Tuesday, Feb. 24, 2004 | 11:04 a.m.
Albertsons Inc., a big retailer in Las Vegas, plans to open low price "price impact" stores in multiple cities across the United States.
The new division will be autonomous and operate separately from Albertsons' traditional food and drug operations, which in Las Vegas include Albertsons grocery stores and Sav-on drug stores.
The Boise, Idaho, company announced the plan Friday but declined Monday to release more information about the new format or whether the stores would be union or non-union shops.
Whether Albertsons will introduce a price impact format in the Las Vegas area is not known, but industry experts said it is likely given the area's demographics and success of other low-price grocery stores.
"If you look at Las Vegas and look at how well Wal-Mart stores have done and that people are willing to stand in line at Wal-Marts, and that other supermarkets are getting thrashed by Wal-Mart grocery stores, they have to find some way to compete," said Perry White, a senior associate at commercial real estate firm Marcus & Millichap. "Average incomes in Las Vegas are pretty low for families, and every cent counts."
The median household income Clark County is $44,616, according to the U.S. Census Bureau.
Targeting low price shoppers isn't new to Albertsons, which has almost 40 traditional stores in the Las Vegas Valley. The Boise, Idaho-based company has discount stores Max Foods and Super Saver Foods, mainly in Southern California, that allow the chain to adjust to local neighborhoods and demographics, said Charles Cerankosky, an analyst with McDonald Investments.
"They see it's worked reasonably well for Kroger, with its Food 4 Less brand, and it's a way for (Albertsons) to take a look at a market where they have significant market share, like Las Vegas, and say 'things have changed'," he said.
In the Las Vegas Valley, there are 16 Food 4 Less stores, which offer shoppers a no-frills shopping experience. Cincinnati-based Kroger Co. also is the parent company to Smith's Food & Drug.
Albertsons' price impact stores allow not only for the opening of new stores but for the revamping and repositioning of existing stores, Cerankosky said.
"What this announcement highlights is that in some markets they need more (low) prices than assortment," Cerankosky said. "Not everyone wants to shop with a $2 cup of coffee and an organic muffin."
At Albertsons locations in upper income areas, coffee chain Starbucks operates in many of its stores.
Albertsons and other retailers have been struggling to compete against Wal-Mart Supercenters and its low prices and one-stop shopping format. Wal-Mart also continues to expand its Neighborhood Market, a smaller low price grocery store targeting convenience shoppers. Wal-Mart plans to open five Neighborhood Markets in Las Vegas.
One reason traditional grocery chains find it hard to compete is because Wal-Mart is non-union, Cerankosky said. The bottom line is traditional grocery stores are saddled with high salaries and Wal-Mart isn't, he said.
Many of the price impact grocery stores either have no unions, or relaxed or flexible contracts when compared to their traditional counterparts, allowing them a better competitive advantage, Cerankosky said.
"If you have no union, you can have more service and productive store labor force or pass the savings on in prices," he said.
The shift to low-cost grocery stores has been an ongoing trend in the supermarket industry, said Mark Hamstra, retail and financial editor with trade magazine Supermarket News.
"There have been companies that have been opening price impact stores, either as an alternative to traditional stores or conversions of stores that haven't made it as a traditional supermarket," he said. "It is a vehicle for conversions or new growth."
Hamstra said there is a market for inexpensive groceries and people who do not want to shop at a supercenter or at an upscale grocery store.
"If there are stores with good locations, and they can at least come close on price and items, it can be successful," he said. "I don't think Wal-Mart necessarily has to win just because it has low prices."
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