Prices fall as grocery competition heats up in Cincinnati

CINCINNATI - Can you feel the falling prices?

The U.S. Bureau of Labor Statistics said grocery prices fell nearly four times faster in Cincinnati than the rest of the country in the first half of 2016. Cincinnati saw a 2.3 percent decline in the grocery items that make up the Consumer Price Index, while the rest of the nation dipped 0.6 percent.

“It certainly doesn’t feel like that to me,” said Mike Schlotman, chief financial officer for The Kroger Co.

Schlotman said deflation is having an impact on Kroger this year. The company has warned investors that its 2016 profits could suffer because of falling food prices. But Schlotman said the impact is spread evenly across the country and isn’t more severe in Cincinnati.

Still, the decline happened in the same six months that Amazon launched its Prime Now delivery service here and the German-owned discount chain Aldi opened several new stores in the region.

So WCPO ran a price check on local grocery competitors to see whether increased competition could be having an impact on grocery pricing. WCPO compared in-store prices on 35 products that make up the “market basket” of goods on which the government bases inflation estimates. More than 60 percent of those prices were below average CPI estimates for September, the most recent month available.

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The data shows Amazon is the only Cincinnati retail competitor with prices above the national average. Aldi and Walmart are more than 25 percent below.

Schlotman declined to comment on individual competitors. He also said Kroger’s pricing strategies can’t always be captured by checking prices at the shelf. That’s because Kroger’s digital team uses purchasing data to send discount offers that differ by consumer. It’s one of many ways that Kroger combats discounters.

“We always build our business plans assuming the next year will be more competitive than the year before,” Schlotman said. “A competitor who figures out how to operate on a lower margin; you just have to figure out a way to compete with somebody who has a new trick, if you will. We’re 133 years old this year. The one thing we like to say at Kroger is, ‘The one constant is change.’”

Aldi declined an interview request, but answered some questions in writing.

“As a private company, we don’t share financial information, but I can tell you that sales are up,” said Miranda Coello, who works for Aldi’s public relations firm in Chicago. “Rising demand for Aldi is fueling significant expansion nationwide as more shoppers are discovering that they can find the majority of their grocery list at Aldi while saving up to 50 percent over traditional grocers.”

Aldi is the first of two European chains to announce major U.S. expansions with a discounting strategy that involves small, no-frills stores and a limited roster of product options – most of them from private-label suppliers.

Wall Street analysts expect Kroger to withstand challenges by Aldi and Lidl, which is said to be planning about 150 new stores on the East Coast by the end of 2018. Amazon has also revealed plans to open up to 2,000 U.S. stores, but Aldi is the first of these discount operators to operate in Kroger’s hometown.

Aldi has 20 stores in Greater Cincinnati, four of which opened this year. It won’t say how many additional stores are planned as part of a national expansion that will boost its U.S. store count to 2,000. It now has 1,600 stores in 34 states.

“Pricing is just one element of how people decide to shop,” Kroger CEO Rodney McMullen said in a recent meeting with analysts. “Customers tell us it’s as important as the way they’re treated, how long they’re in line, the freshness of the produce, the freshness of the meat and getting the products they want. That’s just as important as price.”

But WCPO found plenty of evidence that price battles are blazing in the aisles of local grocery stores. WCPO checked prices on 35 products for which CPI data was released in September, comparing those national averages to the actual price for store brands and consumer packaged goods. The price survey took place between Oct. 30 and Nov. 7 at Amazon.com and five local stores.

Here’s how the six rivals compare on the lowest prices available for all 35 products combined:

Amazon - $114.13

National average - $96.73

Remke - $96.58

Kroger - $86.41

Meijer - $83.55

Walmart - $72.38

Aldi - $69.94

This searchable database shows all prices obtained over 10 days at Amazon.com and grocery stories in Florence, Newport and Oakley:

Here are some key takeaways from this survey:

• Amazon’s Prime Now service is definitely not driving prices down in Cincinnati, as the lowest prices available from its home-delivery service are 11 percent higher than the national average. We weren't able to find Prime Now products on 16 of the 35 items in the CPI market basket. The Amazon price gap is even wider when you include Amazon Fresh products. That service is not yet available here in Cincinnati.
• Meijer had the best deals on dairy products, with a market basket 40 percent lower than the national average. Walmart wins in the meat category, at 30 percent cheaper. Aldi is the winner in packaged goods; it's 40 percent cheaper. Kroger wins in produce with prices 16 percent lower than the national average.
• One thing this analysis demonstrates is the impact of buying store brands on your grocery bill. Meijer had the biggest discount in this regard, with its store brands priced 39 percent lower than comparably priced national brands. At Kroger, the difference was 28 percent, followed by 22 percent at Remke and 12 percent at Walmart. The impact couldn’t be measured at Aldi, where the store brand is typically the only product offered.
• Finally, the difference in prices for individual products is interesting. Take bologna, for instance. The national average price in September for a pound of all beef or mixed meat bologna was $2.66. But our price checks showed you could pay as little as 95 cents a pound for Aldi’s store brand, or up to $6.49 a pound for the premium Boar’s Head brand at Kroger.

Kroger has been telling investors that it continues to grow market share in cities where price competition takes hold. It does that by keeping customers loyal with targeted discounts, recipe ideas, an expanding line of organic foods and convenience-related improvements like its ClickList online ordering system.

Schlotman said Kroger’s size also helps. With more than 2,700 stores in 35 states, Kroger is somewhat insulated by regional differences in economic trends like inflation, labor costs and competition.

“There’s always pockets of competition out there,” Schlotman said. “If I was only in a market that was highly competitive right now it’d be a struggle to go through. But we can withstand that because of our geographic dispersion across the country.”