Safeway feels the supermarket squeeze

Marketplace Contributor Jul 19, 2012
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Safeway feels the supermarket squeeze

Marketplace Contributor Jul 19, 2012
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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.

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