Chicago Tribune: Dominick's cuts prices up to 30%

http://www.chicagotribune.com/business/chi-thu-dominicks-0827-aug27,0,6665244.story


www.chicagotribune.com/business/chi-thu-dominicks-0827-aug27,0,6665244.story
chicagotribune.com
Grocery competition: Dominick's cuts prices up to 30% on some items
Move viewed as response to Jewel; price pressures mount as grocery stores compete with discount chains

By Mike Hughlett

Tribune reporter

August 27, 2009

Dominick's is firing a volley in what looks to be a grocery price war in the Chicago area, announcing that it's cutting prices on thousands of items.

The price-cutting spree follows a similar move in April by Jewel, and it mirrors pricing battles across the nation as supermarket chains battle a weak economy and increasing competition from big discount food retailers, particularly Wal-Mart.

Dominick's said the price cuts have been implemented over the past three weeks, and advertising for the new pricing structure starts Thursday.

The price cuts are as high as 30 percent on some items, said Don Keprta, president of the Dominick's division of California-based Safeway Inc. The company didn't release an average price cut.

The reductions will apply to a range of products at Dominick's 81 Chicagoland stores. "These are things the typical shopper will have on their list," Keprta said.

Dominick's will retain its "Fresh Values" loyalty card program, which offers lower prices to consumers who carry the card. Some items in Dominick's stores might feature price cuts based on the loyalty card and the new "everyday low pricing" program, Keprta said.

Dominick's is the Chicago area's second-largest grocery chain, with an 11 percent market share in January 2009, according to data from market researcher Nielsen Co. Jewel is the area's supermarket leader, with 39 percent of the market, according to Nielsen.

Jim Hertel, a managing partner with food retailing consultant Willard Bishop, said Dominick's widespread price cutting appears to be a response to Jewel.

In April, Jewel launched its "Big Relief Price Cut," reducing prices by up to 20 percent on thousands of items. It's unclear how effective the price cuts have been in generating more business because Jewel's parent company, Minnesota-based Supervalu Inc., doesn't break out results for the chain.

A look at Supervalu's and Safeway's overall sales trends indicates why the companies need to boost traffic: Both experienced declines in same-store sales during their most recent quarters. And those negative trends have occurred even as consumers favor grocery stores rather than restaurants because of the weak economy.

One reason for declining sales at Supervalu and Safeway is price deflation. As commodity costs have fallen, prices on some retail food items have sunk too. But conventional supermarkets also are under increasing pressure from discount chains, which are thriving in a weak economy.

So price competition is heating up. "It's not everywhere, but it's in an awful lot of places and it's kind of a coming thing," Hertel said.

Widespread price cutting isn't without risk for a food retailer, Hertel said. Price cuts have to be meaningful to consumers but not so deep they crimp a grocery chains' profit margins. Also, big price cuts could make consumers think twice about a chain, given the prices they had been paying.

"Are you begging the question from the shopper's standpoint: 'Have you been overpriced on these items?' " Hertel said.

And Charles Cerankosky, a stock analyst at Northcoast Research, pointed out that while supermarkets are very vocal about price cuts, they don't tell consumers about price hikes they're making on other items at the same time.