As budget-minded shoppers roll through grocery store aisles looking for ways to stretch their cash, grocers are responding to the competitive pricing environment by doing their own share of penny-pinching.
For
Wal-Mart Stores
--which touted itself as the low-price leader even when other stores tried to lure higher-income shoppers with remodeled stores and improved product mix--private-label products are the key. In March, the retailer said it would expand its Great Value store brand to offer more cheaply priced groceries and consumer staples to its customers.
Supermarket operator
Kroger
, which has one of the best-developed private-label businesses in the sector, has been able to win market share from rivals because store brands grant retailers more control over costs and pricing. In Kroger's first quarter, private-label revenue accounted for 35% of the quarter's sales. (See "Food Industry Is Hungry For Profits.")
Now
Costco Wholesale
is turning a more discriminating eye to its private-label business in hopes of padding profits without losing shoppers.
In a recent note, Deutsche Bank analyst Bill Dreher said the discounter is focused on expense control and is targeting its private-label business where the company's management sees significant profit-margin improvement.
Another innovative way that Costco is cutting costs, according to Dreher, is packaging. The company redesigned its milk cartons and grape containers to improve shipping efficiencies. "Our only concern is that these initiatives could take some time, possibly three or four years until they are able to more dramatically bear fruit," Dreher said.
Costco shares were up by 3 cents, or 0.1%, at $46.31 during Friday's afternoon trading session. Wal-Mart's stock slumped by 56 cents, or 1.1%, at $48.59. Kroger shares were up by 10 cents, or 0.5%, at $22.44.
Supervalu
, which warned earlier this week that aggressive promotions would result in lower than expected first-quarter earnings, saw shares up by 41 cents, or 3.1% at $13.70, while
Safeway
shares were down by 30 cents, or 1.4% at $20.49. Safeway reports second-quarter earnings on July 23.