“ATTENTION SHOPPERS! Attention shoppers!” Remember the staticky PA announcement cutting through the Muzak and overhead buzz of fluorescent lights? A sale on cat food, you wondered? Double coupons? Half off damaged canned goods? Free samples of little cheese-covered wieners on a toothpick? Not likely. Not anymore.

Today, instead, the string quartet tastefully underscores the British-accented voice inviting you to try the complimentary caviar while the valet retrieves your Range Rover from the detail shop—after your manicure and facial, of course. And would you like your dry cleaning taken to the car with your groceries and take-out truffles, or delivered straight to your home?

It’s no exaggeration to say that formerly sterile, stodgy, unappealing grocery stores are now assaulting us with luxury and attacking us with convenience—while battling each other for our loyalty. They’re not your parents’ supermarkets anymore. The once mundane and tedious task of food shopping has been transformed into a cutting-edge economic war zone, where plucky local stores face off against gargantuan out-of-state chains. Yet stores both large and small have belatedly discovered the Nordstrom model of retailing: Better ambiance and better service yield a better bottom line. In this respect, the modern supermarket increasingly resembles the mall, with its disorienting maze of departments, pharmacies, banks, franchises, and sit-down eating areas.

Pampered Northwest shoppers have grown accustomed to these services and amenities, which raise grocery profit margins beyond the traditional paper-thin 1 percent industry average. You may not count the 2.2 trips you make to the grocery store each week, nor the $83 average tab per visit (according to the Food Marketing Institute’s 1996 data), but supermarkets surely do, right down to the penny.

“This has been a very good market for everyone because the economy has been so strong,” according to Lesa Sroufe of the brokerage firm Ragen MacKenzie. Yet grocers haven’t only been profiting from take-out pesto salad and overpriced salsa. Efficiencies born of size and consolidation—like 1998’s sales of QFC to Fred Meyer, and Fred Meyer to Kroger—also boosted their bottom lines.

However, supermarkets have steadily lost “stomach share” to fast-food chains and take-out competitors. With their customers more harried than ever (who has time to cook anymore?), most stores answered the fast-food challenge with expanded deli sections. Upscale players like Larry’s Markets and QFC bet that deluxe stores and services would keep shoppers loyal. Others hoped to lure customers with in-store franchise partners (like Starbucks) or added nonfood inventory—stepping onto the turf of Costco and Wal-Mart.

Today, supermarkets are competing more furiously than ever for your allegiance. So get your nose out of the checkout-line National Enquirer, look around, and you may never take grocery shopping for granted again.

Profits are healthy

Like the green, welcoming suburbs beyond the city’s dull grid, many stores have established a golden perimeter of boutique-like sections, franchises, and services. “There is a trend toward amenities,” according to Sroufe, for “higher-margin departments such as delis and home-meal replacement.”

This new home-meal replacement category (also known as HMR) allowed agile niche grocers like Larry’s Markets and QFC to steal away many Safeway and Albertsons customers. Swift to recognize the affluent tastes of the yuppie market, Larry’s offered gourmet ready-to-eat meals, a plethora of premium foods, and decidedly more attractive stores. While some snickered about valet parking, it showed how customers increasingly had more money than time to spend—resulting in more profits for grocers.

Similarly, “produce is really the area where the store can make money,” says Bert Hambleton, an Issaquah marketing consultant. Hence the glistening towers of tomatoes, mountains of sprouts, and dewy banks of lettuce bathed by sprinklers—luring in health-obsessed consumers.

Fresh fruits and veggies are also weapons among competing grocers. Bruised tomatoes and wilted lettuce drove customers away from Safeway and Albertsons, while upstart grocers waved the banner of health and freshness. According to Terry Halverson of Thriftway, “The hottest categories . . . have to do with fresh products. Fresh products meaning produce, seafood, or take-home meals.”

You can see this trend at the new Roosevelt Whole Foods store and at PCC, whose Theresa Steig explains, “Our first deli opened just 10 or 11 years ago. And then in older stores, we turned around and put delis in all those stores.” Sit-down areas, espresso bars, and better store design soon followed, just as they did at the venerable co-op’s larger competitors.

Winners and losers

Not all competitors have been so swift or so nimble in the grocery wars. “Albertsons and Safeway are trying to become more like QFC,” said Diane Daggatt of analysts Dain Rauscher during early 1998. Lumbering toward the iceberg of changing consumer tastes, these dowdy, out-of-state chains were slow to turn the rudder—consequentially losing Seattle-area market share. Safeway was estimated to have 38 percent of the local market in a 1988 Seattle Times study. A decade later, various estimates placed it in the 25 to 30 percent range, though not for lack of trying.

