December 19, 2001 - Kroger plots Wal-Mart-style discounting strategy

by Bill McDowell

It was only a matter of time before traditional supermarket retailers began to respond to Wal-Mart's invasion into food sales.

Leading grocery chain Kroger Co. said this week that it was gearing up for a price war, modeling its strategy after the Arkansas-based mega-discounter.

The new strategy flies in the face of the leading supermarkets' contention that only smaller, independent retailers would be squeezed by Wal-Mart's predatory pricing strategy. Analysts say that the softened economy has lured consumers to Wal-Mart's supercenters to stock up on food as well as household staples.

Wal-Mart entered the grocery market with its first supercenter in 1988. Today it has more than 1,000, two-third of which compete directly with Kroger stores.

The price war is expected in intensify, with other leading retailers, Albertson's and Safeway Inc., following suit. A Reuters report noted that economists predict a continuing decline in supermarket price inflation. November prices fell 0.1 percent, the report said, following a 1.3 percent drop in October.

Traditional supermarkets maintain that they will compete on the quality of their perishables, including meat and poultry. But Wal-Mart's aggressive move into case-ready meats has improved its quality and consistency image for consumers and cut into the traditional retailers' advantage.

Analysts say the move could impact the margins for food manufacturers who sell to the supermarket chains, with increasing pressure for promotional funds in exchange for premium shelf positioning.

This article reprinted with permission from Meat Marketing & Technology.

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