Thursday, May 15, 2008

Food fight rages for Giant, Safeway

Grocers overhaul stores, focus on private labels

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bryan haynes⁄The Gazette
Giant Food’s supermarket in Largo is one of six in the region that the grocer recently refurbished.
With food costs rising and gasoline fetching upward of $4 a gallon, the region’s grocers are fighting for every penny of the consumer’s dollar.

Giant Food, fighting to remain the region’s top supermarket chain, hopes to cut costs by reducing its selection of merchandise, as it unveils renovated versions of several regional stores to lure and retain shoppers.

Meanwhile, a top competitor, Safeway, is trying a different tack in the highly competitive industry: marketing its private-label brands to other retailers.

Giant, with regional headquarters in Landover, has been trimming back on product varieties aisle by aisle throughout its stores since the fall of 2006, eliminating slower-moving items and lowering prices on at least 70 percent of its inventory, as part of what it calls its value improvement program.

To customers of its 140 Maryland stores, including 21 in Prince George’s County, this means cheaper, fresher items, as the stores also improve turn-around times between warehouse storage and distribution, according to Giant officials.

‘‘It’s allowed us to offer better prices, which certainly appeals to the customers and gives us a competitive advantage,” said Jamie Miller, spokesman for Giant. ‘‘It takes the costs out of the business by simplifying it so we can pass those savings on to our customers.”

Despite cutting its selection, Giant stores continue to offer more than 50,000 products and regularly reviews them to adjust to new products or consumer trends, Miller said. He said the store also works with customers concerned with the selection changes, offering them alternative products, including Giant’s private-label items.

Net sales for Giant and its sister company Stop & Shop of Quincy, Mass., were about $5.1 billion combined for the first quarter of 2008, which ended April 20. That was up 1.3 percent from the first quarter of 2007 and 24 percent from the fourth quarter of 2007, according to a statement from Royal Ahold, the Netherlands company that owns both chains.

All told, net sales in 2007 grew to $16.7 billion, up 1.5 percent from 2006. Ahold doesn’t report separate results for Giant and Stop & Shop.

Giant plans to complete its improvement program this year, having already completed inventory changes for products such as baby items, paper goods, frozen foods, condiments and coffee.

The company also hosted reopenings at six stores Friday, signaling the completion of multimillion-dollar renovations. The renovations are part of Project Refresh, the company’s plan to remodel or replace 100 Giant stores in the next three years.

The newly refurbished stores are in Largo, Bethesda, Clarksville and Columbia, plus Rehoboth, Del., and Warrenton, Va. The changes are expected to create 60 more jobs to the Maryland stores.

The renovated stores received improvements to the produce and perishable department, new signs, larger food and pharmacy departments, new convenience meal areas and Starbucks coffee sites. New technology features allow consumers to scan and bag groceries as they shop and place deli orders and pick them up when they’re done shopping.

The renovations cut into the company’s operating income in the fourth quarter of 2007, according to Ahold. Operating income for Giant and Stop & Shop was down $38 million from the prior-year quarter.

For Safeway,‘a better channel’

Capitalizing on the nation’s keener interest in more healthful foods, Safeway established the Better Living Brands Alliance. O Organics, Safeway’s private-brand label of organically grown foods, and Eating Right, foods that feature lowered fat or sodium, are the first step in the company’s marketing campaign.

‘‘This gives us the opportunity to provide a better channel for the two brands,” said Craig Muckle, spokesman for Safeway, which is based in Pleasanton, Calif. ‘‘They’ve been very successful in our stores.”

Highlighting private-label products is one of several suggestions industry experts are pushing to help grocers cope with higher prices and fuel costs, according to a Food Marketing Institute analysis.

Among the top merchandising tactics are an emphasis on perishable goods and keying into health and wellness strategies, the analysis states.

Safeway has 76 stores in Maryland, with 17 in Prince George’s County. The company is in the process of reopening a former store in Arnold.

First-quarter results for Safeway were strong, with $10.0 billion in sales, up 7.3 percent from the first quarter of 2007. The company turned a profit of $193.4 million, up 10.9 percent from the prior-year quarter. For 2007, sales rose 5.2 percent to $42.3 billion from $40.2 billion in 2006, with net income rising 2.0 percent to $888.4 million.

In the back of the region’s supermarket pack, Harris Teeter of Matthews, N.C., is working toward its second store in Maryland, with a grand opening in Columbia set for Tuesday. Harris Teeter already has one store in Gaithersburg, another planned for Rockville this fall and distant plans for one near Baltimore’s Inner Harbor.

‘‘Harris Teeter is a very customer service-oriented organization,” said company spokeswoman Jennifer Panetta. Besides bagging groceries, employees escort customers to their vehicles, walk them down aisles to find products and are frequently trained to speak knowledgeably about the store’s merchandise.