Big grocers under stress

As the low-cost grocer Winn-Dixie filed for bankruptcy this week, the news sent a shudder - and a sense of tragedy - through the world of stockholder-owned grocery stores.

The bankruptcy - one of the larger corporate collapses in retail food history - is the latest in some 26 recent supermarket chain bankruptcies, a parable of a trip to the grocery store gone awry amid changes in the very concept of dinner. The bankruptcy highlights a nation of increasingly cost-conscious consumers drawn as much by 32-cent avocados at Wal-Mart as by the sirloin and Charmin at Safeway.

It also underscores how much traditional supermarkets have been squeezed on the other end by speciality stores, selling everything from New Zealand lamb chops to free-range chicken. Other forces are bearing down on traditional grocery stores, too, from a trend in America toward eating out to a decline in family size.

"The whole culture of food and eating is changing right in front of our eyes," says Harvey Hartman, president of the Hartman Group Inc., a retail consulting firm in Bellevue, Wash. "Now we have a customer who has changed, who is moving forward, and these old established brands are irrelevant to them."

So, while old-line grocery stores like Dominick's in Chicago, Genuardi's in Philadelphia, and Tom Thumb in Houston are all struggling, today's consumers stray toward natural-food outlets with names like Whole Foods (whose new store on Manhattan's Lower East Side is eagerly awaited by gourmet-conscious New Yorkers), Trader Joe's, Ukrop's, and Wegmann's. There is also a slew of independents, from Fresh Market to Earth Fare. On the other end, there is the emergence of perhaps the biggest threat to traditional grocery stores - Wal-Mart.

This checkout conundrum has been sneaking up on middle-of-the-road grocery stores, which can now only wonder how they fit into the habits of the modern-day shopper. "Grocers don't know who they are," says Mr. Hartman. "They're fighting Wal-Mart on one flank. They have a store within a store to fight the natural-foods marketplace. They're doing prepared foods on another flank. They have lost any kind of meaning to a particular customer."

Part of the pressure on stores reflects changes in consumer tastes and buying patterns. In an age of compressed lifestyles, some 33 percent of shoppers now buy ready-made foods - chicken dinners and butternut-squash soup. Grocery chains have responded, putting in delis and salad bars. Some stores like Winn-Dixie, however, haven't kept up with the changes as much and have suffered as a result, analysts say.

"It's fashionable to say that you don't like supermarket shopping, but the fact is, people enjoy it," says Michael Banks, a retail marketing expert in Danville, Calif. "And supermarkets have worked hard to make shopping an experience and not so much a chore."

Indeed, many Americans are willing to shell out more money for higher-quality food and a more pampered shopping experience. The expectation is being driven in part by the health and wellness movement. Some 62 percent of Americans say they're willing to spend more for quality food.

That can be seen on Wade Avenue in Raleigh, N.C., where supposedly time-conscious shoppers are leisurely sipping cappuccinos at cafe tables in front of Whole Foods. Inside the store, clerks serve up food and cut flowers and monitor bins of dry goods.

Christina Aristakos, a vegetarian, calls this a "major revolution" in grocery shopping. People are paying "more attention to their food supply," she says.

To be sure, some shoppers derisively refer to Whole Foods as "Whole Paycheck." Going in for just some celery, Ms. Aristakos left with $50 worth of organic bananas and arugula. "You can't get out of there for less than $30 or $40," she complains.

The owner of a vegetarian cooking school, Ms. Aristakos isn't averse to buying organic tomatoes at the lower-scale Food Lion. But she does like the prompt response Whole Foods gives her on complaints.

On the other flank is an equally strong trend toward "commoditization," epitomized by the rock-bottom prices in Wal-Mart's well-lit aisles. In many ways, Wal-Mart is a destination in itself, a place where shoppers can get everything from motor oil to flour. But it does have its limits. "Wal-Mart is the basket you fill up, get the cheap stuff, throw something at the kids," says Mr. Banks. "But when you want a nice rack of lamb or ribs, you're not going to go to Wal-Mart."

Of course, many traditional supermarkets have also been affected by the rise of convenience stores, which sell staples on almost every street corner and are often open all night. They are getting more competitive, too: Convenience stores in England now sell roasted chicken and potato salad, and most analysts think they will be coming here soon.

As Hartman puts it: "The further shakeout is that the number of occasions that people are going to the grocery store has declined, which means you're buying food products in different places than the regular grocery store."

All this and other forces contributed to Winn-Dixie's decline. It's an "old company that fell asleep at the wheel a long time ago and finally went off the road," says David Livingstone, a grocery store expert in Pewaukee, Ill. "Without any meaningful attempts to compete, Winn-Dixie got squeezed."

Anita Tucker of Raleigh still shops at Winn-Dixie - but also Wal-Mart. Heaving bags into her trunk outside a Winn-Dixie this week, the grandmother said she was surprised to hear of the bankruptcy, sort of. "I have to admit," she says, "sometimes the service is lacking. The clerks stand there and give you a look, like, 'Who are you?' "

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