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Stater Seeks Market Share

Grocer fares well against rivals and gears up to face Wal-Mart

September 12, 2003|Melinda Fulmer | Times Staff Writer

Driving through an Albertsons parking lot in San Bernardino, Stater Bros. owner and Chief Executive Jack Brown counted cars and declared victory.

One of his grocery stores a couple of blocks away was more crowded that afternoon, as, Brown claimed, it usually is. "They can't touch us," he laughed, wheeling his Cadillac out of the half-empty shopping center.

Brown's Colton-based supermarket chain, which operates 157 stores from San Diego to Kern counties, has defied the conventional wisdom that small chains would get crushed as big grocers got even larger. In fact, Stater's sales have grown more than 50% in the last few years, as it has made acquisitions and siphoned away market share from larger chains such as Ralphs Grocery Co. and Albertson's Inc.

Now Stater Bros. and Brown are gearing up for their most formidable competition: Wal-Mart Stores Inc.

Late next year, the world's largest retailer plans to open the first of 40 grocery super-centers in California, many likely in suburban counties such as Riverside and San Bernardino, where Stater has its highest concentration of stores.

Wal-Mart's assault on the nation's most competitive grocery market could take a toll on privately held Stater. "It doesn't take a lot of encroachment to have an impact on a company that size," said Andrew Ebersole, a bond analyst with KDP Investment Advisors.

Brown knows that: He recalled that after a Wal-Mart opened near his home in Redlands, a local bike shop, a sporting goods store and a vacuum cleaner outlet closed their doors.

But groceries, he said, are a different business, and there's enough of it to go around for several kinds of markets, super-size and small.

"We don't have to outrun the grizzly," Brown said, referring to Wal-Mart. "We just have to outrun our competition. I'm really competing with Ralphs, Vons and Albertson's, then Wal-Mart."

That's not to say that he hasn't been planning for its invasion. Brown, 62, has run Stater Bros. for two decades and knows he's in for a fight.

In the last year, he dispatched top managers to Bentonville, Ark., where Wal-Mart is based, and to Dallas, Philadelphia and Syracuse, N.Y., where the discounter goes head-to-head with national grocers and regional chains. His staff asked local grocers: "How do you compete? What did you do? What are their weaknesses?"

Managers took away a few ideas from their trips, such as the big black-and-white signs now on display at the end of Stater aisles that resemble Wal-Mart's price rollback signs.

Although Albertson's and Kroger Inc., which owns Ralphs, have tried to fend off Wal-Mart and other discounters by offering fancier food and outdoor furniture, Stater has competed against larger companies by holding to the quaint strategy espoused by twin brothers Leo and Cleo Stater when they started the chain in 1936: Provide low prices, clean, easy-to-navigate stores and butchers on duty to cut steaks for customers.

"They have the best meat and seafood," said Angie Costa, perusing the produce aisles with her 4-year-old daughter, Jessica, at Stater's Downey store. "And I think it's cleaner ... the Albertsons down the street is a dive."

By some indicators, Stater is outpacing rivals. Stater's same-stores sales climbed 1.8% in its third quarter ended June 29, whereas Safeway Inc., which owns Vons, and Albertson's posted negative same-store sales.

A recent survey in Consumer Reports ranked Stater the ninth-favorite grocer in the country, ranking below No. 1 Raley's, which operates stores in Central and Northern California, but above Vons (No. 10), Ralphs (No. 26) and Albertson's (No. 30).

Stater Bros. stores are smaller -- averaging 33,000 square feet to Safeway's 44,000-square-foot stores and Wal-Mart's 200,000-square-foot super-centers -- so it can't stock as many sizes of certain products. Some customers find the stores, with their red, white and blue decor, a bit antiquated, but say the chain's low prices make up for the drawback.

Stater's short haul from its distribution center to its Southern California stores has helped it keep its prices lower than its competitors on many items. But analysts say Wal-Mart can undercut the "low price leader" in every hometown, including Southern California.

"Retailers are trying to take costs out of the system, but labor is a significant cost and Wal-Mart has nonunion labor rates," said Mark Husson with Merrill Lynch in New York. And Stater, with 14,000 employees, is a union shop.

Competitors attribute the chain's longevity in the highly competitive business to Brown. "He's the reason they are still alive and well," said Roger Hughes, former owner of the Hughes Family Markets chain.

Rather than updating the chain, Brown has wisely preserved Stater's "hometown, apple pie and Fourth of July" appeal, Hughes said.

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