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Monday, June 26, 2000



What Price Paradise?
Local supermarkets take different
tacks to bag your business

Tapa

Photo Illustration
Photo Illustration by David Swann and Dennis Oda

Club cards and coupons and sales, oh my!

Supermarket chains continually
search for new weapons to use
in the never-ending battle
for customer loyalty

Selected items priced at five
island supermarkets

By Rob Perez
Star-Bulletin

Tapa

wa resident Mary Relator drives an extra 4-1/2 miles, bypassing a new Foodland store near her home, to shop for groceries at Safeway in Kapolei.

The reason? She mentions Safeway's courteous employees, clean stores and discounted club-card specials, all of which add up, in Relator's view, to good value.

Waikiki resident Amy Willbrand, on the other hand, buys her groceries mainly at Daiei in town, forgoing trips to newer, spiffier supermarkets from other chains.

Her reason? "It's always cheaper here, especially if I need to buy something not on sale."

Value.

Or price.

Overall shopping experience.

Or the bottom line.

For Relator, who shops for a family of five, the overall experience matters most. For Willbrand, a University of Hawaii graduate student, it's the bottom line. Period.

Their reasons for shopping where they do say a lot about how Oahu's five major supermarket chains battle for business in an increasingly competitive market.


The bottom line

Whether sales prices were included or not, Daiei was the least expensive chain when the Star-Bulletin did two price surveys last month. We priced a basket of 51 products:

art


Some, such as Safeway, Foodland and Times, try to build customer loyalty in part by offering the best deals and benefits to their frequent shoppers. Typically that's done through club-card specials, direct-mail coupons or by awarding certificates, often based on spending levels, for free or discounted groceries, airline travel credits or special admissions to local attractions. Customers like Relator are prime targets.

Daiei and Star don't have club cards. Instead, they rely more on their one-for-all pricing, which doesn't distinguish between loyal customers and comparison shoppers. The idea, though, is to build loyalty on the expectation of lower prices, something that attracts customers like Willbrand.

The expectations sometimes can match the reality.

Narrow price disparity

Two recent Star-Bulletin price surveys of 51 products, mostly food items, showed that Daiei was the least expensive chain.

It was by far the cheapest when comparing regular, everyday shelf pricing, not discounted specials, according to one survey taken last month. When sales prices, such as in-store specials and advertised promotions, were included in a check of the same products two weeks later, the Japan-based company again had the lowest total.

Daiei barely edged out Star as the least-expensive chain when the sales prices were included. When the specials were excluded, Star fell to No. 4, indicating the company prices more aggressively with its discounted items to lure shoppers.

Times Supermarkets in both surveys was the most expensive.

Overall, the price disparity among the five chains fell within a very narrow range -- especially when sale prices were included. For a basket of goods valued at close to $180, only $6, or about 3 percent, separated the highest and lowest totals.

University of Hawaii marketing professor Dana Alden said such narrow ranges suggest the chains have opted not to resort to cut-throat price competition -- and for good reason.

"When they're not attacking each other constantly over price, everybody seems to do better on the bottom line," Alden said, speaking of the industry in general.

Compiling shopping habits

The notion of rewarding your best customers is relatively new in the supermarket industry nationally. The so-called loyalty cards started cropping up in the early 1990s, and the trend didn't reach local supermarket aisles until the mid-90s.

Before that, the traditional model for supermarkets was to price merchandise with an eye toward attracting as many consumers as possible, regardless of how much they spent. Marketing was aimed at everyone.

But the rise of club cards and improvements in technology and software have enabled chains to compile reams of customer transaction data, allowing the retailers to better understand consumer buying patterns and to develop more focused marketing programs.

"It allows you to stop totally blind fishing and go after more target segments," said David Higashiyama, vice president of marketing for Times Supermarkets.

Target marketing

The data can be crunched in all kinds of ways. Companies, for instance, can determine the most popular type of dog food purchased by households that also buy cat food. Or they can pinpoint what items are most commonly purchased by households that spend more than certain amounts, say $700 monthly, at their stores.

Times and Foodland are among the chains using data-based marketing to tailor programs for their most loyal shoppers, sometimes working directly with manufacturers to arrange special deals.

The select customers may get discount coupons in the mail for a handful of products they purchase frequently -- deals not available to all shoppers.

The idea behind such programs is that "you don't give your best prices to the cherry pickers. You give your best prices to your best customers," Higashiyama said.

"We really want to take care of our best customers and make sure we're rewarding them," said Jenai Sullivan Wall, chief executive of Foodland Super Market Ltd., the state's largest supermarket chain.

But companies like Daiei aren't convinced that such target marketing is the way to go. They say they don't like to discriminate in their pricing.

"Our policy is one price for all customers," said Hisatoshi Oshiro, head food buyer for Daiei in Hawaii.

