Safeway, Other Traditional Grocers Forced to Push Value

Mid-priced grocers, or the most common supermarkets dotting shopping centers across the country, owned by Kroger, Safeway and other companies, are holding up during the recession, but it's not coming easy. Faced with consumers on increasingly tight budgets and growing competition, they're now forced to compete with deep discounters.

Safeway is making a big push on this front. The chain is slashing the price of staples at some of its stores by 25%. "In this economy what the customers are telling us is that we need more value," a Safeway spokesman told the <i>Washington Post</i>. Kroger is also following suit.

The big grocery chains that try to offer everything to everyone are seeing that wide category get wider. At the beginning of the decade, they reacted to Wal-Mart's extreme rollout of Supercenters, its discount stores that sell groceries. Kroger and others responded by cutting prices and acquiring smaller chains.

Then the organic-heavy Whole Foods chain, and its competitor Wild Oats which it later acquired, aggressively encroached on traditional supermarkets' territories. Safeway, SuperValu and others began offering more natural foods and organic products, going more upmarket as a result.

Now the shift is back to discounting, influenced by two scenarios. First of all, the recession pushes consumers to demand and seek out value, like the Safeway spokesman said. Additionally, there are a number of newer discount chains expanding rapidly into this arena, like Aldi, and the Tesco chain Fresh & Easy.

Large, traditional grocers, for the most part, are faring admirably in the face of adversity. The sales of the big operators remain strong in the face of the recession. But as prices drop in reaction to the current environment, though, the main problem these chains will face is a pull on margins, as SuperValu did in its latest quarter.

The real losers in this though, are likely the few smaller regional chains out there that don't fill a niche or have as much pull with suppliers. The 148-unit Arizona chain Bashas' filed for bankruptcy earlier this summer after cutting prices to compete with competition. Though larger chains will likely adapt to the changing environment, as they have in the past decade, expect more small outfits to suffer.