new message: Value, not price, matters.

With profit margins slim -- generally 1 percent, according to the Food Marketing Institute -- stores have to compete on costs as well.

Customers want discounts, triple-coupon offers and service with a smile. But the seduction starts with price.

"Consumers today, they're looking at it as you have to have a good price or you're not going to be considered in my choice," said Phil Lempert, a California grocery industry analyst.

Food Lion recently rolled back the prices of thousands of items in a heavily publicized move.

"Any consumer can look around, whether it be home improvement or grocery retailers, and everyone is having a conversation with their shoppers about price," said Troy Leshko, Food Lion's vice president for the Mid-Atlantic market. "We knew we had to be deliberate and bold."

Food Lion is also testing other ideas. A store model aimed at Hispanic customers has proved successful, and the company recently began testing computer kiosks that issue coupons to shoppers.

Wal-Mart also makes price its focal point, announcing last week discounts on additional grocery products. This follows an across-the-board cut on prices for 10,000 items announced in April.

Athe Harris Teeter in Raleigh, N.C., which opened in February, has gone beyond the salad and sushi bars typically found in grocery stores. One side of the store is dedicated to prepared foods, including an antipasto bar, a fresh pizza counter, six hot soups instead of the normal two and a hot bar of Asian foods.

At the same time, the chain is tracking customer feedback -- and responding quickly. After the two-story Raleigh store opened customers complained about the layout which required taking an elevator to get cereals, juices and baking supplies. Harris Teeter recently finished reorganizing the store to customer's wishes.

"We value the customer's opinion and it's so important to react," spokeswoman Jennifer Thompson said.

Target is also pursuing more customers by spending $1 billion to renovate 350 stores this year to add more produce, meat and baked goods in stores that don't have a full line of groceries.

The company is banking that as the economy improves, customers will be a little more likely to splurge. In its recent quarterly earnings, Target reported that sales of discretionary items had increased.

But even as they add products, Harris Teeter and Target are not rushing to bump up their prices.

Both Delhaize Group, Food Lion's parent company, and Wal-Mart reported that sales of U.S. stores open at least a year, the most important measure of a retailer's long-term financial soundness, were down in their most recent quarters.

To cut the prices on thousands of items, Food Lion is saving money elsewhere. For instance, in distribution centers, lights are off in areas where no work is being done. Break rooms in stores have motion-sensor lights.

To stay ahead of rising prices from food makers -- analysts expect a 3 percent to 3.5 percent increase this year -- grocers will need to do more than turn off lights and cut prices to stay competitive.

Lempert, the analyst, believes that eventually the battle over grocery shoppers will depend on more than price. Technology has made it easier for retailers to customize offers to individual customers.

"The war is on a different playing field," he said. "The war this time is going to be on more intelligence. More targeting. More using social media. And price will be a factor, but the impact of the price is going to be lessened."

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