And as much as possible, Oshiro said, Daiei tries to offer the lowest prices among the five chains.

The company seems to be more successful at doing that than its competitors, according to the Star-Bulletin surveys.

In the comparison of regular shelf pricing, Daiei had the lowest prices for 25 of the 51 products and tied for the lowest for four more. In the sales-price survey, it had the lowest for 20 products and tied for four others.

No other chain came close to those numbers, suggesting that Daiei's pricing strategy is more aggressive and broadly based than the other retailers.

Low overhead, low pricing

But such a strong focus on low pricing comes at a cost. The Daiei stores generally are not as in good condition as many competing stores, partly reflecting the age of the buildings. Stained carpets and worn furniture, for instance, are evident in executive offices at Daiei's main outlet near Ala Moana Center. Company officials say they try to keep expenses down so shoppers can get the best prices.

Asked about Daiei's lower survey prices, several competitors said looking at a basket of 51 items, no matter how carefully selected, doesn't reflect the overall value customers get at their supermarkets, particularly given that a typical store has at least 25,000 products.

Price, they said, is just one factor customers consider. Other factors include a store's location, appearance, range of merchandise, quality of meats and produce and customer service.

Relator, the Ewa resident, said she appreciates not just the club-card savings, but that Safeway cashiers always thank her by name, although they're required to do so. She also appreciates that they ask if she needs help getting her groceries to the car.

"It's the difference between shopping at a Nordstrom's and a Target (a no-frills mainland discounter)," Relator said.

Debra Lambert, Safeway's mainland spokeswoman, also noted that the company's in-house brands are always priced below the national brands, something that wouldn't be reflected in the Star-Bulletin surveys.

To make valid comparisons, however, the newspaper only priced national brand products that were found at all five chains. The only exceptions were with eggs, produce and chicken, but even in those cases the products were comparable.

While prices for individual products can differ substantially from chain to chain, sometimes depending on the timing of special promotions, industry analysts say prices in general are similar.

That is due, in part, to the rise in competition in recent years. With the entry to Hawaii of such big-box retailers as Costco, Sam's Club, Wal-Mart and Kmart, all known for their aggressive pricing here, the supermarkets have been forced to become more competitive, the analysts say.

As a result, profit margins have shrunk considerably in the 1990s, several supermarket executives acknowledged.

"If you used the margins from 10 years ago (to price products today), our business might drop in half," said Daiei's Oshiro. "All retailers can't get the same margins as before."

More options for consumers

The supermarket industry nationally is known for its tiny margins -- generally around 1 percent -- and local executives say Hawaii is no different, despite critics who raise allegations of price gouging.

At the same time, customers are becoming more sophisticated and knowledgeable, especially with information more readily available from the Internet and other sources, industry officials say.

And because most Oahu residents have a number of supermarket options within a short driving distance from home or work, they can easily change where they shop if pricing becomes a big enough issue.

"There is a greater awareness among Hawaii consumers about value, about price," said Safeway's Lambert.

Even with the discounts, some question whether Hawaii consumers are getting as much of a break as the sales suggest.

When the Star-Bulletin compared prices of about 50 products last year at Safeway on Oahu and Safeway on the West Coast, it found markups that averaged around 25 percent to 30 percent locally. Safeway said the markups reflected the higher cost of doing business in Hawaii.

Comparison shopping 'a pain'

Yet other retailers the newspaper surveyed had little or no markups, and some critics suggested the high markups here reflected a lack of vigorous price competition.

Marty Plotnick, a local marketing consultant, said even the loyalty cards may not be as beneficial to consumers as the savings indicate.

"You'll save the money on the assumption the suggested list price is fair. But that is something you'll never know," Plotnick said.

Given such uncertainty, some customers simply go where they regularly find the cheapest prices -- sale or no sale. (Industry research shows roughly half a typical customer's purchases are of products on sale).

Willbrand, the Waikiki resident, said she used to do more comparison shopping, going from chain to chain in search of the best bargains. But that got old fast. "It's a pain in the neck," she said.

Now she's a Daiei regular.


What Price Paradise?
Local supermarkets take different
tacks to bag your business

Tapa

Regular prices

The prices on these 51 grocery products were checked May 17. Only regular prices, not promotional discounts, were included. Only identical national brand products were surveyed, except for produce, eggs and chicken (where noted). In those cases, the items still were comparable.


