Brutal times testing grocers

Big chains adapt to industry shifts, but not without pain

Beset by thin profit margins and fierce competition, most supermarkets aren't operating in a particularly comfortable space these days.

In fact, stock analyst Robert Toomey uses the word 'brutal' to describe the industry, saying there's more consolidation ahead as the giants grow even larger by swallowing smaller chains.

Add in the shopping constraints resulting from a shaky economy, plus Wal-Mart's expansion into the grocery business, and things can get tense indeed in the grocery aisles.

Wal-Mart hasn't opened one of its behemoth grocery/department store combos in Portland yet, but the influence of the Bentonville, Ark.-based firm on more traditional grocers is already being felt here, according to Toomey, who works for RBC Dain Rauscher in Seattle.

'They're creating a sort of a price umbrella throughout the whole industry, pushing prices down so everybody's got to adjust to it,' he said.

The three companies that dominate Portland's supermarket scene fit the 'traditional grocers' category.

Albertson's Inc., based in Boise, has 220,000 employees and annual revenues of about $38 million; Fred Meyer, founded in Portland, is now owned by the Kroger Co. of Cincinnati, which has 288,000 employees and annual revenues of more than $50 billion; and Safeway Inc., based in Pleasanton, Calif., counts 193,000 employees and 2001 revenues of $34 billion.

All three have struggled this year with falling stock values and earnings that were lower than projected.

• Kroger has said it will lay off 1,500 employees nationwide and cut prices.

• Albertson's announced plans to close 165 underperforming stores across the country.

• Safeway cited declining sales when it said last month that it would sell Dominick's Finer Foods, a 113-store chain in the Chicago market that Safeway bought in 1998.

David Orgel, editor in chief of Supermarket News, said in an editorial this week that retailers have learned some painful lessons in the last several months. Chief among them is that 'they cannot battle Wal-Mart on price alone' without offering shoppers something special.

Orgel said that means providing 'an exciting, unique shopping experience,' adding service departments and even bringing in products from specialty retailers.

In an effort to entice a more up-market clientele in a neighborhood studded with specialty markets, including Whole Foods and Trader Joe's, Fred Meyer remodeled its venerable Stadium store on West Burnside Street into a Northwest Best model earlier this year.

At 66,000 square feet, the store is small by Fred Meyer standards. But it has an expanded produce section studded with exotic fruits and vegetables, and a bakery that carries products from artisan bakers. There's an in-store Starbucks, a magazine and book section (complete with cushy armchairs) and a large deli.

Fred Meyer spokesman Rob Boley said the grocery side includes 'the products you find at other Fred Meyer stores, plus a couple thousand extra gourmet items.' The idea, he said, is to combine 'a food selection for local residents on a budget as well as gourmet items for families that can afford them.'

Upping the ante

Safeway, meanwhile, recently spent $5 million to remodel another older store, on Northeast Martin Luther King Jr. Boulevard.

Area residents had complained that the corporation was neglecting the supermarket. Safeway spokeswoman Bridget Flanagan pointed out that the market, which has been in the neighborhood for 66 years, stayed when other major chains pulled out.

'I'm proud of that,' she said.

But Stephanie Miller, shopping with Mike Ogilvie and their son, Skyler, 2, said, 'I don't know whether I like it or not.' The family lives just a block away from the store, and they don't own a car. Miller said she likes the expanded selection of fresh produce and health food items.

But Ogilvie added, 'It still needs more Fred Meyer stuff,' referring to a general merchandise area that's been whittled down to a few departments Ñ no sporting goods, no electrical supplies, no clothing or linens.

And both Safeway and Albertson's are building their own urban-concept stores in Portland. Safeway's store is part of a mixed-use commercial and housing development downtown near the Portland Art Museum; Albertson's will be part of a similar project near the Pearl District.

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