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US: Safeway cuts prices in attempt to boost sales

Safeway is firing a new pricing salvo in a war for grocery market share.

The grocer last week unveiled a campaign of lowering everyday prices by 10 percent to 44 percent on what it described as "thousands" of store items. Safeway officials would not disclose the exact number.

While the chain promoted the effort as a way to help recession-stricken customers, analysts said its main focus is to reverse Safe way's steady decline in market share.

King Soopers, Colorado's dominant grocer, and No. 2 Safeway have suffered a loss of customers since 2001 when discounters such as Wal-Mart Supercenter and SuperTarget gained a foothold in the local market.

Through early December, Safeway had a 19.6 percent share of metro Denver grocery purchases, just ahead of fast-rising Wal-Mart, with 19.1 percent, according to industry tracker Shelby Report. King Soopers leads the market with 38.6 percent.

In 2001, Safeway held a 24.3 percent share compared with Wal-Mart's 2.5 percent.

Scott Grimmett, president of Safeway's Denver division, said the chain is able to lower prices by passing on reduced costs from suppliers and wholesalers and by cutting its profit margins.

The Safeway pricing campaign could touch off a price war with rival Kroger, owner of the King Soopers and City Market chains in Colorado, said retail industry analyst Burt Flickinger III.

"King Soopers and City Market have always been ultra-competitive," he said. "I would expect them to respond. They have always been Safe way's toughest competition in the Colorado market."

King Soopers president Russ Dispense said the grocer has been cutting its everyday prices for the past four to five years in response to market-share growth by discount chains.

Dispense said King Soopers will monitor the Safeway price cuts and adjust accordingly.

"We will do whatever we have to do to remain competitive," he said. "We're the market leader, and we need to make sure we continue to be the market leader."

Cincinnati-based Kroger, in financial filings, has reported that its gross profit margins have declined slightly each year since 2004 — an indication of price-cutting in response to the growth of discount competitors.

Safeway's recently announced price cuts in Colorado, Wyoming, New Mexico, Nebraska and South Dakota stores follow similar campaigns in the chain's other regions.

Examples range from a 10 percent decrease in the price of Betty Crocker cake mix — from $2.09 to $1.89 — to a 36 percent cut in Kraft Italian salad dressing, from $3.59 to $2.29.

"We're in this for the long haul," Grimmett said. "There is no ending date for the price cuts."

Safeway and King Soopers continue to offer weekly price cuts on advertised items for customers using store discount cards.

Safeway shopper Mary Murphy of Denver said she has noticed the new, yellow markdown price tags on several items.

"In this economy, everybody is in a crunch," she said. "Every little bit helps."

Retail analyst Kevin Coupe of MorningNewsBeat.com said Safeway will be challenged to simultaneously compete on low prices with discounters and still promote the chain's upmarket Lifestyle stores that have specialty products and fancy designs.

"It will be intriguing to see how Safeway balances the low-price message with the high-quality message of its Lifestyle stores," Coupe said. "I'm not telling them anything they don't know, but at the very least, it strikes me as a balancing act that will require a certain level of skill."

Safeway's discount rivals said the new pricing campaign won't change the competitive dynamics of the Colorado market.

"We regularly shop our competition to insure that we're at price parity," said SuperTarget spokeswoman Jana O'Leary. "We're committed more than ever to offering competitive prices."

Wal-Mart spokesman William Wertz said Safeway's price cuts and the response from competitors will be "a good thing for consumers."

"On any given day, a competitor's price may be lower on a particular item," he said. "But we always try to keep up with the competition. We're not going to be beat on prices."


Source: denverpost.com

Publication date: 12/7/2009


 


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