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The Honolulu Advertiser
Posted on: Sunday, May 13, 2001

Food fight — business style

Associated Press

After several years of slugging it out with Wal-Mart Inc., longtime grocer Bob Slone filed for bankruptcy last June. But he's not giving up.

Wal-Mart's stores in Hawai'i include its Mililani location. The chain operates 940 supercenters and is adding at least 150 per year.

Advertiser library photo • Jan. 13, 2000

Slone is pinning hopes for a comeback of his Lexington, Ky.-based chain to 20 different types of couscous, sushi and other upscale specialty foods. Such a strategy should help differentiate his Slone Signature stores from his behemoth competitor's.

"I feel like I am in a boxing ring, and I keep getting knocked down," said Slone, whose company is scheduled to emerge from bankruptcy in the next two months. "I don't have the sense to quit. I guess I am a fighter — against these monsters."

This David-and-Goliath story is being played out across the country, as discounters — particularly Wal-Mart, now the nation's largest grocery retailer — move aggressively into the $494 billion business.

Some of the superstores devote up to 40 percent of floor space to groceries priced 20 percent lower than regular supermarkets.

Burt Flickinger III, a Westport, Conn.-based retail consultant, estimated that the invasion has contributed to the $15 billion in food-chain bankruptcies over the past four years, and he expects another $15 billion in casualties over the next few years.

Mass merchants increased their share in retail food sales to 16.4 percent last year, up from 4.8 percent in 1992. The share for traditional food retailers fell to 45.5 percent from 84.6 percent during the same period, according to Willard Bishop Consulting Ltd.

The grocery wars are expected to get bloodier as discounters, which wreaked havoc in the South, expand supercenters in the Northeast and Midwest, analysts said.

Wal-Mart, which operates 940 supercenters, is adding 150 to 175 stores per year. It's also expanding food through its other formats, including its Sam's Clubs warehouse chain. It's also broadening food sections at its regular stores.

Target Stores, which operates 37 Super Targets, plans to add 30 per year over the next decade, said Greg Duppler, senior vice president of Super Target.

Kmart Corp. intends to have 200 Super K stores within the next five years, about double the existing number.

Why food, which has razor-thin profit margins? The big reason, discounters say, is that it brings in heavy traffic: The average consumer takes 2.3 trips to the supermarket per week.

The discounters are pushing hard at a time when selling food is becoming more challenging.

"You have to keep up with the lifestyle trends. Food safety is also getting a lot more complicated as stores are offering a lot more prepared food," Karen Brown, senior vice president of the Food Marketing Institute.

The Northeast, where 40 percent of the U.S. population lives, could prove to be the real test for the discounters.

Their biggest competitor is Royal Ahold, a Dutch-owned retail conglomerate that had U.S. sales of $28 billion last year through grocery subsidiaries like Stop & Shop, Giant Food and Tops Markets. It has successfully competed against Wal-Mart in the South and Southeast because many independent chains provided a buffer, Flickinger said.

Royal Ahold is confident that it will be able to hold its own.

"In our stores, a grocery shopper doesn't have to walk many aisles of fashion, toys or hunting equipment before being able to select groceries and fresh products," spokesman Jan Hol said.