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Safeway feels the supermarket squeeze

Tradition chains like Safeway are stuck in the middle between "experience" stores like Whole Foods and Trader Joe's, and discount grocers like Walmart.

 

Today, supermarket chain Safeway reported a 16 percent dip in profits.  Analysts say this is one more sign that conventional supermarkets like Safeway have lost their way amid growing competition -- new ways to buy eggs, milk and bacon.

Phil Lempert is a supermarket industry analyst and founder of supermarketguru.com.  He said the situation makes him think of the song “Lost in the Supermarket” by The Clash.

 

“It’s my theme song and frankly, a lot of consumers feel like they are lost in the supermarket,” Lempert said.  "You know, a square box at about 40,000 to 50,000 square foot, containing anywhere from about 40,000 to 50,000 items. It’s a dinosaur, it’s an old model.”

Traditional grocery stores are being squeezed by a lot of new models – high-end cute or fancy "experience" stores like Whole Foods and Trader Joe’s.  Low-end models like dollar stores, Wal-Mart and Target are shaking up the grocery business too. 

Michael Keara researches the grocery industry for Morningstar Investments.  He said selling food isn't the main focus for giant discount retailers, so they can dangle super-low prices before customers like bait on a mousetrap.

“You have these competitors that really don’t want to make a lot of money on food,” he said.  “They just want you to come into their store and buy something, a flatscreen or whatever.”

Keara said one other difference between conventional supermakerts and newer grocery models is in their labor practices.  While many traditional supermarkets are unionized, Whole Foods, Wal-Mart and Target are not.  That often means they have lower labor costs and  can pay lower wages.

Kai Ryssdal: The drought means things are going to get more expensive at the supermarket before long. Which is going to hurt consumers, and quite possibly supermarket's profits too.

Safeway reported a 16 percent drop in earnings this morning. One more sign, analysts say, that conventional supermarkets have lost their way.

From the Wealth & Poverty Desk, Krissy Clark has more.


Krissy Clark: To all the Clash fans in the house, you may love this or you may hate it, but...

The Clash: I'm all lost in the supermarket, can no longer shop happily.

Turns out the song pretty much gets it right, according to Phil Lempert. He's a supermarket industry "guru" at supermarketguru.com.

Phil Lempert: It's my theme song. And frankly, a lot of consumers feel like they are lost in the supermarket. You know, a square box at about 40 to 50,000 square foot, containing anywhere between 40 and 50,000 items. Frankly, it's a dinosaur. It's an old model.

Squeezed by a lot of new models. Cute or fancy "experience" stores like Whole Foods and Trader Joe’s on the higher end. On the lower end, you've got dollar stores, Walmart and Target shaking up the grocery business too.

Michael Keara researches the grocery industry for Morningstar Investments. He says selling food isn't the main focus for those giant discount retailers, so they can dangle super low prices like bait on a mouse trap.

Michael Keara: You have these competitors that really don’t want to make a lot of money on food, they just want you to come in to their store and buy something else. A flat screen or whatever.

One more way conventional supermarkets differ from their new counterparts?

Keara: A lot of the traditional supermarkets have union labor in their stores. Whole Foods doesn’t.

And neither does Walmart, or Target. So, these new models often have lower labor costs, and can pay lower wages.

I'm Krissy Clark for Marketplace.

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.

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