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Supermarkets Enter 2010 Defending Food Turf

Supermarkets Enter 2010 Defending Food Turf

Just when you thought it couldn't get any more competitive, welcome to 2010.

Food is one of retailing's few sure bets, so a range of non-supermarket retailers continues to vie for this business.

  • Wal-Mart Stores has increased the price differential between itself and the largest supermarkets, based on its own research released in October. A major focus is fresh-food price leadership.

  • Target Corp. recently said it plans to roll out its p-fresh format to 350 additional discount units in 2010 and eventually to the bulk of its store fleet. This is an expanded grocery and perishables format that includes a large percentage of the food offerings available in the company's SuperTarget units.

  • Family Dollar, part of the red-hot dollar store segment, has a new advertising campaign that directly takes on supermarkets. This effort attempts to convince consumers that Family Dollar sells the same merchandise at lower prices.

  • Walgreens has been enhancing its food offerings, including those available to inner-city residents. The drug store retailer's efforts were boosted last January by the hire of Bryan Pugh as vice president of format development, with a focus on food and other consumables. Pugh came to Walgreens from Tesco, where he designed the Tesco Fresh & Easy store operations model.

  • Membership warehouse clubs posted strong food sales in 2009 despite more aggressive supermarket pricing. In fact, Costco Wholesale Corp. said its business wasn't impacted by recent supermarket pricing efforts.

It should be noted that supermarkets are firing back. This was underscored recently by Delhaize Group, which said its Food Lion operation will move pricing closer to that of Wal-Mart in 2010, and double the number of its Bottom Dollar discount stores.

The best news for supermarkets is that the competitive environment should ease at midyear, according to Andrew Wolf, an analyst for BB&T Capital Markets, Richmond, Va. That's because an improving economy will likely lead some of the non-supermarket retailers to re-embrace discretionary merchandise as opposed to food, he said.

But that won't be the case with at least two such competitors: Walgreens and Target, he added.

“Target is playing catch-up” as it expands its new format, so it will continue this push, he said. Meanwhile, Walgreens “is playing offense,” Wolf added. “Walgreens has the best locations in America, and it wants to intercept the ‘what's for dinner tonight?’ business. It is hoping to benefit from location, convenience and their top food merchant's background.”

The outlook for easing competition, while positive, shouldn't lead grocers to relax or celebrate. That's because an improving economy won't completely transform current retail dynamics. Food is on the radar of more non-supermarket retailers. Value pricing will remain imperative. Consumers will stick with thrifty behavior.

All of this means supermarkets will need to further defend their food turf.

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