Grocery wars

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.