Chain of foods What’s the link between beefed-up Bangor-Brewer grocery competition and prices?

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Food shoppers, open your wallets. You may need them wide to catch all the “falling prices” on groceries.

The introduction of a Wal-Mart Supercenter and its aisles of groceries into the Bangor-Brewer area is expected to ignite a fierce competition between the nation’s biggest company and the two traditional supermarkets that already dominate the marketplace – Hannaford Brothers Co. and Shaw’s.

That’s what has happened in similar markets around the country, according to national analysts.

It has been more than five weeks since the Wal-Mart Supercenter opened, and, so far, the overall price on a basket of groceries hasn’t dropped at the area’s other two dominant food stores, according to a shopping analysis conducted by the Bangor Daily News.

That doesn’t mean that prices aren’t going to drop – eventually.

According to an article in Supermarket News, a national trade publication, the competition between Wal-Mart and major food-store chains throughout the country is so intense that the food chains silently change their pricing strategies to woo back customers they may have lost to a Supercenter.

The chains take the quiet approach on changing prices to avoid distracting customers from their primary message, which promotes that what they say distinguishes them from Wal-Mart: convenience, customer service, fresh produce and better product selection. These are all things that Wal-Mart says it’s doing every day, too.

Consumers are putting greater emphasis on low prices, ranking them third in importance, after the need for clean stores and the desire for high-quality fruits and vegetables, according to a survey conducted last year by Food Marketing Institute in Washington.

“When the economy is struggling and people are looking to economize, they look at their food dollars,” said Jim McConnon, an associate professor of research, economics and policy at the University of Maine in Orono. “There are a variety of differences within the stores out there, from pricing strategies to incentives. What it all boils down to is value and what people think is value for the dollar.”

Price does matter, and supermarkets in recent years have been given advice from their national trade organization and others on how to compete when a Wal-Mart Supercenter opens within 20 miles of their stores.

The National Grocers Association, based in Arlington, Va., sells a “Wal-Mart Supercenter Customer Loyalty Study” that helps chains learn from Supercenter shoppers about what attracts them to Wal-Mart and how they feel about Wal-Mart’s bakery, produce, deli and meat departments.

NGA actually devotes an entire section of its Web site to supermarket self-help strategies when taking on Wal-Mart, including “8 Ways to Beat Wal-Mart.”

The list, compiled by David Rogers, president of DSR Marketing Systems, a retail research consulting firm in Deerfield, Ill., includes one important message to grocery stores: “React.”

“Don’t make any assumptions about your store and how people see you. Fix your weak points before the Supercenter opens,” Rogers suggests.

Rogers also tells supermarkets not to play by Wal-Mart’s rules.

“Don’t fight Wal-Mart on price unless you know you can beat them,” Rogers says. “Improve community involvement, service and perishables, and convenience.”

Even a former Wal-Mart co-director has published advice to supermarkets on how to go head-to-head with a Wal-Mart Supercenter. Mark Ehleben, a business development manager with FMS Accounting Services, tells stores to implement new pricing strategies such as “buy one get one free” at least six months before a Supercenter opens.

“This will get your customer used to it and Wal-Mart will not match [it],” he said in an August 2001 FMS newsletter. “Though most concede you cannot beat Wal-Mart on price and should not try, there are still some chinks in their armor.

All this self-help advice to the supermarkets is not being ignored by Wal-Mart, which also checks out competitors’ prices.

Ehleben said that several months before a Supercenter is opened in an area, its managers are required to begin checking out competitors’ prices. The process must be completed one month before the Supercenter opens, and followed up in the days before the grand opening. The managers then set their opening base retail prices.

“While Wal-Mart controls the base pricing, local management is responsible to fine-tune it to their market,” said Ehleben, in his newsletter article. “Store managers can go as low in price as they need.”

Mia Masten, a spokeswoman for Wal-Mart, said the introduction of a Supercenter into a community is beneficial to all consumers, whether they shop at Wal-Mart or at another supermarket. She cited an analysis conducted by UBS Warburg in New York City that shows that when a Supercenter is opened, other grocery stores in the area cut prices by up to 12 percent in order to compete.

In the same UBS Warburg study, analyst Neil Currie states that when a Wal-Mart Supercenter opens, its prices typically are 17 to 29 percent lower than traditional supermarkets in the same town.

“Everybody wants to save money,” Masten said. “It’s a competitive issue, yes, in terms of product line and service. The customer will decide. We all want to give back to the community and give customers what they want.”

Hannaford and Shaw’s, both internationally owned companies that have been in Maine for decades, say Wal-Mart’s approach to grocery sales is by no means in the same category as their strategies.

Hannaford is a division of Brussels, Belgium-based Delhaize, which is the No. 12 company in terms of sales in the United States, and Shaw’s is a subsidiary of London-based Sainsbury, which is No. 23.

Spokespeople for both chains say it’s Wal-Mart that needs to compete with them on the other characteristics that bring people to supermarkets – product selection, convenience of store locations, and ease of shopping once inside the stores. Both Hannaford and Shaw’s try to personalize their stores to mirror the identities of the communities where they are located, for example by offering an extended line of Mexican products in an area that is predominantly Hispanic, they said.

Caren Epstein, a spokeswoman for Hannaford, said her company is not interested in “cannibalizing” the way people shop for food, such as setting up identical-looking stores that offer identical product lines everywhere they are located.

