Giant, Safeway in price shootout

HIGH NOON IN THE GROCERY AISLES

August 07, 1991|By Michael Dresser

"Make no mistake, this is a war."

/ Giant Food CEO Israel Cohen It's not clear who struck the first blow, or the second, but there's tussle in the grocery business in the Baltimore-Washington area. It's too soon to call it a full-fledged price war, industry players and observers agree, but it could be on the verge of becoming one.

Unless a cease-fire takes hold, history will record that the Great Price War of 1991 began with a shootout in the health and beauty products aisles. Like World War I, it will have started as a conflict between major and minor powers and have escalated into a clash of empires.

The latest round of hostilities commenced early last week when Giant and Safeway Inc., both itching from repeated small bites from aggressive new drugstore competitors, swatted back with price cuts on thousands of the non-food items found in both groceries and drugstores.

But the two chains turned their guns directly on each other Sunday, when Giant and Safeway almost simultaneously announced they were extending their double-coupon programs -- fixture in Baltimore for years -- to the Washington market. Both chains have also recently extended their hours of operation at many stores in the region.

"You can certainly view it as stepped-up competition," said Jim Roberts, spokesman for the Eastern Division of Safeway. On a scale of 10, Barry F. Scher, a Giant spokesman, said, competition is "about an 8 and getting higher."

As a result, more competitors are chasing fewer dollars in an economy where consumers are reluctant to spend. Sales have been slack for months, and retailers report that if the recession is ending, they aren't seeing it.

For now, at least, the core Baltimore grocery business has not beendrawn into a price war, according to Louis Denrich, president of Valu Food, the chain ranked No. 7 in the Baltimore area by the trade publication Food World. However, he said, "in the drug area they have started a war." He added that by next week Valu Food will unveil its own program of price cuts on health and beauty aids.

Mr. Denrich was gleeful over the news of double-couponing in Washington, particularly because it will cost Giant money. "What we always felt was they were making such a big profit in Washington they could use it to beat us up in Baltimore," he said.

Giant ranks No. 1 in the combined Baltimore-Washington market, according to Food World, while Safeway ranks No. 2 despite a relatively weak presence (14 stores) in Baltimore, where it ranks No. 4.

As of yesterday, there was no announced response to the Giant and Safeway moves from their other main competitors in the Baltimore area. A spokesman for No. 2 Super Fresh/A&P declined to comment, while representatives for the Basics, Farm Fresh and Mars chains could not be reached for comment.

For now, Safeway, Valu Food and other grocery chains appear to be peripheral targets of Giant's formidable firepower.

In a saber-rattling letter to the chain's 27,000 employees July 29, Giant Chief Executive Officer Israel Cohen named the discount drugstore chains F&M Distributors and Drug Emporium as "rapidly expanding" rivals and warned that Wal-Mart, the Arkansas-based retail giant, is coming. Wal-Mart plans to open its first Maryland stores in Easton, Hagerstown, Prince Frederick and Waldorf early next year. So far, a Wal-Mart spokesman said, no plans have been announced for a store in the core of the Baltimore-Washington market, but Mr. Scher said that he understood that a corridor location, probably in Bowie, was a "done deal."

In characteristically colorful language, Mr. Cohen's letter exhorted his troops to gird for the challenge:

"The only way these new competitors can grow is to take our customers. . . . Make no mistake, this is a war. There will be winners and there will be losers. . . . Ultimately, some competitors could cease to do business in this area."

Giant's aggressive counterattack on competitors while they are still relatively minor players in the region reflects its traditionally fierce response to any threat to its market share (almost 40 percent in the combined region).

Guy W. Ford, vice president of research for the Richmond-based brokerage Scott & Stringfellow, said that the price cuts could be expected to have an adverse impact on Giant's earnings for the third quarter, but he doubted that would cause much concern at the company's Landover headquarters.

"They're very pro-active. They plan long-term," Mr. Ford said. "They don't care about quarter-to-quarter earnings."

Despite the explicit targeting of the new drugstore competitors in Giant's price-cutting program, Mr. Ford said that its recent moves should be viewed as "part of a continuum." He cited the chain's weekly program of half-price specials on groceries and the expansion of its bulk-purchase program, which competes directly with warehouse outlets such as Price Club and Pace.

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