That competition hasn’t been pretty—especially in the deli/HMR sections. A visit to an Albertsons Quick Fixin’ section revealed a paltry selection of supposedly ready-to-cook entr饳, haphazardly sprinkled like doughnuts with multicolored spices, some of the meat bearing an unhealthy tint. Yet nearby pre-made veggie dip platters seemed fresh and edible. Safeway’s China Express department is generally successful at serving cheap, unremarkable rice dishes, while the offerings of its nearby Old World Deli appeared more old than worldly.

Still, stock analysts praise the management of these large chains, reflecting the new dynamism of the once-sleepy grocery market. “The Albertsons and the Safeways of the world have improved, and they have added more services,” according to Daggatt. “So their margins have improved.” That’s good news for shareholders, but where do we see these improvements?

Store design is one obvious area, according to Albertsons spokesperson Jenny Enochson: “Our newer stores now are earth-toned and have wood trim, and are a lot more pleasing and soothing.” And what were they like before? “We’re getting away from—I don’t know if the best word would be ‘cookie-cutter stores’—but that’s probably the best way to describe them,” she answers candidly.

Invasion of the franchises

Grocers of all sizes also welcomed franchise operations onto their premises, sharing floor space with espresso stands, bagel vendors, pizza shops, and juice bars. “It is a big movement,” says consultant Bert Hambleton, “but I have to tell you that the jury on that one is still out,” given often underwhelming franchise performance.

Franchises abound at QFC. By contrast, Safeway and Albertsons have remained largely franchise-free, squeezing all the profits from their floor space. Yet the market may have passed them by. Price and selection used to be enough—then came one-stop convenience. Now it’s an uncharted world of extra services and amenities. Albertsons’ Enochson avows, “We pride ourselves on being an EDLP operator,” using the standard industry acronym for everyday low prices. That price sensitivity reflects the implicit concern shared by all grocers—that some value-conscious customers might associate fancy with pricey and take their shopping dollars elsewhere.

Safeway remains the cheapest but stodgiest of the chains, according to industry analysts. Says Hambleton, “Safeway always is shooting for every customer, every trip. They’re wanting to be everything to everybody.”

Bodies, not cash flow

Which is it, then? Are QFC and Larry’s winning our loyalties with their upmarket models, or will Albertsons and Safeway prevail with their cautious, go-slow approach? Some warn that Larry’s and Trader Joe’s may be following a profitable but self-marginalizing formula that actually loses them everyday shoppers. “I think they’re almost too gourmet-oriented,” says Daggatt. Hambleton agrees: “Their problem, and I’ll be blunt, if they have one, is this issue of frequency of visits.”

Indeed, industry profits are up, but owing more to the economies of scale gained by mergers and consolidation than value-added products and services, analysts say. Yet for us customers, the cost-cutting and other business efficiencies aren’t on display in the deli case next to the three-bean salad.

It’s the visits that count most as supermarkets seek to stem the loss of market share to nongrocery competitors. Driving home late from work, busy locals are increasingly likely to hit a Taco del Mar instead of buying the ingredients for a home-cooked meal at Safeway. On weekends, they might elect to pick up a conveniently shrink-wrapped pallet-load of toilet paper at Costco rather than risking empty shelves at the small corner grocer. To combat this tendency, supermarkets will offer us anything they think we think we might want—no matter how capricious or unfounded.

And what won’t we demand? Videos? Sure. Twenty-four-hour operation? Not a problem. Day care? Try the University Village QFC. Gas for your Ford Expedition’s mile-long drive home? Albertsons already has fuel pumps at some rural stores. Home delivery? Well—leave that to HomeGrocer.com (see related story). Meanwhile, Kroger features health clubs, cooking classes, and driver’s license renewal in some locations.

However, franchise mania, department overkill, and jumbo-sized stores could be a costly dead end, warns Hambleton. “I think that trend has already peaked,” he says. “The shopper revolted and essentially said, ‘Too big! I just can’t deal with it. I can’t deal with 30 check-out lanes. I can’t deal with 71 aisles. I can’t make sense out of it.'” Once stores get over 100,000 square feet, he suggests, there’s too much terrain for a customer to comfortably learn and navigate. (By comparison, the U Village QFC measures some 66,000 square feet in size.)

More dangerous is the potential loss of a central food identity to these grand ber-markets. Hambleton cautions: “If the consumer thinks that somehow you’re no longer a supermarket, you’re no longer a grocery store in the vernacular, that somehow you’ve become a specialty destination store, you’re dead.” For both the grocery boutiques and leviathans trying to anticipate our fickle food-buying habits, that epitaph could well be written on their tombstones.

More:

Screen savings? Putting the dot-com grocers to the test. by Kathryn Robinson

Tofu tussle Green grocers battle for greenbacks. by Bob Geballe

Paper or plastic? A guide to local grocers.