“I think every store that comes into a market thinks it has something different to offer,” Epstein said. She acknowledged, though, that it is difficult to compete with Wal-Mart on the price of products.

“Wal-Mart is a very scary prospect because by being the largest company in the world they can demand and get lower prices,” Epstein said. “We’re not trying to compete with them on price. We can’t do it. We’re looking for the customer who wants quality and variety.”

Terry Donilion, a spokesman for Shaw’s, said the Wal-Mart Supercenter is not a concern to his company. Shaw’s focus remains on maintaining strong levels of customer service, community involvement, product selection and quality.

“We can only worry about making sure Shaw’s gives customers the absolute best in customer service and price selection,” Donilion said. “We can only be worried about ourselves.”

He said he welcomes the Supercenter to the area because “competition is good.”

“We offer a greater variety that meets the needs of the community,” Donilion said. “Wal-Mart can do what it wants.”

In recent years, while Wal-Mart has been pursuing opening a Supercenter both in Brewer and Bangor, with the Bangor plans remaining on hold, Hannaford and Shaw’s have been expanding their operations in the area. Hannaford has remodeled three of its stores in Bangor and Brewer, and Shaw’s is planning to expand its Main Street location in Bangor.

Spokespeople for both companies say those upgrades have nothing to do with the introduction of a Supercenter.

Hannaford and Shaw’s also have changed their approach to pricing products, and have given greater emphasis to marketing those changes. Hannaford promotes “everyday low prices” while Shaw’s has implemented a loyalty card program called “rewards.” Customers sign up for the card, acknowledging that they don’t mind the supermarket tracking their shopping habits, in exchange for a card that gives them discounts on about 20 different products each week.

Both stores, too, have introduced a “by request” shopping program. Customers can visit the Hannaford or Shaw’s Web site and purchase any of 30,000 nonperishable items not available in the stores. The items then are shipped to the customer.

Although Hannaford and Shaw’s say that their changes in recent years were not made in response to the opening of a Supercenter, Les Bray, a business analyst that operates Main Street Insights in Gorham, said it’s hard for customers to believe that.

“There is clearly an effect,” said Bray, about Supercenters. “They have caused the Shaw’s and the Hannafords of the world to react accordingly. Wal-Mart clearly has made its business in places where people have to watch their dollars.”

Added UMaine’s McConnon, “You don’t see a lot of people marching away from Wal-Marts because of ‘everyday low prices.'”

Whether the prices go down by up to 12 percent at Hannaford and Shaw’s, as analysts say they should, in the next few months is anyone’s guess. The Bangor Daily News will return to the stores periodically to compare prices on its shopping list.

McConnon said he’d be watching, too.

“It’s going to be interesting to see where all of this goes,” he said.

Supermarket sweep

The Bangor Daily News tracked prices of certain products over a

five-week period at Shaw’s, Hannaford and Wal-Mart Supercenter.

Here are the specific shopping list and price totals for each store:

The Shopping List

Produce:

Bananas, price per pound

Red delicious apples, price per pound

Large-size head of iceberg lettuce

Red seedless grapes, price per pound

5-pound bag of russet potatoes

Meat:

Ground beef, 85 percent lean round, price per pound

Boneless, skinless chicken breasts, price per pound

Salmon boneless filet, price per pound

8-count package Ballpark beef hot dogs

16-ounce package Oscar Meyer bacon

Health and beauty:

80-count box, sheer assorted-size Band-Aids

13-ounce Thermasilk 2-in-1 moisturizing shampoo and conditioner

11-ounce can Barbasol Shaving Cream

7.8-ounce Colgate Total Plus Whitening toothpaste

3-pack Ivory personal size soap

Canned and jar goods:

15.25-ounce can Del Monte Fresh Cut kernel corn

10.75-ounce can Campbell?s Cream of Mushroom condensed soup

26-ounce jar Classico Spaghetti Sauce

6-ounce can Starkist solid white tuna

13-ounce can Maxwell House Original Coffee

Dry goods, spices, cereals:

2.37-ounce bottle McCormick ground cinnamon

7.25-ounce box Kraft Macaroni and Cheese Dinner

16-ounce box Prince macaroni elbows

1-pound box Barilla spaghetti

42-ounce box Quaker Old Fashioned Oats

16-ounce box Cheerios

5-pound bag Domino sugar

8-ounce bottle Kraft 100 Percent Grated Parmesan Cheese

18-ounce jar Jif creamy peanut butter

14-ounce squeeze bottle French?s mustard

Dairy and refrigerated goods:

4-stick box Cabot salted butter

Gallon Oakhurst whole milk

64-ounce not-from-concentrate Tropicana Original orange juice

Frozen:

Tony?s original crust frozen pepperoni pizza

32-ounce package McCain?s frozen crinkle cut unseasoned French fries

1.75-quart Edy?s Grand French vanilla ice cream

Bread:

Pepperidge Farm Farmhouse-style bread

6-count package Thomas English muffins

Cleaning supplies:

3-quart container Clorox ultra bleach

80-sheet box Bounce classic fabric

softener sheets

100-fluid-ounce bottle All laundry

detergent

Other:

2-liter bottle Coke Classic

12-ounce bag Lay?s Potato Chips

Source: Bangor Daily News research

BANGOR DAILY NEWS CHART BY JONATHAN FERLAND