Giant Food Inc., aided by an aggressive discount pricing program that it launched last fall, yesterday reported net income rose almost 15 percent in the first quarter, which ended May 23. Sales for the period increased more than 10 percent, according to unaudited results reported by Giant.
Giant attributed the increases to substantially higher volume in the chain's 144 supermarkets, higher profit margins and tighter expense controls.
"We said we were going for market share and volume and that's what we got," said David B. Sykes, Giant's senior vice president-finance, secretary and treasurer.
Giant said net income for the period that ended May 23 was $15.4 million (51 cents a share), compared with $13.4 million (45 cents) in the same quarter a year ago. Net income as a percent of sales was 2.55 percent, compared with 2.45 percent. Sales increased from $547.8 million to $605.6 million, a gain of 10.6 percent.
The industry's average net income as a percent of sales is about 1.2 percent, although several regional chains, like Giant, regularly record levels of 2 percent or more.
"Everything we said we were going to do, we did," Sykes said in an interview yesterday.
Last September, Giant slashed prices by as much as 25 percent on more than 2,000 items in its stores. At the time, officials at the Landover chain said that the pricing strategy was designed to build market share. In response, Safeway and other grocery chains operating in the Washington area dropped their prices.
Giant's earnings initially declined because of the price skirmishes, but sales volume continued to climb. When Giant officials announced the warehouse program, they said the company was prepared to withstand short-term earnings declines in exchange for long-term gains in profit, volume and customer loyalty.
Yesterday's announcement of Giant's operating results for the most recent 12-week period came only a few days after Food World, a Columbia, Md., trade publication, reported that the chain had significantly increased its dominance in the Washington market.
Giant has widened its market share by a hefty 2 percentage points in the past year, according to Food World. A recent survey conducted by the publication shows that Giant captured 45.35 cents of every dollar consumers spent in area food stores, compared with 43.32 cents last year.
Safeway Stores Inc., Giant's closest competitor in the Washington market, lost market share to Giant, according to Food World. Safeway's percentage of the market dropped from 33.6 percent to 32 percent as it lost ground to Giant in the competitive price war.
Giant cited the results of the Food World survey in the earnings statement it issued yesterday. But Sykes would only say that the survey had been reliable in the past.
Asked whether Giant plans any changes in its pricing strategy, Sykes said: "We've got a formula that seems to be working. And as long as it's working, I don't see any need to change."