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Ralphs lowers prices, will offer cash rebates

June 26, 2008|Jerry Hirsch and Conor L. Sanchez | Times Staff Writers

Ralphs Grocery Co. unveiled a lower-price policy Wednesday in what it said was a nod to beleaguered consumers struggling to pay rising food and gasoline prices. But the new plan also appears to be part of a wider business strategy to grab market share from rivals that has worked successfully for Ralphs' corporate parent in other regions.

The chain, which operates 262 supermarkets in Southern California, said it would lower the prices of thousands of goods that its customers buy most often. Additionally, it will retool its loyalty card program so that shoppers gain points based on purchases and collect cash rebates. The grocer has also changed its double coupon program, capping the savings a shopper can garner.

In moving to a lower-price strategy, Ralphs is trying to deal with intensifying competition for grocery dollars in Southern California and overcome its reputation as one of the higher-priced traditional grocers in the region.

It is dealing with new entrants such as Sprouts Farmers Market, a Phoenix-based purveyor of "natural" and organic food, and Fresh & Easy Neighborhood Market, a unit of British retailing giant Tesco. At the same time, discounters such as Target Corp. and Wal-Mart Stores Inc. continue to move into the packaged and frozen food market.

Ralphs hopes to win back shoppers such as Terry Supple of Woodland Hills, who has found discounter Target an attractive alternative for many grocery items. Supple recently compared the prices of a shopping list of nine name-brand items -- including Cheerios and Kraft mayonnaise -- and found that Target charged 36% less than Ralphs after factoring in promotions at both stores.

"Target's grocery department is limited, no meat or produce, but their prices on name-brand staples are great," Supple said.

He found that some items on sale at Ralphs were often higher than Target's everyday price, "but we shop at Ralphs for meat and produce and will look at their new prices," Supple said.

A more aggressive pricing stance by Ralphs, which is the largest grocer in the region, could help lower prices across the market.

"The other traditional supermarket chains can't just sit by and not respond if Ralphs begins to gain traction with this," said Andrew Wolf, an analyst at BB&T Capital Markets in Richmond, Va.

What Ralphs is doing is sacrificing some near-term profit by lowering prices to get more people in its stores.

"If your sales per store go up because you have more shoppers, your bottom-line dollars will go up," Wolf said.

Kroger Co., the Cincinnati-based parent of Ralphs, has used a similar strategy to gain business in other regions.

Wolf said that contributed to strong financial performance. Kroger's net income in its first quarter that ended May 24 rose 15% to $386 million. Sales increased 11% to $23.1 billion. Even more telling, Wolf said, is the bounce that Kroger has achieved in same-store sales, which rose by a healthy 5.8% in the fiscal quarter.

By comparison, same-store sales at Pleasanton, Calif.-based Safeway Inc., which owns Vons, rose only 2% in the first quarter.

For now, Ralphs rivals are keeping mum. Albertsons declined to comment. Vons said it had no plans to change its price or coupon policies.

For the strategy to work, Ralphs will have to win over skeptical consumers.

"I think it's just another gimmick," said Rodney Becnel of Lincoln Heights, while shopping Wednesday at the Ralphs in Glendale.

"People are going to go where you get the best deal no matter what," Becnel said. "Prices are hurting, and if they lower them, it might help a little. You have to try to buy where it's cheap."

Ralphs is pitching its new rewards card as a way to do that.

Under the new system, the traditional Ralphs Club card is still good for discounts, but that chain wants people to "upgrade" to a rewards card. In addition to the regular club card discount, shoppers get 1 point for every $1 spent at the store. When they reach 500, they are mailed a $5 cash rebate.

The grocer also has changed its double coupon program so that shoppers can double a coupon with a redemption value of only 50 cents or less. The redemption value for any coupons of 51 cents to $1 is capped at $1. Shoppers will get only face value for coupons of $1 or more.

Some shoppers objected to the change in the coupon policy because they believed that it would reduce their savings.

"It's going to be worse for consumers. I don't think something like this is going to help," Silvia Christiansen of Eagle Rock said as she leafed through a blue container packed with hundreds of coupons in her shopping cart.

But it's not clear that the combination of lower prices and a cap on the amount of money that can be saved per coupon will actually hurt shoppers, said Teri Gault, founder and chief executive of TheGroceryGame.com, a Santa Clarita-based online service that, for a fee, helps consumers optimize savings from coupons.

Reviewing her company's database on grocery prices, Gault said the Ralphs price for a Lean Cuisine frozen entree was $1.75 with a coupon before and after the policy change. But the prices of some other goods had fallen.

Previously, a good sale price for a pound of peaches at Ralphs was $1. But this week, the store had the fruit on special for 88 cents, a 12% drop.

In April, Ralphs put Speed Stick deodorant on sale at two for $5, a discount from its regular $3.99 price, Gault said. But this week the deodorant was on sale for 10 for $10 and carried a regular price of $2.99.

"Obviously, the lower prices are a benefit for people who don't use coupons," Gault said. "And for the ones that do, they won't see a lot of differences in what they are paying."

--

jerry.hirsch@latimes.com

conor.sanchez@latimes.com

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