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Albertsons to Open Price-Impact Stores

BOISE, Idaho - Albertsons, Inc., based here, intends to open low-price or price-impact grocery stores in several cities across the country, indicating a growing shift toward low-cost formats in the supermarket industry, the Daily Herald in Utah reports.

The food and drug retailing chain hasn't yet provided details about the new format and where the concept will be introduced. Retail analysts say that customers can usually expect a no-frills shopping experience at these stores, in which most items are offered at discounted prices, but item selection and services will probably be limited. Albertsons' new price-impact division will be run separately from its food and drug operations.

Behind this low-cost strategy is a growing bargain-on-demand mindset among shoppers, caused partly by Wal-Mart, with its low prices and one-stop-shopping concept; Target; and other discount retailers that have taught shoppers to expect to get more for less.
"It makes sense for Albertsons to commit to the price-impact format because the industry has gotten much more price-competitive," Andrew Wolf, a retail analyst with BB&T Capital Markets in Richmond, Va., told the Daily Herald.

Rich Parkinson, president and chief executive of Salt Lake City-based Associated Food Stores, believes that Albertsons' move is a bid to increase market share by appealing to different segments of the population. "Every time you introduce a new player, you increase competition and redistribute market share," he told the Daily Herald.

But BB&T's Wolf sees Albertsons' move toward a price-impact format as an attempt to cut operating costs by avoiding or lessening union representation.

One challenge faced by conventional supermarket chains is Wal-Mart's nonunion status, which means supermarkets' wage costs tend to be higher than Wal-Mart's, making it tougher for the chains to pass on savings to the customers, Wolf explained. Many price-impact grocery stores have an important competitive advantage because they either have no unions or have more flexible contracts than their traditional counterparts.

"The question is: Would Albertsons get a different deal with the union for a price-impact store compared with its traditional supermarket? That's critical because wages are typically the next-highest variable cost for grocery stores after product cost," Wolf said.

Albertsons' s.v.p. of operations for the Intermountain region, Bob Colgrove, declined to comment on whether its price-impact stores will be union or nonunion shops.

Targeting discount shoppers isn't a new idea for the supermarket chain, which owns discount stores Max Foods and Super Saver Foods, which are mostly located in Southern California.

Albertsons uses aggressive pricing to attract new customers. "Whether it's a 10-items-for-$10 sale, 10-cent-, 25-cent- or 88-cent-per-item sale, our goal is to make shopping fun and exciting. That allows us to retain customers in a competitive environment," Colgrove told the Daily Herald.
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