Wednesday, April 1, 2009

Competitor News & Market Analysis: The Arizona Market Food Retailing 'Canary' Sings Again; Kroger Co.-owned Fry's Supermarkets Lays Off 90 Employees

Arizona Market Region Report: Food & Grocery Retailing in the Recession

Back in June, 2008, Fresh & Easy Buzz suggested in this piece [Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market] that we were seeing the first signs of possible food and grocery retailer layoffs and potential store closings in Arizona with the announcement by Arizona-based Bashas' that it was firing numerous employees at its corporate headquarters.

Last month, the recession and related white hot competition in Arizona struck Bashas' again in the form of more layoffs and the closing of five if its Arizona stores, as we reported on in this February 6, 2009 piece: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market.

Well that food retailing canary made itself heard again just two weeks ago in Arizona. The Kroger Co.-owned 120-store Fry's supermarket chain in the state fired about 90 workers, according to Joe Ellen Lynn, Fry's corporate spokesperson. The layoffs were first reported by the Arizona Republic newspaper on March 13. We varified it with Fry's and other sources.

Fry's employees about 18,000 workers in Arizona, according to the chain.

The Fry's employees appear to have been all from the chain's corporate headquarters because United Food & Commercial Workers union Local 99, which represents Fry's store-level workers in Arizona, says none of its members who work for the supermarket chain have been laid off to date.

Headquarters staff and some other exempt employee positions such as regional field reps and the like are non-union positions.

Retailers, particularly supermarket chains, and especially unionized chains, almost always terminate headquarters and non-direct store-level employees as a first cost-cutting step when such reductions are needed or desired by senior management.

Based on our research, this appears to be what Fry's has done.

Arizona is struggling in the current recession. Unemployment is fast-growing. Residential real estate activity has come to virtually a complete halt. And commercial real estate activity, which was booming just a little over a year ago, is down dramatically.

Arizona also is one of the most competitive food and grocery retailing markets in the U.S., as we've frequently mentioned in Fresh & Easy Buzz.

Mix these two conditions together, the recession and white hot competitive food retailing climate in the state, and something has got to give, an argument we started making about one year ago.

We've seen this give first with Bashas' and now with Fry's.

Additionally, Tesco's Fresh & Easy Neighborhood Market has slowed the opening of a number of new stores in Arizona.

Safeway Stores, Inc. basically isn't planning any new stores in the state beyond those it might already have in the pipeline.

Fry's and Albertsons also are pretty steady-state in terms of new store plans at present in Arizona.

Wal-Mart though remains pretty much on schedule in terms of continuing to open new stores in the state, particularly its combined food and general merchandise mega-Supercenters.

That strategy is paying off for Wal-Mart in the food and grocery sector. The retailer has now grown its way to becoming the number one food-grocery sales market share leader overall in Arizona, but just by a couple hairs, which demonstrates the state's super-competitive market.

Wal-Mart is currently number one with a 24% market share, according to recently published research. Kroger's Fry's is right behind Wal-Mart, with an about 21.5% share. Safeway is third with about 18.5%. And Bashas' is neck-to-neck with Safeway, with Albertsons right in the game. It's the market share version of a win-by-the-neck horse race, in other words.

We first started suggesting slightly over a year ago that the Arizona market, particulary the Phoenix Metropolitan region market where Tesco's Fresh & Easy Neighborhood market has its grocery and fresh foods stores, was getting close to beign overstored. In mid-2008 we began suggesting Arizona was overstored, particulary adding the economic recession into the equation.

It's our analysis that the Bashas' and Fry's layoffs are the result of this retail saturation in the state. The economic recession, which is hitting Arizona like a hammer, is an added factor.

It's likely that if economic times were better, the Bashas' and Fry's layoffs could have been avoided -- maybe. But economic prosperity is never a constant. Therefore, overstoring must always be analyzed based on the economy being an independent rather than dependent variable. Independent variables are those subject to change. Dependent variables are constants.
It's our further analysis that more cutbacks will come among grocers in Arizona. We likely not only will see additional layoffs. but we suspect to see more store closings as well.

