By Kristi Arellano

Denver Post Staff Writer

When Jan Gish goes shopping, she knows exactly where to get what she wants.

For meat, she goes to Wild Oats. For sugar-free items, it's SuperTarget. And when it comes to nonperishable foods, she heads to Costco and buys in bulk so she can share what she buys with ministries for the homeless.

"It gets to be a habit, shopping that way," said Gish, 67, of the many stops in her shopping routine.

The changing habits of shoppers like Gish are creating a dramatic shift for traditional supermarkets and causing them to lose precious market share to supercenters and natural grocers. Those habits have also propelled Wal- Mart Supercenters into a No. 3 position among metro-area Colorado grocers, leaving traditional grocers scrambling to keep customers.

Already an industry with low profit margins - around 2 percent - traditional grocers are being further taxed by this eroding market share. It has also become a major issue as grocery unions attempt to negotiate contracts with supermarkets that are trying to do everything they can to cut costs and remain competitive with Wal-Mart.

In California, grocers fended off pay increases sought by striking union workers. The stores' bargaining position was bolstered by the need to remain competitive with Wal-Mart. The 20-week strike cost the grocers billions of dollars.

In Colorado, the union that represents King Soopers, Safeway and Albertsons workers is currently in contract negotiations.

"The (traditional) grocery stores are being squeezed from all sides," said Candace Corlett, principal with WSL Strategic Retail in New York. "They really have to get into the mind-set of the shopper to bring people back into their stores."

Those that don't find ways to get shoppers back into their stores risk being forced out of the $680 billion-a-year grocery market.

Sixty-one percent of U.S. shoppers still do most of their food shopping at conventional supermarkets, according to data from Retail Forward, a Columbus, Ohio-based retail analysis firm. But even those shoppers are doing a bigger chunk of their shopping at supercenters, warehouse clubs, extreme value grocers and natural and organic supermarkets.

Analysts predict that traditional grocers will have to fight hard to bring those customers back.

Donald Lichtenstein, a marketing professor in the Leeds School of Business at the University of Colorado at Boulder, compares the current challenge for grocery stores to that faced by department stores when the dual forces of mass merchandisers and big-box specialty stores became a dominant force.

Those stores that survived the shake-out did so by focusing more on prices and frequent discounting, he said.

When it comes to prices, the biggest competition faced by traditional grocers is Wal-Mart. Wal-Mart Supercenters now own the No. 3 position among Colorado grocers based on market share, according to data from the Shelby Report, a trade publication that charts grocery industry sales.

SuperTarget stores have staked the No. 5 position based on their share of shopper spending.

While they don't show up in market share data, ethnic markets that offer products for Asian, Hispanic or Middle Eastern customers are also becoming a recognizable force.

Young Jo Kwak of Boulder shops more times at the Pacific Mercantile market in downtown Denver than he does at King Soopers or Safeway.

"It's a better place to get rice and Japanese stuff," said Kwak, 43. He still goes to traditional grocery stores for meat, eggs and "regular food," he said.

Even dollar stores are getting a share of the action and are steadily increasing the percentage of food items they stock.

"Consumers these days have so many more shopping choices that they've gotten spoiled," said Jon Schallert, president of The Schallert Group, a Sorrento, Fla.-based retail consulting firm. "They feel like they should get it exactly like they want it."

Organic and natural grocers such as Boulder-based Wild Oats and Austin, Texas-based Whole Foods are the main grocery source for only 1 percent of shoppers, according to Retail Forward. But the two grocers' Colorado stores rank seventh and eighth, respectively, in this state's market share, according to the Shelby Report.

That's largely because of buyers like Monica Sisneros of Aurora.

Sisneros does most of her shopping at the Safeway near her home. She visits Wild Oats and Vitamin Cottage for gluten-free products for her son, then heads to Sam's Club to buy meat, soda and paper products.

Analysts suggest that the best way for traditional grocers to fight back is to focus on their strong points - prepared foods in the deli, homemade breads in the bakery and specialty cuts in the meat department.

Those are the areas where customers are more selective and are likely to splurge, Schallert said.

Kroger, for example, has launched a new concept called Fresh Fare that focuses on these areas. The company is considering converting a King Soopers store in Greenwood Village into a Fresh Fare.

"The vulnerability for Wal-Mart and other supercenters is in the specialty items and anything that has to be customized," Schallert said. "They're good at putting 10 pork chops in a package 300 times, but they're not so good at getting that special cut of rib roast that you need for Christmas dinner."

Christine Miller, 45, of Highlands Ranch agreed. She frequents supercenters because they're convenient but still does the bulk of her shopping at King Soopers.

"The produce (at supercenters) doesn't look that good," she said.

denverpost.com