Roundy's Adjusts Pricing, Promotions

Roundy's Adjusts Pricing, Promotions

“Roundy’s management continues to execute extremely well, but the environment will remain very challenging for the foreseeable future.” — Karen Short, analyst, BMO Capital Markets

MILWAUKEE — Roundy’s Supermarkets [4] here said it intends to accelerate its pricing and promotional programs in the face of increased competitive levels in its core markets here and in Minneapolis — a move analysts believe could take some time to have a significant impact.

According to Robert A. Mariano, chairman, president and chief executive officer, the decision to be more promotional follows a number of Wal-Mart openings and what Mariano termed as a “borderline irrational response” by other conventional operators.

Andrew Wolf, managing director for BB&T Capital Markets, Richmond, Va., said the number of competitive openings in the chain’s core markets should remain high through 2013.

“For markets impacted by supercenter openings to reach equilibrium, store closures from weaker plays are necessary,” Wolf said. “Once this occurs, stronger operators such as [Roundy’s] Pick ‘n Save should return to previous sales and [earnings] levels, but this process can last one to two years.”

Read more: Roundy's Q1 Comps Get Sacked [5]

Karen Short, an analyst with BMO Capital Markets, New York, said that, despite the significant external challenges, “Roundy’s management continues to execute extremely well, but the environment will remain very challenging for the foreseeable future.”

According to Short, Roundy’s has done a good job of becoming more competitive with Wal-Mart, narrowing the price gap to between 4% and 6% from 12% to 15% in Minnesota and to 5% to 6% from 20% to 30% in other locations — “very impressive for a conventional operator,” she pointed out.

Roundy’s told analysts it expects to continue to pay a dividend of 23 cents per share, though Scott Mushkin, an analyst with Jefferies & Co., New York, said he expects the payout to drop to 20 cents per quarter next year, “and if the climate deteriorates further, a steeper reduction is possible.”

'Impactful' Pricing, Promotions

Mariano told analysts the chain’s early pricing and promotional initiatives have been “impactful” and have shown increased stickiness among consumers, and those efforts will intensify after Labor Day, he added.

“We know this kind of activity takes four to six exposures to make consumers aware of what we’re doing, and we’re confident we can find the right price and promotional model,” Mariano said.

Roundy’s plans to adjust pricing on a category-by-category basis to be more competitive, Mariano explained. “We’ll use everyday pricing and fewer deep promotions to help our price image, and we expect to increase our traction as customers recognize what we’re doing,” he said.

Roundy’s intends to move slowly, implementing changes “using a scalpel rather than a machete,” he added.

Assisting the company in its promotional planning will be shopper data from Accenture, “which will give us greater precision and speed in understanding how customers will respond,” Mariano said.

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He said the combination of new supercenter openings and less rational pricing by conventional operators threw off Roundy’s expectations and resulted in more negative spending than the company had expected during the second quarter ended June 30.

Net income for the 13-week quarter rose 6.6% to $18.9 million, while sales rose 1.7% to $996.8 million and same-store sales declined 3.3%.

The five Mariano’s Fresh stores in the Chicago market continued to exceed expectations, Mariano said, with same-store sales at the two stores in the comp base up “in the low double-digit range,” he noted. The company expects to open four to five stores a year in Chicago for the foreseeable future, he noted.

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