Wal-Mart, Kroger Winning The Grocery Price War

by Sarah Mahoney, Mar 28, 2008, 5:00 AM

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With economically squeezed shoppers determined to find the lowest food prices, Wal-Mart Stores and Kroger may well emerge as the checkout champs.

A new report from Citibank Global Markets surveyed shoppers in two key markets, and found that "an overwhelming 72% of customers surveyed said that Wal-Mart had the lowest prices. Among the top three traditional supermarkets, Kroger was perceived by more consumers to be the lowest-priced," with prices within 8% to 10% of Wal-Mart's. "Going forward, we believe that consumers could further cut spending. In this environment, Wal-Mart and Kroger are best positioned to gain share as a result of their strong pricing message."

The report, from influential retail analyst Deborah L. Weinswig, finds that of the five stores included in the survey--Wal-Mart, Kroger, Target, Safeway and Supervalu--Safeway and Supervalu are perceived as the most expensive. Both Kroger and Wal-Mart have already noted increased fourth-quarter traffic, the report says.

The survey also finds plenty of evidence that consumers are actively seeking ways to trade down, including switching stores. Overall, about 30% are making substitute purchases, such as buying chicken instead of steak.

The good news for retailers (although a major bummer for leading marketers) is that consumers are filling their carts with more store brands and private-label items. "Private label has improved its relevancy with consumers as quality and selection have improved," the report says. Not only did the vast majority--93%--say they routinely buy these generics, 46% say they represent up to 20% of overall grocery purchases, and another 48% say they represent more than 20%. And if prices keep going up, 18% of those in the survey say they will purchase even more private labels. About 46% say they believe these products are just as good as national brands.

Both Kroger and Safeway, the report says, have about 25% private label penetration, "and are best-positioned to gain share from national brands."

The report predicts that if gas prices continue to rise, as many expect, those fuel costs will continue to change shopper habits. (In its survey, 70% of the consumers say they have already made changes because of the cost of gas--for example, 42% say they now consolidate shopping trips.)

If that happens, Wal-Mart sales are likely to increase. "Plus, we believe Wal-Mart will benefit from the federal government's economic stimulus program with its strong pricing message on everyday items," the report says.

Still, there are plenty of Wal-Mart haters: "Interestingly," the report says, "36% of the consumers we surveyed acknowledge Wal-Mart's lower prices but prefer to shop elsewhere for their groceries."

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