Safeway Inc. is trying a new strategy in its ongoing price war with Giant Food, the first-place supermarket chain in the Baltimore-Washington region, this time by replacing double coupons with lower prices on thousands of items.
It was only last August that Safeway, which had long doubled the face value of manufacturers' coupons in the Baltimore area, began doing so in the Washington market. The move coincided with Giant's decision to double coupons in Washington, followed by a salvo of drastic price reductions on Giant health and beauty-aid products.
Now Safeway has decided to back away from double coupons in both metropolitan areas effective after the close of business this Saturday.
Price reductions are already in place on general merchandise and an array of grocery, dairy, meat, produce, health and beauty products, officials say. Still, Safeway spokesman Lawrence Johnson declines to comment on the extent of the reductions or on specific products that have been marked down.
Johnson says the Safeway program is designed to eliminate the inconvenience of coupon clipping for Safeway customers. "We're doing this based on our own surveys and our own concern for our customers," he says.
The level of price cuts could, of course, affect the success of the new program and whether other food stores follow suit and drop double coupons.
The response from Giant officials, however, is no response -- so far.
"It's business as usual," says Giant spokesman Barry Scher. "We're continuing double coupons."
Giant released its third-quarter results yesterday, reporting a 43 percent decline in earnings per share. In comparison, Safeway recently reported a 57 percent jump in its earnings per share for the third quarter.
Food industry experts say Safeway's decision to eliminate double coupons appears to be an effort by the chain to better control its profits.
Coupons, though widely accepted by grocers, are considered a major factor in tight profit margins because their usage is wildly unpredictable.
By eliminating double coupons and deciding which items the chain can accept less profit on, Safeway may be trying to get a better handle on its balance sheet during a time when major food chains are reporting flat profits.
"When you deal with a business that's on as tight a margin as the grocery industry, control is very, very important," says Jeffrey W. Metzger, publisher of the trade journal Food World in Columbia.
Since many grocery chains currently double manufacturers' coupons, Safeway's decision is fraught with both potential and risk, Metzger says.
Deep price cuts could drive up volume. However, if consumers )) long accustomed to coupons don't perceive the price cuts as more than or equal to coupon savings, the program could fail.
Metzger points out that other grocers have dropped double coupons in the past, only to return to them later. In the meantime, Safeway's decision may lead to an advertising blitz by competitors.
"Giant will definitely exploit the fact that they're in doubles and Safeway isn't," Metzger says.
Other food retailers say they will wait to see what the impact of the Safeway program will be.
Valu Food President Lou Denrich says he has no plans to discontinue double coupons, but would reconsider if Giant followed Safeway's lead. But Denrich seems to confirm that Safeway may be headed in the right direction.
He says Valu Food's profits are about 6 percent above those a year ago and the company's emphasis on "event promotions" is still producing strong sales despite the recession.
"Low prices are very important to the way consumers are thinking today," Denrich says. "It just so happens that Safeway and Giant are high-priced."
Officials at Super Fresh, headquartered in Montvale, N.J., have no comment on Safeway's move. The 26 Super Fresh stores in the Baltimore area double the face value of coupons.
Baltimore-based Mars Super Markets Inc. does not offer double-coupon savings at its 11 local stores.