DAIEI STAR FOODLAND TIMES SAFEWAY
Love's Golden Wheat bread 2.15 2.09 2.19 1.99 2.19
Oroweat bagels, 6 3.09 3.05 2.99 2.99 2.99
Miller Lite beer, 24-pack 16.99 19.99 19.99 17.69 16.99
Budweiser, 6-pack 5.19 5.49 5.49 5.29 5.69
Orville Redenbacher's
microwave popcorn, 3-pack
2.89 3.19 3.19 3.29 3.19
Lays potato chips, 13.25 oz. 3.99 3.99 3.99 3.99 3.99
Doritos, 14.5 oz. 3.69 3.79 3.49 3.69 3.49
Pepsi, 12-pack 4.59 4.29 4.59 6.99 4.59
Coca-Cola, 2 liters 1.49 1.59 1.79 1.69 1.79
Ritz crackers, 12 oz. 3.49 3.89 3.69 3.75 3.69
Skippy creamy
peanut butter, 18 oz.
3.09 3.49 3.49 3.49 3.49
Oreo cookies, 20 oz. 4.45 4.69 4.49 4.35 4.49
Ragu spaghetti
meat sauce, 26 oz.
2.99 3.39 3.35 3.69 3.35
Gold Medal flour, 5 lbs. 2.39 2.49 2.39 3.45 2.39
C&H sugar, 5 lbs. 3.09 2.99 2.99 3.75 2.99
Hormel spam, 12 oz. 2.39 2.19 2.39 2.39 2.39
Hormel chili with beans, 15 oz. 1.79 2.19 1.99 2.19 2.19
Ocean Spray
cranberry juice , 48 oz.
3.89 4.49 4.59 4.99 4.59
Folgers classic
roast coffee, 39 oz.
10.39 11.39 9.79 9.99 9.99
Bumble Bee chunk
light tuna in water, 6 oz.
.99 1.09 1.29 .95 1.29
Campbell's chicken
with rice soup, 10.5 oz.
1.49 1.69 1.69 1.69 1.75
Cheerios, 15 oz. 5.29 5.29 5.19 5.99 5.19
Life cereal, 21 oz. 5.49 5.69 5.69 5.99 5.59
Kellogg's corn flakes, 18 oz. 3.99 4.69 4.69 5.15 4.69
Kraft zesty
Italian dressing, 16 oz.
3.79 4.39 4.39 4.49 4.39
Best Foods mayonaise, 32 oz. 3.99 3.79 3.89 4.89 4.39
Tylenol extra
strength gelcaps, 50
7.29 7.99 8.29 8.39 6.19
Bayer aspirin, 50 tablets 5.39 5.79 5.79 5.99 5.29
Tide detergent, 92 oz. 9.99 11.19 10.95 10.99 10.95
Eggo frozen waffles, 10 2.69 2.99 3.19 2.79 3.19
Minute Maid frozen
orange juice, 12 oz.
2.25 2.39 2.49 2.59 2.49
DiGiorno frozen
pepperoni pizza, 31.33 oz.
7.99 7.99 7.99 8.05 7.99
Lean Cuisine frozen
spaghetti dinner, 11.5 oz.
2.69 2.99 3.29 2.99 3.29
Yoplait yogurt, 6 oz. 1.19 1.09 1.19 1.09 1.19
Iceberg lettuce, per lb. .99 1.59 1.49 1.59 1.19
Red delicious apples, per lb. 1.19 1.49 1.39 .99 1.49
Granny Smith apples, per lb. 1.19 1.69 1.69 1.49 1.69
Fresh tomatoes, per lb. 1.49 1.69 1.49 1.59 1.39
Green bell pepper, per lb. 1.69 1.49 1.89 1.69 1.89
Celery, per lb. .89 1.19 1.09 1.09 1.39
Bananas, per lb. .79 1.19 1.17 .99 .89
Foremost milk, 1 gal. 6.05 5.95 6.29 6.09 6.29
Large Grade A eggs, 12 2.19 1.79 2.29 2.29 2.29
Blue Bonnet margarine, 1 lb. 1.29 1.19 1.19 1.29 1.19
Kleenex, 175-count 1.49 1.99 1.89 2.29 1.89
Aloha soft tofu, 20 oz. 1.99 2.29 2.19 2.19 2.19
Morton salt, 26 oz. .85 .99 .93 1.15 .93
Kingsford charcoal, 10 lbs. 5.69 7.29 7.29 6.85 7.29
Nishiki premium
grade rice, 10 lbs.
8.19 7.99 7.89 8.99 7.89
Foster Farms whole
young chicken, per lb.
1.49 1.69 .99 .79* 1.69
Kikkoman soy sauce, 10 oz. 1.89 2.19 2.19 2.49 2.29
TOTALS $185.89 $201.41 $200.23 $205.53 $196.21

* Zacky Farms chicken

Sale prices

This survey of the same 51 products was taken May 30 and included discount prices. If a product was on sale, even if available only to club-card members, the discounted price was used. When including such promotions, the overall pricing gaps between the chains narrowed considerably.


