Published: Friday, February 20, 2009
Morning Sentinel
By: Beth Quimby
Reeling from the highest jump in grocery prices in two decades, Maine food shoppers could see some significant price relief in the coming months.
Thanks in large part to Wal-Mart Stores Inc., which is making a major move into Maine's grocery business this year, shoppers should see their grocery bills drop as competitors lower their prices to match those set by the giant discount retailer, industry analysts said.
"This is great news for consumers," said Mike Berger, editor of the Griffin Report of Food Marketing, a Duxbury, Mass., trade publication that follows the New England food industry.
The recession and a change in shoppers' buying behavior also are forcing food prices down. Many consumers are buying less food and switching away from national brands to private labels.
"Our prices are going to drop regardless," said Michael Norton, spokesman for Hannaford Bros. Co., the Scarborough-based supermarket chain.
Signs that competition is heating up among Maine's food retailers are mounting. At a time when most retail construction has virtually halted in Maine, new grocery stores are sprouting up across the landscape.
Wal-Mart is adding close to 180,000 square feet of grocery space -- the size of three football fields -- at new Supercenter stores under construction in Sanford, Scarborough, Ellsworth and Bangor.
The stores will be equipped with all the accoutrements of full-service grocery stores: fresh produce, meat and poultry sections, and dairy departments. They also will feature locally grown produce, such as Maine potatoes and blueberries.
Hannaford Bros. is opening more than 150,000 square feet at new stores in Gray, China and Winthrop, and at a state-of-the-art, energy-efficient supermarket in Augusta. Shaw's Supermarkets Inc., founded in Maine and now headquartered in West Bridgewater, Mass., is planning to remodel some of its 23 Maine stores but hasn't made specific plans public.
The move by Wal-Mart to expand its grocery business in Maine and other New England states, where zoning and anti-Wal-Mart sentiment kept the retailer's presence relatively minor in the past, comes at a good time for both the retailer and shoppers, say industry watchers.
Recession-sensitive shoppers who saw grocery prices rise 5.5 percent nationally last year are looking for the kind of competitive prices offered by the nation's largest grocer, and communities are looking for new jobs and taxes.
Wal-Mart officials say the perception of the company has changed as its presence has slowly grown in New England.
"When we look at areas with opportunities for growth, it is more pronounced in the New England states," said Keith Morris, Wal-Mart director of public affairs for the Northeast.
Morris said Wal-Mart can keep its prices down because of its technology and distribution network. When a shopper goes through the checkout line at a Maine Wal-Mart, the item is registered at a distribution center in Lewiston, so the company can restock as needed.
"It is only shipped as needed, which is huge" in keeping prices down, said Morris.
Shoppers are extremely price-conscious right now because of the recession, and their buying behavior reflects that concern.
Americans spent 2.47 percent less on food in the last quarter of 2008 compared to the three months before, the largest quarterly drop since the federal government began tracking such data, according to The Food Institute in Elmwood Park N.J., which tracks the industry.
"It is safe to say the U.S. shopper reacted to the downturn in the economy more quickly than at any time in recent history," said Brian Todd, the institute's president.
Wal-Mart has been making inroads into Maine's grocery sector since first entering the state in the early 1990s.
Last year, the 40-year-old Bentonville, Ark., company held a 17.9 percent market share, second to Hannaford's 43.1 percent, according to the Griffin Report's annual survey. Shaw's was third at 17.8 percent.
Jim Hertel, a partner with Willard Bishop, food retail consultants in Barrington, Ill., said it is hard to overestimate the impact of Wal-Mart on food prices. He said that between 1995 and 2005, Wal-Mart itself was responsible for keeping the national food inflation rate down by a third.
"They have a real and measurable impact on consumer prices," said Hertel.
Overall, traditional grocery stores such as Hannaford and Shaw's are losing market share to supercenters, national drug stores and dollar stores, he said. Hertel expects traditional supermarkets, which 15 years ago enjoyed a 95 percent share of the food business in New England, to drop to around 40 percent by 2013.
Hannaford is positioning itself for the months ahead by shaving its operational costs by "tens of millions of dollars," said Norton, the Hannaford spokesman.
The company has trimmed about 50 positions from its administrative ranks this winter by offering retirement incentives and has been slashing its advertising and marketing budgets.
It is negotiating with its suppliers for cheaper prices.
Shaw's, meanwhile, has expanded its private-label offerings, which store officials say are 10 percent to 20 percent less expensive than national brands.
"About 18 percent of our sales are from our own brands," said Dina Piran, public affairs manager.
Hertel said regional chains can successfully compete with Wal-Mart, even as they reduce their prices.
"There are a number of grocers in Iowa, Texas and New York state who do very well, thank you, and compete head to head," he said.
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