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Blaming Wal-Mart is a common industry response, but it's also misguided. The grocers have contributed enormously to their own problems. Their inefficient supply chain, for instance, provided Wal-Mart with a golden opportunity. And their initial response to the new threat was fairly myopic. Like too many of his fellow grocers, Davis thought getting bigger himself would make things better. Before Wal-Mart, he says, "we tried to limit our distance from our warehouses to 300 miles. Now we're going 500 miles" to reach stores as far as the Gulf Coast. Kroger, Albertson's and Safeway each...
...There really is a crisis in the industry," says Gary Giblen, head analyst at boutique Manhattan research firm CL King & Associates. The sky started falling--along with same-store sales--in 2001, as alienated shoppers began steering their grocery carts not only toward Wal-Mart's food-laden Supercenters but also toward warehouse clubs, discount chains, drugstores, dollar stores and, on the high end, trendy salutes to organic produce. "Conventional supermarkets really have no reason to exist anymore," says Giblen. "They're basically becoming convenience stores...
...least on par with his peers'. He also maintains that his tough stance on labor negotiations--which resulted in a strike in Southern California that cost the region's big three chains some $350 million in earnings last quarter--won enough concessions to stay competitive, even after Wal-Mart unleashes its Supercenters in the area. The next step, experts agree, is to continue narrowing the price gap with the world's largest retailer and find a way to justify the remaining premium. Here's what supermarkets need to do to avoid the ultimate checkout...
After Wal-Mart launched its Supercenter format in 1991, it took the company three years to reach $1 billion in annual U.S. grocery sales. But a mere decade later, it is topping $100 billion a year, which is almost as much as the sales of the next three biggest chains combined. "To a certain extent, Wal-Mart's strength is more of a reflection of the lack of difference among stores," says Willard Bishop, a supermarket consultant in Barrington, Ill. Conventional grocers are starting to get the message--differentiate or die--which is why some are jazzing...
...mood seems to work. "There's something about this place that isn't in-your-face stimulating," says Cathy Beerbower, 45, who frequents the new Marsh store in Fort Wayne, Ind. And her reason for avoiding the local Wal-Mart--"it's too chaotic"--could be the industry's salvation. Kroger is trying to emulate the swanky Whole Foods scene in a few of its 2,500 stores by adding in-store chefs, gourmet meals and upscale wines. Likewise, Safeway, which is making a huge push into quality perishables in general and prepared foods in particular, is doing so with...