DAIEI STAR FOODLAND TIMES SAFEWAY
Love's Golden Wheat bread 1.50 2.09 2.19 1.69 2.19
Oroweat bagels, 6 2.89 2.85 2.99 2.50 2.99
Miller Lite beer, 24-pack 15.99 13.69 13.99 13.99 13.88
Budweiser, 6-pack 5.19 5.49 4.99 5.29 5.69
Orville Redenbacher's
microwave popcorn, 3-pack
2.89 3.19 3.19 3.29 3.19
Lays potato chips, 13.25 oz. 3.59 3.59 2.00 1.99 2.00
Doritos, 14.5 oz. 3.29 3.79 2.00 2.79 2.00
Pepsi, 12-pack 2.77 2.59 2.57 3.99 4.59
Coca-Cola, 2 liters 1.49 1.59 1.59 1.49 1.25
Ritz crackers, 12 oz. 3.49 3.89 3.69 3.75 3.69
Skippy creamy
peanut butter, 18 oz.
3.09 3.39 3.49 1.99 2.39
Oreo cookies, 20 oz. 4.45 3.00 4.49 3.79 4.49
Ragu spaghetti meat sauce, 26 oz. 2.99 3.39 3.35 3.59 3.35
Gold Medal flour, 5 lbs. 2.39 2.49 2.39 3.29 2.39
C&H sugar, 5 lbs. 2.19 2.99 2.50 3.75 2.99
Hormel spam, 12 oz. 2.39 1.59 1.79 2.39 1.69
Hormel chili with beans, 15 oz. 1.79 2.19 1.99 2.19 2.19
Ocean Spray
cranberry juice , 48 oz.
3.89 4.49 4.59 4.99 4.59
Folgers classic roast coffee, 39 oz. 10.39 11.39 9.79 9.99 9.99
Bumble Bee chunk
light tuna in water, 6 oz.
.99 1.09 1.15 .95 .50
Campbell's chicken
with rice soup, 10.5 oz.
1.49 1.69 1.69 1.69 1.75
Cheerios, 15 oz. 5.29 5.29 2.60 5.29 5.19
Life cereal, 21 oz. 5.49 2.49 5.69 5.89 5.59
Kellogg's corn flakes, 18 oz. 3.99 3.99 4.69 4.79 4.69
Kraft zesty
Italian dressing, 16 oz.
2.49 4.39 3.29 3.50 2.20
Best Foods mayonaise, 32 oz. 3.99 2.99 2.89 2.69 4.39
Tylenol extra
strength gelcaps, 50
7.29 7.99 8.29 8.39 6.59
Bayer aspirin, 50 tablets 5.39 3.69 5.79 5.99 5.29
Tide detergent, 92 oz. 9.99 11.19 10.95 6.99 5.75
Eggo frozen waffles, 10 2.69 2.00 3.19 2.29 3.19
Minute Maid
frozen orange juice, 12 oz.
2.25 1.33 2.49 2.59 1.50
DiGiorno frozen
pepperoni pizza, 31.33 oz.
7.99 4.99 5.99 7.85 7.99
Lean Cuisine
frozen spaghetti dinner, 11.5 oz.
2.69 2.99 3.29 2.99 3.29
Yoplait yogurt, 6 oz. .99 1.09 1.19 .99 1.19
Iceberg lettuce, per lb. .89 1.59 1.49 1.69 .99
Red delicious apples, per lb. .89 1.49 1.39 1.19 1.49
Granny Smith apples, per lb. 1.09 .69 1.69 1.49 1.69
Fresh tomatoes, per lb. 1.19 1.49 1.59 1.59 1.39
Green bell pepper, per lb. 1.29 1.49 1.89 1.69 1.89
Celery, per lb. .89 1.19 1.19 1.09 .99
Bananas, per lb. .89 1.19 .99 .99 .89
Foremost milk, 1 gal. 6.05 5.95 6.29 6.09 6.29
Large Grade A eggs, 12 2.19 1.79 2.29 1.99 2.29
Blue Bonnet margarine, 1 lb. 1.29 .50 1.19 1.29 1.19
Kleenex, 175-count 1.39 1.99 1.89 1.50 1.95
Aloha soft tofu, 20 oz. 1.39 2.29 2.19 1.99 2.19
Morton salt, 26 oz. .85 .99 .79 1.15 .93
Kingsford charcoal, 10 lbs. 5.69 7.29 7.29 6.85 7.29
Nishiki premium
grade rice, 10 lbs.
7.29 7.99 7.89 8.99 7.89
Foster Farms whole
young chicken, per lb.
1.49 1.69 .99 1.29* 1.69
Kikkoman soy sauce, 10 oz. 1.89 2.19 2.19 2.49 2.29
TOTALS $176.32 $176.68 $179.99 $182.98 $177.97

* Zacky Farms chicken


The What Price Paradise Series

Tapa



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