Giant Food Inc. is drawing up plans for an experimental economy food outlet to compete with the food warehouses, bag-it-yourself markets and other discount food stores that are undercutting Giant's prices by as much as 20 percent, Giant Chairman Israel Cohen disclosed yesterday.
The new Giant economy store will carry fewer than half as many grocery items as the chain's conventional supermarkets but will have the same pharmacy, delicatessen, meat, fish and produce departments as other Giant stores and "very attractive prices," Cohen said.
The idea is to combine the economy outlets' limited selections and low prices on dry grocery items with the special departments and services demanded by most supermarket shoppers, he explained.
Cohen revealed Giant's decision to take on the food discounters at a meeting yesterday morning at Ferris & Co., the Washington stockbroker that handles much of the trading in Giant's stock.
Giant's plans for meeting the low-price, no-frills competition with economy stores of its own have been rumored for several weeks since the discount food outlets began claiming an increasingly large share of the Washington food dollar.
The cut-rate food stores charge between $77 and $91 for a basket of groceries that costs $100 at Giant or Safeway, according to a survey published this week in Price Fighter, a bargain-hunter's newsletter just started by Washington Consumer's Checkbook, a local consumer group, a local consumer group.
Cohen would not say where or when Giant will go into the discount food business, but speculation is the experiment will take place on the fringes of Giant's market, which stretches from Richmond to Baltimore.
Giant is the number one food chain in the Washington area; its computerized checkouts now ring up about 33 cents outof every dollar spent in local markets, well ahead of Safeway's 28 percent share of the market. No other chain has as much as 8 percent of the business, but discount food outlets have begun to take business away from the standard supermarkets.
The most successful of the price cutters are reported to be the two Basics stores run by Grand Union in SterlingPark and Marlow Heights. Since they opened earlier this year the Basics units have become the two highest- volumn food stores in the Washington area, says Jeff Metzger estimates the Basics stores sell $700,000 to $900,000of groceries a week compared with $200,000 a week for the average Giant.
Basics was the lowest-priced full selection food store surveyed by Checkbook, charging $80 for a batch of groceries costing $100 at most Giant or Safeway stores.
Until now Giant and Safeway have responded to the discount food competition by selectively cutting prices in stores close to the competitors. The Checkbook survey found that items costing $100 at a Giant on Beauregard Street in Alexandria could be bought for $88 at the Giant nearest to Basics in Marlow Heights; the Marlow Heights Safeway on Leesburg Pike in Falls Church.
Despite their low prices and high volumes, the basics stores "are not making any money," Giant's Cohen said yesterday. "They're building a base for the future," he said, indicating Giant is unwilling to let the price cutters get even a foothold in its market.
"we have made a commitment to protecting our sales volume," he said. "the name of the game in the retail food business today is volume. Without volume, forget it."
But keeping up volume will hurt Giant's profits, he admtted, predicting the chain will earn a profit equivalent to 1 percent of its sales this year compared with almost 1 1/2 percent last year.
Cohen said Giant's experimental low-price store will have the same "perimeter" as a conventional Giant, but "different guts." The pharmacy, meat, produce, fresh fish and even flower shops that ring the interior of most Giant stores will remian, but the dry grocery departments in the middle will be pared down.
Instead of the 12,500 dry grocery items carried in conventional stores, the discounters will have about 5,000, and asmaller health and beauty aids selection. Instead of both Del Monteand Libby's canned vegetables, there will be only one national brand, plus Giant's private label. instead of four sizes of toot paste, only two.
Giant is about to open labor negotiations with the union that represents its clerks, meat cutters and most other employes, and probably will have to raise wages by between 8.5 percent and 9.5 percent, Cohen added. Calling negotiators for retail store union Local 400 "statesmen," Cohen said "we're lovers, not fighters," and there is little likelihood of a strike.