Supervalu says it will cut prices, review its options as result of fiscal Q1 loss; company's action seen as having 'negative effects on the entire retail food space,' says analyst

Cindy Allen

NEW YORK , July 13, 2012 (Associated Press) – Shares in grocery stores tumbled Thursday following word from Supervalu that it would cut prices, ramping up competition in a sector that is already fierce as consumers pull back on spending.

Supervalu, which owns Albertsons, Jewel-Osco, Save-A-Lot and other grocery chains, reported late Wednesday that it was making sweeping changes to its business following a dismal first quarter. The company is suspending its dividend and is reviewing its strategic alternatives.

The Minneapolis company had already lowered prices at some of its stores as part of a multiyear turnaround effort. It said that it needed to intensify those efforts and it now aims to have half of its stores review prices compared with peers by the end of this fiscal year, and the lower prices at the remaining stores in 2014.

Supervalu Inc. is making an aggressive attempt to win back customers that have switched allegiance, largely due to prices.

"(Supervalu's) actions should have negative effects on the entire food retail space," J.P. Morgan analyst Ken Goldman said in a research note. "The faster that Supervalu lowers prices, the faster its competitors either sacrifice share or match (Supervalu's) price investments and lose margin."

Goldman said it appears more likely that the industry, especially Safeway in Chicago, where SVU is taking prices down now, is going to experience more pain in the near term.

Safeway Inc.'s shares fell nearly 10 percent to $16.26 by midday. And shares of Kroger Co., the nation's largest traditional grocery chain, fell 4 percent to $21.88.

Supervalu fared the worst, falling more than 45 percent to $2.90 by midday, setting record lows for the company. Its stock had already lost nearly 90 percent of its value over the past five years as of Wednesday's closing price of $5.29.

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