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Albertsons store closures show industry's travails

Rivals big and small are siphoning off traditional grocery stores' customers.

September 07, 2012|By Walter Hamilton and Ricardo Lopez, Los Angeles Times
  • Albertsons customer Sepo Dermardiroosyan of Glendale returns to his car after shopping at the Glendale store, one of 18 in Southern California that parent firm Supervalu has announced will be closed.
Albertsons customer Sepo Dermardiroosyan of Glendale returns to his car… (Mel Melcon, Los Angeles…)

Jackie Dancy has been to the Albertsons supermarket near her Baldwin Hills home many times, but she couldn't care less that the store is closing permanently.

The retired accountant now does most of her grocery shopping at a nearby Target, which she likes for its convenience and low prices.

"It's much cleaner and well stocked," Dancy said. "They always have what you need."

Supermarkets are a staple of most neighborhoods, but their community status and financial well-being are under intense assault from rivals of all sizes that have steadily siphoned off the grocers' customers.

The supermarket industry's latest travails came Wednesday when Albertsons' parent company, Supervalu Inc., announced that it would close 26 stores this year, including 18 in Southern California, as it grapples with steep losses. Including other chains it operates, Supervalu is shutting about 60 stores nationwide.

Albertsons stores in Glendale, Long Beach, Riverside and Anaheim are among those scheduled to be shut by December. A Culver City location was eliminated last month. The company characterized the stores as underperforming or nonstrategic.

Loss-plagued Supervalu is one of the more troubled companies in the industry, and rivals such as Kroger Co., which operates Ralphs, and Safeway Inc., which runs Vons and Pavilions, are considered to be much better operators.

Nevertheless, Albertsons' problems point up the challenges facing traditional supermarkets that are trying to fend off incursions from big-box retailers such as Target Corp. and Wal-Mart Stores Inc., specialty gourmet operators such as Tesco's Fresh & Easy, and local dollar stores such as 99 Cents Only Stores.

"The traditional grocery store is something of a dinosaur. The core question is whether it can be reinvented and re-created or whether we have to have a lot fewer of them," said Jim Prevor, a food analyst at PerishablePundit.com, a website that follows the fresh food industry.

Supermarkets' share of the $800-billion market for food eaten at home shrank to 64.5% in 2010 from 72.1% in 2000, according to Moody's Investors Service.

The falloff has been particularly acute in Southern California. In 2004, the top four chains — Vons, Ralphs/Food 4 Less, Albertsons and Stater Bros. — controlled about 60% of the region's market share, according to research firm Strategic Resource Group.

As of March 2011, that had shriveled to a 35.9% share of the market, with Albertsons accounting for 8.1%.

Wal-Mart has made a huge push into the food aisle in recent years. Grocery sales accounted for 55% of the retail behemoth's $264.2 billion in U.S. revenue in its last fiscal year, up from 47% in 2008.

The dismal outlook for the supermarket industry can be seen in the performance of the companies' stocks in recent years. Supervalu shares have withered 95% since mid-2007. Safeway shares are down 57%. And Kroger's stock is off 26%, after moving sideways for much of the last four years.

Shares of Whole Foods Market Inc., by contrast, have shot up 12-fold over the last four years. Fresh Market Inc., another specialty chain, is up more than 150% from its November 2010 initial public offering.

The supermarket industry has always had low profit margins, so companies have limited room to withstand pricing pressures. That's less of a concern for companies such as Wal-Mart and Target, which offer groceries as a way to attract shoppers who will buy more expensive items such as clothes.

Supermarkets have deployed various tactics to fight for market share, including ramping up their offerings of pricier organic goods and higher-margin private-label offerings.

Companies such as Kroger also have become adept at figuring out to the penny how much they can charge for certain products without driving customers a few miles down the road to a lower-priced rival, said Jim Hertel, a managing partner at consulting firm Willard Bishop.

The Albertsons store closures will be inconvenient for loyal customers such as Johnnie and Judy McCaleb. After filling a cart Thursday morning at the Baldwin Hills store, the husband and wife were loading $200 worth of groceries into their car.

"People here need to have a choice where to shop without having to drive across town," said Johnnie McCaleb, a retired auto mechanic. "They really need to keep this one open here. It'd be really inconvenient to travel to another one."

The McCalebs, who live in the Wilshire district nearby, said they shop here monthly. The couple said they like the seafood selection and often scout sales to save money.

"Money is so tight right now," Johnnie McCaleb said, "so you look for deals and variety."

"This is not good at all," Judy McCaleb added.

walter.hamilton@latimes.com

ricardo.lopez2@latimes.com

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