Grocery wars

"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.