Supermarkets take new tack in battle against EDLP

DSN Retailing Today, May 23, 2005 by Debbie Howell

SACRAMENTO, CALIF. -- Wal-Mart's steady supercenter growth continues to force traditional supermarket chains to evaluate new means of doing business, from expansion of general merchandise to price reductions aimed at satisfying a new value-oriented consumer mindset. One of the latest to join in this trend is California-based Raley's Supermarkets, launching its first everyday-low-price program on 5,700 items in 125 of its stores.

Although Raley's denied the move was in response to Wal-Mart's plan to open 40 supercenters in California over the next few years, experts have their doubts.

"It's probably preparing for the day when Wal-Mart opens more supercenters," said George Whalin, president of Retail Management Consultants.

Retail Forward vp Sandy Skrovan echoed those sentiments, calling Raley's program a pre-emptive strike against Wal-Mart's expansion. Everyday low pricing was named as the prime reason why shoppers chose a supercenter to buy groceries, according to a Retail Forward survey, validating the power of an EDLP strategy.

Few if any have succeeded in beating Wal-Mart at its own game, however. Kmart's short-lived attempt at EDLP in 2001 in part led to the retailer's bankruptcy, while those that successfully use EDLP include Trader Joe's, Family Dollar and Dollar General.

In California, only one of the four supercenters operates is currently in a Raley's market, in the city of Stockton, east of San Francisco. The other three supercenters are in Hemet, La Quinta and Cathedral City, all east of Los Angeles.

Raley's spokeswoman Jennifer Ortega said the May 4 launch of EDLP pricing on 5,700 high-demand items at all Raley's, Bel Air Markets and Nob Hill Foods stores in northern California and Nevada had nothing to do with Wal-Mart's growth but was a result of listening to customer feedback.

"It was definitely something our customers were asking for and we did it for that reason," said Ortega.

Raley's, which also operates a warehouse grocery format called Food Source and stores in New Mexico--neither of which are involved the EDLP program--generates $3.2 billion annually. Its prime competitors are Albertsons and Safeway.

Ortega said Raley's based its new "everyday value" pricing philosophy on a study it commissioned that showed 47% of shoppers visit multiple stores to complete their shopping and that 67% discard or give away items they stocked up on because of sales.

"Our everyday value approach will save our customers money, time and even storage space, eliminating the need to shop around to find value or use space in their homes to stock up on sale items," said Bill Coyne, Raley's president and ceo, in a press release.

Regardless of the real impetus for the strategy, similar price reductions are taking place in other parts of the country as a result of Wal-Mart's market share gains. In Columbus, Ohio, Giant Eagle and Kroger have dropped prices by as much as 10% in a defensive move as Wal-Mart captures more grocery share in that market with 11 area supercenters.

Giant Eagle has reduced prices on an estimated 4,000 items since November, promoting the "new lower price" on these items in a partial EDLP move similar to Raley's. Giant Eagle operates 219 stores in Ohio, Pennsylvania, West Virginia and Maryland and generates annual sales of $5.2 billion.

"I think that the supermarket industry as a whole is going to have to go that direction," said Whalin of EDLP pricing. Smart retailers that are going to compete with Wal-Mart don't try to compete with Wal-Mart, they try to be something else."

Skrovan agreed that an EDLP strategy may become more common at supermarkets, especially as consumers show an increasing affinity for price-shopping. But she also stressed that competition with Wal-Mart requires more than lowering prices.