Giant Eagle steps up its price war

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It's possible that Giant Eagle has been caught up in a price war, if the grocer's announcement Wednesday that it is lowering prices by about 15 percent on more than 3,000 popular items is any indication.

But price alone is unlikely to be enough for competitors in the grocery business to battle heavyweights like Wal-Mart, which has laid out a strategy of sacrificing profit margin to drive volume increases, said Jim Hertel, managing partner at consulting firm Willard Bishop in Barrington, Ill.

That's why Giant Eagle is also mailing coupons and gift cards directly to customers based on their buying habits, why it has branched into selling pre-paid cell phones and cards for airtime (generating repeat customers visits in return for gas discounts) and why it is looking to keep its corporate workforce as lean as possible.

"It's a challenging environment right now," said Mr. Hertel.

That could benefit shoppers.

The O'Hara grocer, which rolled out "low price locks" on seasonal items starting in October, said it should deliver more than $70 million in annual savings to consumers through the thousands of goods included in its new "everyday price reduction effort."

This new round of cuts is not tied to a particular season and should be in place indefinitely, said Rob Borella, senior director of corporate communications for Giant Eagle. It also is not displacing other established offers, such as double coupons up to 99 cents, the low price locks or the fuelperks gas discount program, he said.

While Giant Eagle continues to report sales growth and now has annual revenue of $9.9 billion, Mr. Borella said the long-term price cuts specifically are meant to help shoppers still stressed about an uncertain job scene and high fuel costs. "I think consumers with their spending habits are reflecting that," he said.

Continuing on that theme -- and perhaps emphasizing its community ties -- the grocer said it would bolster its hunger relief efforts by contributing enough to regional food banks to pay for 500,000 meals, in addition to existing in-kind and monetary donations that already provide about 5 million meals annually.

Giant Eagle isn't the only grocer that has been trumpeting price cuts and deals lately, said Mr. Hertel. "We're seeing it happen in a lot of different markets," he said.

Changed customer buying habits post-Great Recession -- along with competition from stores ranging from dollar and drugstores to mass merchants such as Target, traditional grocers like Shop 'n Save, Foodland and Kuhn's, as well as limited assorted chains like Bottom Dollar Food and Aldi -- have made the grocery category a fiercely competitive one.

Mr. Hertel pointed to Wal-Mart as one of the contributing factors in stirring up the industry, since the Bentonville, Ark., retailer is making a significant effort to invest in lower prices, even if that lowers profit margins. An increased volume of sales is meant to make up for that.

Wal-Mart is putting a lot of energy behind marketing that effort. "They've gotten kind of in-your-face about comparing and naming different competitors," Mr. Hertel said.

A Wal-Mart spokesperson didn't directly respond to the Giant Eagle moves but said the national retailer is always monitoring competitors to ensure that it meets its everyday low price promise.

"Our commitment to [its everyday low prices] on a broad assortment of merchandise and one-stop shopping is driving consumers across the U.S. to chose Wal-Mart over competitors," Molly Philhours said.

Giant Eagle is just one of the grocers around the country that have been the target of Wal-Mart ads. It has responded with its own advertisements comparing receipts to prove the big chain doesn't offer better deals.

Meanwhile, the private company that operates 229 supermarkets and 187 fuel and convenience stores in four states is fine-tuning its own competitive strategy.

Earlier this year, Giant Eagle announced it would eliminate its foodperks program, which let shoppers earn grocery discounts when they bought gas at its GetGo convenience stores. Instead, the grocer began giving its fuel customers additional gas discounts.

The company also trimmed 75 positions, mainly from its corporate offices. Giant Eagle employs 36,000 people companywide and about 11,000 in Western Pennsylvania.

In addition, Mr. Borella said, the company is getting better at offering targeted deals meant to influence customers' buying habits based on their interests.

The lower prices being offered under the new program will go into effect in two waves, one now and another by April 11, according to the company's announcement. The grocer offered examples of items such as a 14-ounce box of Cheerios that would drop from $3.99 to $3.09 and a 15.25-ounce can of Giant Eagle peaches that falls from $1.50 to $1.

If Giant Eagle is to benefit from this promotion, it will have to execute well, said Mr. Hertel. That means doing lots of marketing and also choosing products that people buy regularly, because a traditional supermarket carries tens of thousands of items.

"The important thing for a retail store is to make sure if you're going to make that claim that you can, no kidding, stand behind it."

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Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018.


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