For example, Tesco's Fresh & Easy is bleeding cash. The question is how long the grocer is willing to do so. Right now we don't think openingadditional stores in Arizona will do much of anything to solve that situation. Same store sales growth is what's needed.

But since Tesco is moving to a much more price and promotional-focused and value proposition-oriented positioning of its Fresh & Easy stores, it's also at the same time becoming a stronger competitor to the major players like Wal-Mart, Fry's, Safeway, Bashas and Albertsons, as shoppers search all over for good deals. [Read our March 2, 2009 piece here: Fresh & Easy Buzz Redux: Much of the Value Proposition-Based Analysis and Suggestions We've Been Offering Now Being Adopted By Tesco's Fresh & Easy.] That value proposition-based positioning, if done fully and comprehensively, also might be what helps Tesco's Fresh & Easy to bleed far less cash over time.

In Fry's case, its parent company Kroger Co., just reported a solid 8% income gain in its latest quarter just ended two weeks ago.

But Fry's is facing serious competition, as all the others are in Arizona, despite its parent company doing well. This should be another indication about what we mean when we call the Arizona market a white hot one.

As such, we expect to see more shoes drop in the food and grocery retailing sector in Arizona between now and this summer. The recession isn't improving, and even the most optimistic forecast calls for only seeing some demonstrable improvement in the overall U.S. economy by the end of this year. (And remember, Arizona is one of the hardest hit states.)

At the same time, the competition is heating up even more so in the Arizona market region, particularly from an everyday price and price-promotional perspective. When this type of competition in a near or already overstored market happens like it is, something has to give among one or more of the players.

Linkage - Select Related Posts:

>April 1, 2009: Competitor News: Bashas' Chain Launching 10,000-Plus Item Storewide Price Slashing Program This Week in its Arizona Supermarkets

>February 3, 2009: Competitor News: 'Grocer-Gone-Wild:' Arizona's Fry's and its 'Bring it On' 'Take All Competitors' (Including Tesco's Fresh & Easy) Store Coupon Move

February 12, 2009: Consumer Use of Manufacturers' 'Cents Off' Coupons Continues to Grow: The Latest American Rage: Home Coupon-Clipping and Coupon-Trading Parties

>March 19, 2009: Ground Control to Shopper: Point-of-Purchase-Based Mobile Couponing the Next Hot Ticket; Kroger Co. Leading the Food Retailing Pack

>December 16, 2008: Food & Grocery Retailing in the Recession: Bashas' Broadening the Shopper-Base in its Hispanic Format Food City Stores; Shoppers Search for Value

>March 11, 2009: Fresh & Easy Buzz Redux: Tesco's Fresh & Easy Changes its Promotional Advertising Flyer to 'Weekly;' Something We've Been Suggesting For About A Year

>February 6, 2009: Arizona Market Region Analysis: Bashas' Worker Layoffs, Closing of Stores Could be the 'Canary in the Coal Mine' in Ultra-Competitive Arizona Market

>December 12, 2008: Fresh & Easy Looking For Gold in Gilbert: Second Store in the Arizona City Set to Open Jan. 7; A Third Fresh & Easy Market to Open In Fall, 2009

>December 12, 2008: Marketing & Promotions Report: Manufacturers' Coupons Becoming the 'New Black;' Use Among Consumers Soaring; Marketers Distributing More Than Before

>October 2, 2008: Arizona Market Report: Fresh & Easy Opens Two New Stores; Marketside Opens in Three Days; Analysis of One Of the Most Competitive Markets in the U.S.

>June 8, 2008: Arizona Region Market Report: First Signs of A Weakening Might Be Starting to Show in the 'White-Hot,' 'Super-Competitive' Arizona Market

>September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

>September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

>August 8, 2008: Analysis & Commentary: Wal-Mart's Marketside As Part Of it's Multi-Format Category-Killer Strategy Spells Trouble For Tesco's Fresh & Easy

>April 14, 2008: New Multi-Supercenter and Multi-Format Strategies Are Showing Wal-Mart to Be A More Agile Grocery Retailer in the U.S.

>November 19, 2008: Competitor News: Wal-Mart Lowering Prices on Holiday Items and Staples; New Formats Coming; Online Grocery Sales; Hundreds of New Stores FY 2009-2010

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