Nickel-and-dimed by dollar stores and other discounters, supermarket giant Kroger Co. is test-marketing a bargains section in several of its chains, including Southern California Food 4 Less stores.
A dozen of the chain's 101 Food 4 Less stores have in recent months set up a "98 cents" aisle selling household goods, cleaning aids, gadgets and plastic partyware. Taking the concept a step further, two Kroger stores in Houston have added 500-square-foot areas, with separate entrances, selling 10,000 to 15,000 dollar-store items, said Kroger spokesman Gary Rhodes.
The idea, said Rhodes, was to recapture business the Cincinnati chain has lost to dollar stores, discounters such as Wal-Mart Stores Inc. and drugstores, which have begun selling a broader selection of food items in addition to their bread-and-butter general merchandise.
"It gives customers yet another reason to shop Kroger for those items rather then going down the street to a dollar store," Rhodes said.
So far, there have been no plans to try the concept at Kroger's other Southern California chain, Compton-based Ralphs Grocery Co., a Ralphs spokesman said.
Although dollar stores such as California's 99 Cents Only, Tennessee-based Dollar General Corp. and Charlotte, N.C.-based Family Dollar Stores carry just a fraction of the items stocked by supermarkets, they are expanding rapidly.
"They are all adding square footage very aggressively," said grocery analyst Stephen Chick of J.P. Morgan in New York. "They're a small piece of the food industry," he says, but one of the fastest growing.
Sixty-two percent of American households reported shopping at a dollar store last year, up from 52% in 1999, according to research firm AC Nielsen. The average number of trips made to dollar stores rose in the same period, to 12 trips a year from 10.
Supermarkets are hoping that by providing a few of the same low-priced items as these stores, they can stop shoppers from steering their carts elsewhere.
"It's a pretty low-cost experiment," said analyst Mark Husson of Merrill Lynch in New York, noting that Kroger doesn't have to shell out a lot to set up discount aisles.
"It's just adding a bit of fun," Husson said. "People want a bargain."