Wal-Mart May Spur Supermarket Frenzy

U.S. supermarkets are gearing up for a price war after industry leader Kroger Co. signaled on Dec. 11 that it was going to model its business after Wal-Mart Stores Inc., the discounting giant whose move into food in recent years has threatened their sector.

For months, the largest of the traditional supermarket operators — Kroger, Albertson’s Inc. and Safeway Inc. — have maintained that they not only hold their own against Wal-Mart, but that they even stand to gain market share as smaller, regional and independent players got squeezed out of business by the world’s largest retailer.

But as the economy has softened, with the U.S. jobless rate soaring to a six-year high in November, consumers have been lured to supercenters’ rock-bottom prices on staples like food and cleaning products.

And it’s the consumer who stands to win as companies compete on the grounds of lower prices, especially with inflation slowing.

Industry analysts applauded Kroger for using its size and clout to aggressively take market share, but cautioned that its actions will intensify an already competitive environment for the whole sector.

• U.S. retailers reported the weakest sales growth for November since the recession of 1990, as layoffs, deep discounting and warm weather strained the purchase of clothing and other nonessential items.

As in recent months, discount chains such as Wal-Mart Stores Inc., Target Corp. and value-priced department store Kohl’s Corp. outpaced other retailers.

Shoppers avoided splurging at department stores and specialty retailers like Saks Inc. and Gap Inc., the No. 1 apparel chain, which suffered a 25 percent decline in same-store sales. Instead, they snatched up basics for the home, such as food, housewares and fabric.

An index of same-store sales data from 77 retailers by Bank of Tokyo Mitsubishi showed sales rose 2 percent in November, lower than expected sales growth of 3 percent, and below a 4 percent increase in October.

It was the smallest November rise since 1990, when the index inched up 1.3 percent, said Michael Niemira, an economist with the Bank of Tokyo Mitsubishi.

Weak sales could have been worse, given many retailers benefited from a reporting period that ended one week closer to Christmas than last year.

November and December are crucial for retailers, accounting for as much as one-quarter of their annual sales.

But U.S. consumer confidence dipped for a fifth straight month in November, and is its lowest level in more than seven years. Consumer confidence is closely watched because it can give hints about future spending, which accounts for about two-thirds of all U.S. economic activity.

Consumers planned to spend $1,564 per household during the holidays, down 7 percent from $1,684 last year, according to an American Express poll conducted in November of 800 people across the United States.

Wal-Mart, whose sales had been exceeding expectations in recent months, fell in line with guidance in November. The company said sales at stores open at least a year — or same-store sales, a key measure of retail performance — rose 4.3 percent, at the low end of its projected 4 percent to 6 percent range.