Chains chip away at local Kroger dominance

New data shows combined market share of Wal-Mart, Publix equals that of Kroger for first time

Email | Print By Glenna DeRoy

03-20-2008 3:41 PM —

Kroger, long Middle Tennessee's grocery king, will soon have to fight harder than ever to retain its throne.

The company's 46 area stores commanded just over 41 percent of the region's market at the end of last year, according to data compiled by industry researcher Shelby Publishing Co. That was down from almost 47 percent in 2004 and just a few tenths of a point above the combined share of Wal-Mart and Publix, its two largest competitors.

Wal-Mart and Publix, which run a total of 38 local stores, added a whopping six points to their combined market share in 2007, cementing a trends that began when Publix entered Middle Tennessee in 2002. To view some of Shelby's numbers, click here.

The shift in the market illustrates the dog-eat-dog nature of the grocery business, said Jarron Springer, president of the Tennessee Grocers & Convenience Store Association.

"Competition in the grocery business is a good thing for the consumer, but it is a very competitive industry, so every grocer is pushing to bring customers though the door," he said. "They're out there scrapping for their piece of the pie."

But Springer cautioned market share decreases do not always mean lost profits. Grocers can take home higher profits just by holding their own in a growing area like Nashville.

But Cincinnati-based Kroger (Ticker: KR) lost almost 4 percentage points of market share in 2007, its largest drop in the past four years. And the $70 billion titan has seen its market share per store drop in recent years, whereas Wal-Mart and Publix's numbers have held steady.

The Middle Tennessee dynamic is not troubling Kroger stores elsewhere in the country, said Meghan Glynn in the company's corporate communications department. Kroger's market share last year grew in 37 of its 44 biggest markets, she said.

The distinctiveness of the Middle Tennessee market might be partially explained by the recent arrival of Florida-based Publix, which entered the area in mid-2002 and now operates 19 stores in the area. The company plans to finish four others in 2008, said media and community relations manager Brenda Reid. Construction on two more stores also should begin this year.

Kroger and Wal-Mart (Ticker: WMT) have typically opened fewer stores, just one or two in Middle Tennessee a year, but the Tennessee Grocers' Springer said Publix's more rapid growth should not throw off Kroger too much.

"When someone comes in like that, it's going to influence the market in some ways," he said. "But do I see a major issue with that? No. I think (Kroger) will continue to be as competitive as they've been for many, many years."

Glynn did not return calls for comment on current Kroger's area growth strategy. In the recent past, the company has used renovations – allotting $120 million to Middle Tennessee this decade – to combat competition from newer stores.

Wal-Mart may have been able to chip away at Kroger's advantage because the company tailored its offerings to its core consumer well, Springer said. The discount chain operates 16 Middle Tennessee locations.

"Look at the economy and the way the economy is going," he said. "Discount retailers are attracting customers through pricing, but the stores that aren't necessarily labeled as discount retailers have had to use other ways to attract customers."

Kroger stores have succeeded at this aim better in other markets with a large Wal-Mart presence, however. Glynn said Wal-Mart has achieved at least a No. 3 share position in 34 of the markets where the two chains compete, but Kroger's market share fell in just three of these markets.

Wal-Mart spokesman Phillip Keene would not comment on the company's strategy or market share in Middle Tennessee, saying only that "Wal-Mart is continually focused on serving our customers in Tennessee with low prices on quality merchandise."