Grand Union Stores is gambling that matching the lowest prices of market leaders will boost its share in various communities throughout the country. That may be a risk worth taking in some markets, but in metropolitan Washington it will take more than matching prices to make a dent in the leaders' market share.
Periodic price skirmishes may increase volume over a short span but, in the long run, innovative marketing strategies win customer loyalty and, ultimately, build market share.
In the Washington market, at least, Grand Union says it is committed to "matching Giant and Magruder, in parts of Montgomery County , the lowest-price supermarket chain in your community." A recent survey by Washington Consumers' Checkbook magazine ranked Giant's prices higher than all but two of the 16 supermarkets surveyed, however; One was Grand Union.
Although it's too early to assess the results of Grand Union's open challenge of Giant--the market's dominant chain--the new pricing program is going "pretty much as expected," reported Kenneth A. Brown, vice president in charge of Grand Union's eastern region.
It's been suggested that Grand Union's new corporate strategy might precipitate another price war here, but neither Grand Union nor Giant wants to get bogged down in one. Although Grand Union is a national chain, its share of the Washington market is only 9 1/4 percent, and much of that comes from its Basics discount food stores. The conventional Grand Union stores alone are hardly big enough to take on Giant and No. 2 Safeway in an all-out price war.
Even though Giant sits in the catbird seat with a hefty 41 percent share of the market, the lesson of last year's price war, which drastically cut earnings, is still fresh in the mind.
"We didn't take this position to precipitate a price war," Brown insisted. "We're not undercutting the competition. Now, if the competition wants to reduce his prices, then we'll match those. If that's a price war, well . . ." By concentrating too heavily on the pricing aspect of competition, however, Grand Union and other chains could run the risk of losing further ground to Giant if they aren't prepared to compete on a broader front.
By now, most industry observers are aware that Giant seized the lead in the Washington market by being aggressive and innovative. What's more, it should be obvious by now that merchandising experiments introduced by Giant within the past year were the prelude to a new strategy designed to solidify, if not increase, market share.
"We get the impression that pricing is not as big a concern in . . . Washington . . as in Baltimore," said David Uchic, associate editor of Food World, a Columbia-based industry publication. "Pricing is important, but that hasn't always been Giant's hook. Our feeling is that Giant is going to spin off many of its experiments by putting them in most of its stores."
That much was made clear by Giant Chairman Israel Cohen in remarks to stockholders last week. Perhaps just as important as sales results is "what we have learned and continue to learn" from those experimental units, Cohen noted.
Not only is Giant applying some of the lessons it learned from those experiments; it is committing much of a $50 million cache for capital expenditures to a remodeling program, in part to capitalize on the new merchandising concepts.
As an example, Giant's first free-standing drug store was used to test a full-line discount cosmetics department that recently was installed in a food-pharmacy combination store. The same concept will be added to other Giant supermarkets.
Several merchandising concepts borrowed from Someplace Special, Giant's new free-standing gourmet store in McLean, are being added to various supermarkets.
Within two months, Giant will open a 60,000-square-foot flagship store in Rockville on the assumption that it will "also give us invaluable information about the merchandising approaches we should be building into future stores," said Cohen.
In the meantime, even though officials decline to be specific, Giant is exploring three new food-processing areas to supplement its bakery, ice cream plant and dairy operations.