Wednesday, March 24, 2004

Once No. 2, grocer fades

Thriftway's struggle could mean its exit

By Randy Tucker
The Cincinnati Enquirer

Thriftway, once one of the most prominent destinations for grocery shoppers in Greater Cincinnati, is likely to leave the market, according to some industry experts.

And they say competitors such as Bigg's and Kroger are looking at Thriftway locations that could help them increase market share or protect their positions in a highly competitive marketplace.

"You have to be the No. 1 or No. 2 player to have any chance of being profitable in a competitive market like Cincinnati," said Mark Hugh Sam, a grocery analyst at Morningstar Inc. in Chicago. "So you have to take a hard look at any opportunity to increase share, especially with Wal-Mart coming."

The Bentonville, Ark.-based retail behemoth has announced plans to open at least four Supercenters - which combine hard goods and groceries under one roof and have made Wal-Mart the nation's top food seller - in Greater Cincinnati. Wal-Mart's move will "almost certainly result in share loss for the current market leaders," including No. 1 Kroger and No. 3 Bigg's, Hugh Sam said.

Wal-Mart's entrance into the local grocery business also is likely to create a competitive landscape in which the stronger players survive by swallowing their smaller, weaker competitors, he said.

Thriftway could be on the menu.

"Cincinnati is obviously not a core market for Winn-Dixie (Thriftway's parent)," Hugh Sam said. "I wouldn't be surprised to see them go, and that would open the door for the competition."

The struggling Jacksonville, Fla.-based Winn-Dixie has already said it would pull out of underperforming markets after reporting a loss of $79.5 million in the second quarter and watching its stock price plummet 40 percent.

The company said it would conduct an extensive review of operations before identifying those markets, most likely when it reports its third-quarter results on April 30, company officials said.

But Hugh Sam and other industry watchers say they have no doubt Greater Cincinnati would be on Winn-Dixie's "underperforming" list because it's a market in which Thriftway has lost more than half its market share over the past five years.

In 1998, Thriftway operated 24 stores in Greater Cincinnati and controlled 18.4 percent of the market, ranking it No. 2 behind market leader and hometown-based Kroger Co., according to Market Scope, an annual publication of supermarket share data from Wilton, Conn.-based Trade Dimensions International Inc.

By last year, Thriftway had fallen to No. 4 in the marketplace with a share figure of 7.6 percent and 21 stores."Competitors such as Meijer and Bigg's have all applied heavy pricing pressure to the market in recent years, and Thriftway has struggled to stay competitive," said Stan Eichelbaum, a national retail expert and president of downtown Cincinnati-based Marketing Developments Inc.

That has resulted in lost business for the chain, formerly owned and operated by Richard Lindner, brother of Cincinnati financier Carl Lindner.

But Thriftway's loss could translate into a big gain for local supermarket retailers seeking to improve on their current locations or increase volume, Eichelbaum said.

Kroger and Bigg's may be potential suitors, he said, but they would be attracted to Thriftway stores for different reasons.

While Bigg's and others may be interested in Thriftway stores to grow market share, Kroger may be interested in acquiring the stores to prevent losing customers.

"If you look at Kroger, they already have high penetration in the Cincinnati area," Eichelbaum said. "But they may have some interest in some Thriftway stores to defend against a competitive threat."

The most deadly threat would most likely come from Wal-Mart, Eichelbaum said, but not in the form of its Supercenters.

That distinction belongs to Wal-Mart's Neighborhood Markets, which often operate next door to traditional grocers.

"It would make sense for Wal-Mart to buy the Cincinnati Thriftway stores because they're about the same size as the Neighborhood Markets and they would compete directly with Kroger and others," Eichelbaum said. "If they (Wal-Mart) did buy Thriftway stores, they would achieve market dominance in minutes."

Grocers' market share

Top five Greater Cincinnati grocers by percentage market share
StoreMarket Share
Kroger Co.44.6 percent
Meijer Inc.14.0 percent
Bigg's Inc.10.2 percent
Winn-Dixie (Thriftway)7.6 percent
Nash Finch (IGA)3.4 percent
Source: Market Scope


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