YOUR GUIDE TO THE TWIN CITIES
As Target and Wal-Mart have opened megastores, consumers have followed.
Anna Bjorkstrand shopped the Edina SuperTarget with daughters Elizabeth, 7, and Margaret, 10. In their cart were a large inflatable beach ball, folding chair, fresh apples, bananas, broccoli, and supplies for Margaret’s trip to summer camp.
Like most people, Cindy Bray of Edina used to do all her shopping at conventional grocery stores.
She'd get meat and produce at Lunds and Byerly's, the Twin Cities' higher-end grocery stores. For essentials like cereal and milk, she'd head to Cub Foods, the area's longtime supermarket leader.
But over the past year, that has changed. She goes to Cub a lot less, and SuperTarget a lot more.
Bray is among a growing number of Twin Cities shoppers who get at least some of their groceries from discount megastores, most notably SuperTarget and Wal-Mart Supercenters. A decade ago these stores didn't exist in the metro area; now they have about a quarter of the market.
The expansion of the discounters has made an already tough business that much more competitive, putting downward pressure on prices at all grocery stores -- a plus for consumers. And the grim economy of the past 18 months has only given the discounters more leverage.
"The discount channel has taken advantage of the downturn in the economy to attract more shoppers than they ever have before," said Jon Hauptman, an analyst at Willard Bishop, a suburban Chicago supermarket consultant.
Indeed, last year SuperTarget was the No. 2 grocery chain in the Twin Cities, its 13.9 percent share surpassing the 12.9 percent held by the longtime No. 2 player, Rainbow Foods, according to data from IRI InfoScan published by Trade Dimensions, a service of the Nielsen Co.
SuperTarget and Wal-Mart have grabbed business nationwide over the past decade by offering one-stop shopping -- everything from pears to pants -- combined with prices that tend to be lower than those at traditional grocery stores.
In some metro markets, Wal-Mart alone has 35 percent or more of the market. In the Twin Cities, the world's largest grocer has a 9.5 percent share through its Supercenters, according to IRI data.
Share gains by Wal-Mart and SuperTarget have come at the expense primarily of the Twin Cities' largest traditional supermarkets, Cub and Rainbow, analysts say. Still, Cub, a banner owned by Eden Prairie-based Supervalu Inc., commanded a healthy 35 percent of the market last year including franchised stores, according to IRI data.
Both Wal-Mart and Minneapolis-based Target have been adding more food items to their traditional stores as sales soften for electronics, home products and other more discretionary items.
Target plans on having 29 of its new "PFresh" stores -- conventional Target outlets with enhanced grocery offerings -- open in Minnesota by the end of the year. There are already 25 SuperTargets in Minnesota, mostly in the Twin Cities.
The PFresh concept has about 90 percent of the food categories of SuperTargets and about half the assortment, in a building that's about 20 percent smaller than a SuperTarget. It costs much less to retrofit standing Target stores for more food offerings than to build new SuperTargets.
The food megastore came relatively late to the Twin Cities, and labor unions here have fought it, saying big nonunion discounters drive down the wages and benefits of union grocery workers at stores like Cub and Rainbow.
Wal-Mart's first Supercenter didn't open here until 2002, 14 years after the idea was launched. The first Twin Cities SuperTarget outlet opened in 2001, six years after the original.
The Twin Cities area is by far Target's largest grocery market by share. Normally in its stronger markets, Target commands a 4 percent or 5 percent share, said David Livingston, a Wisconsin-based supermarket consultant. In Dallas, where SuperTarget has more stores than it does here, it still captures less than half the market share it has in the Twin Cities, IRI data show.
"They have the home-field advantage up there," Livingston said. Part of the Minneapolis-based company's success in the Twin Cities stems from shoppers' familiarity with the Target brand, which got its start here in 1962.
Target also staked out supermarket locations more quickly in this market than Wal-Mart, getting a jump on the Arkansas-based behemoth, said John Dean, a Twin Cities supermarket consultant.
Customers queried recently at a SuperTarget in Edina frequently cited convenience as a key reason for shopping there. "It's one stop," said Regan Hartney of Minneapolis as she left with a full shopping basket. In addition to food, she said, "I can pick up clothing for my kids or underwear or a mop. To have everything under one roof is huge."
And while she said she's not primarily driven by prices, "Target is a little cheaper, too."
Hauptman, of Willard Bishop, said his firm's research shows that Wal-Mart's prices are generally 13 to 20 percent cheaper across-the-board than those of conventional full-service supermarkets. Anecdotally, SuperTarget's grocery prices appear close to Wal-Mart's, he said.
Large price gaps are also evident in research by Credit Suisse stock analyst Edward Kelly, who regularly surveys the Chicago and Dallas markets. In February, for example, prices at the Chicago market leader -- Supervalu-owned Jewel -- were 16 percent higher than those at Wal-Mart and SuperTarget, which were running neck-and-neck for low-price leader.
Wal-Mart's massive scale, which gives it buying power, and the efficiency of its distribution system combine to give it a pricing advantage over conventional supermarkets, industry consultants say.
But labor unions have long claimed that lower prices at Wal-Mart and SuperTarget stem from lower wages and benefits than those earned by union workers at traditional grocers like Cub and Rainbow. Wal-Mart said its wages and benefits are competitive in every market in which it does business. Target said it places a "priority" on competitive wages and benefits, and regularly conducts wage surveys to ensure that it is competitive.
Cub and Rainbow declined to make top executives available for interviews.
Grocery industry experts say Wal-Mart and the Cubs of the shopping world have very different business models. "And that generates a much different shopping experience for consumers," said Willard Bishop's Hauptman.
Wal-Mart popularized the "everyday low pricing" model, and other discounters followed. Traditional stores like Cub and Rainbow use the "high-low" model of pricing, pasting higher prices on some goods, but offering low prices on promotional items.
Supervalu over the past year or so has edged toward everyday low pricing in Chicago, Southern California and Las Vegas, cutting prices by up to 20 percent on thousands of items. A more limited price reduction was instituted at the company's Cub stores.
Compared with discounters, traditional supermarkets also usually carry more products and brands, and offer a broader array of meat, seafood and deli items, industry experts say. They also often have large in-store bakeries. There's a cost to offering those goods and services, Hauptman said.
Patty Norgaard of Richfield shops primarily at Cub and cites its selection as a prime reason. "Cub has a better selection of meat and produce and a wider selection of brands," she said. "There's just more things to look at."
Queried recently outside of a Cub in Edina, Norgaard said she thinks Cub's prices are at least as low as SuperTarget's, too.
"I like Cub's specials, its BOGOs [buy one, get one free] and its coupons. They give you the feeling you're saving money, anyway."
Julie Hilden-Miller of Richfield also said she primarily shops at Cub and also believes it offers the best prices. "And it's not as dangerous as Target," she said with a laugh. "I buy clothes, household items there -- things I don't need."
Mike Hughlett • 612-673-7003
ADVERTISEMENT
ADVERTISEMENT
Chanhassen Dinner Theatre is offering sweetheart deals. Stay the night!
Dinner at Cosmos include choice of App, Entree and Dessert.
Free Valet.
ADVERTISEMENT