Can a price-slashing strategy help Valu Food and other small chains loosen the market leader's iron grip on area customers' loyalties?


January 28, 1991|By Ellen James Martin

Louis Denrich scans a thick computer printout, shaking his head with concern when he reaches apple juice.

The wholesale price of the 64-ounce bottle -- emblazoned with the Valu Food logo on a cherry red and mustard background -- has hit $1.10. But as president of the staunchly independent Valu Food chain, Mr. Denrich vows it shall remain at 99 cents.

"Everybody drinks apple juice -- kids, everybody," he says insistently.

The reason Valu sells apple juice at 99 cents (and it sells 6,000 bottles a week) is that Giant's price for a like-sized bottle is $1.99, and to grab a little of Giant's huge share of the market, Valu Food is willing to take a loss on such popular items as apple juice, flour, soda and laundry detergent on the gamble that more customers will come through its automatic doors.

"Our pricing programs are predatory. Our double-coupon programs are predatory. We're aggressive because we want our share -- plus a little bit," emphasizes Mr. Denrich, who left a career as a microbiologist at the Johns Hopkins School of Hygiene and Public Health in 1974 to take control of his father's business, now a 12-store chain.

"Giant has gotten very profit-conscious -- more than ever before. And this is not the economy for Giant's strategy," Mr. Denrich maintains. "When there's a downturn, people go more for value-oriented retailers. They look more at price."

Valu is but one of several food chains nibbling at Giant, which dominates the retail food market for the Baltimore area. Basics, Mars and Santoni's are also trying to take advantage of consumers' current preoccupation with price.

But Giant is fighting back. It has launched its own sale programs, including the highly advertised "Super Deal" discounts on mainstays such as toothpaste and paper towels, available to the consumer who buys in large quantities.

In buying wholesale, Giant has the bargaining power that comes with large orders. And when it comes to competition for prime shopping center sites in the suburbs, Giant can exert more influence than its smaller rivals, including

Valu Food.

Giant's operational prowess is also formidable, says Debra Levin, who tracks the supermarket chain for Salomon Brothers, the New York-based investment firm. "They focus heavily on serving customers, have upscale stores, offer tremendous variety and keep their shelves well-stocked," Ms. Levin says.

She predicts that Giant will adapt rather than give up market share to rivals. "Giant's management is extremely smart and understands the market well. They will react to conditions that face them. For example, they could shift to a sharper price-reduction formula."

To survive and grow against Giant, Valu must keep its overhead low. But Valu's growth has brought pressure from the local supermarket workers' union, which has sought to organize its outlets and sparked an ongoing battle with management. Giant is already unionized.

Valu Food, which depends heavily on intuition in developing strategies, boasts no MBAs in its senior management corps. In many ways it still reflects its origins as a mom and pop grocery founded more than three decades ago by Louis Denrich's father, Stephen Denrich, a Polish immigrant and concentration camp survivor who has pulled back from the company since suffering a mild heart attack last fall.

The two men are a study in contrasts. The 72-year-old father is a genial, teddy bear-like man with closely cropped hair. He is absorbed in nitty-gritty elements of the business, including the chain's finances, equipment purchasing and real estate transactions.

A frugal man who lives in a two-bedroom Pikesville condominium, he had to be persuaded by his three grown children -- all of whom work for the company -- to borrow for the chain's expansion in the early 1980s.

The 41-year-old son is more freewheeling. Louis wears his hair shoulder-length and favors broad-cut designer shirts and pants from Italy or Japan as well as vibrantly colored ties. He lives in a large Owings Mills contemporary. A workaholic who typically puts in 70 hours a week, he does paperwork while riding in his chauffeur-driven silver Mercedes-Benz. His interest in the business runs more to merchandising, marketing and operations than finance.

For both men, taking on the Giant empire is a tall order.

In the Baltimore area, Giant has 40 stores; Valu Food, 10. And Giant controls 29.03 percent of the regional market, compared with just 4.18 percent for Valu Food, according to estimates from Jacqueline Mansfield, editor of Food World, a mid-Atlantic supermarket industry trade paper based in Columbia.

Still, Louis Denrich is convinced that Giant is far from invincible.

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