Analysts Say Supermarkets Are Set for Price War
NEW YORK - A price war among U.S. supermarkets could be on the horizon after industry leader Kroger Co. recently signaled it is modeling its business on Wal-Mart Stores Inc., Reuters reports.
Kroger's Chairman and CEO Joseph Pichler said on Tuesday in a conference call to analysts that Kroger had not done enough to remain competitive with supercenters. He outlined a program to free up funds and maximize economies of scale. The plan includes reducing operating and administrative costs by more than $500 million, partly through job cuts.
Analysts applauded Kroger for taking a sales-driven approach to the supercenter challenge, but also noted the high risk involved in starting a price war.
"Kroger is beginning to behave more like an 800-pound gorilla in the most fragmented and inefficient food retailing market in the developed world, in our opinion," analyst Mark Husson of Merrill Lynch said in a research note, according to Reuters.
"What they have done is basically up the ante in terms of the competitive environment for the whole group," said Neil Currie of UBS Warburg, according to Reuters. "First of all, it's putting a red flag in front of Wal-Mart's eyes. Secondly, you just can't expect your supermarket competitors, like Albertson's and Safeway, to stand back and idly watch their market share being taken away. So I'd expect a competitive response," Currie said.
Kroger's Chairman and CEO Joseph Pichler said on Tuesday in a conference call to analysts that Kroger had not done enough to remain competitive with supercenters. He outlined a program to free up funds and maximize economies of scale. The plan includes reducing operating and administrative costs by more than $500 million, partly through job cuts.
Analysts applauded Kroger for taking a sales-driven approach to the supercenter challenge, but also noted the high risk involved in starting a price war.
"Kroger is beginning to behave more like an 800-pound gorilla in the most fragmented and inefficient food retailing market in the developed world, in our opinion," analyst Mark Husson of Merrill Lynch said in a research note, according to Reuters.
"What they have done is basically up the ante in terms of the competitive environment for the whole group," said Neil Currie of UBS Warburg, according to Reuters. "First of all, it's putting a red flag in front of Wal-Mart's eyes. Secondly, you just can't expect your supermarket competitors, like Albertson's and Safeway, to stand back and idly watch their market share being taken away. So I'd expect a competitive response," Currie said.