U.S. cereal makers are locked in a price war, and their battle for market share is hurting profits and threatening to persist into next year.

It’s unclear who will buckle first.

In an interview with MarketWatch, Kellogg Chief Executive David Mackay said supermarket chains and other retailers were using cereal to draw shoppers into their stores, just as cheap milk and meats were dangled in front of consumers earlier this year. Weak cereal prices forced Kellogg to cut its 2010 profit- and sales-growth targets.

He said the price war — which has effectively erased the price gap between brand-name cereals and store brands — could end as early as October or as late as December.

“It’s not something good for the category,” Mackay said. “Our approach going forward is to take a very responsible and reasoned approach to what we do from a promotional perspective.”

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Target Corp.’s remodeling program to add fresh produce at its general merchandise stores and its new credit card discount are exceeding expectations, according to a key retail analyst.

In a note published Wednesday, Citi Investment Research Deborah Weinswig wrote that Target is confident that both initiatives will drive profitability, based on a recent meeting with management. She reiterated her “Buy” rating on the stock.

“While the apparent pause in the economic recovery has caused management to plan their business more cautiously for (the second half), we believe that stronger sales in apparel and continued momentum with (the remodel) should result in strong earnings growth,” Weinswig wrote.

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Led again by increases in prices for meat and dairy products, the overall cost of items in the FOX Business shopping cart rose sharply in May — the seventh time the food basket prices have increased in the last eight months.

The May increase — 60 cents, or 0.83% — was the largest month-month jump since August 2008 and followed a 56 cents, or 0.81%, increase in April.

The 31-item shopping cart cost $73.00 in May, the highest it has been since January 2009. Year over year the total cost of the items in the shopping cart rose for the third month in a row, with the largest year-year increase since April 2009.

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Craig Chancellor tried everything he could, but last November he finally closed the Turkey General Store, leaving the small Texas Panhandle town without a grocery.

Although Chancellor tried to trim overhead and relocated a small cafe he owned into the store, he couldn’t make it work. He paid more for salaries and utilities than he made in sales, and finally, lost more than he could afford.

“It didn’t play the way we wanted it to,” the 48-year-old Chancellor said. “People understand why we had to do it, but they hate it.”

Researchers said Chancellor’s story is being repeated across the country as rural stores struggle to survive amid competition from distant supercenters and relatively high operating costs. The grocery industry and government don’t keep statistics on rural store closures, but experts said a long-running trend seems to be picking up speed. A survey by Kansas State University backed up that belief, finding that more than 38 percent of the 213 groceries in Kansas towns of less than 2,500 closed between 2006 and 2009.

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Part warehouse grocery, part conventional supermarket. That’s what customers will experience at SmartCo Foods, a new chain that opened the first of its five Denver-area stores Tuesday.

SmartCo is pitching an all-things-to-all-shoppers approach that analysts say could prove popular — if the chain can establish its identity in Colorado’s competitive grocery industry.

Parent company Smart & Final of City of Commerce, Calif., acquired five metro-Denver sites formerly occupied by Albertsons. In addition to the newly opened store at 1442 S. Parker Road, outlets in Denver, Centennial, Littleton and Longmont will launch in July and August.

Smart & Final has built a reputation in California and other Western states primarily as a warehouse discounter that caters to food-service customers who buy in bulk. SmartCo stores will add a conventional supermarket element with regular-size items, fresh produce, bakeries, meat departments and delis.

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Companies always keep a close eye on competitors, but when your rival is the biggest retailer on earth the pressure is even tougher. Supermarket retailer Kroger Co. reported its first-quarter results Thursday – net income fell but the results beat expectations and sales grew. However, the grocer is facing tough competition from Wal-Mart Stores Inc., which recently rolled out some of its fiercest reductions in food prices to help boost its slumping sales. Wal-Mart gets about half of its revenue from groceries.

» Click here to read the transcript of Kroger CEO David Dillon’s conference call with analysts.

Source: The Columbus Dispatch

Fifteen Columbus-area stores will be part of a national effort by drugstore chain CVS to double its grocery sections by year’s end.

The local stores will be among 125 in Ohio and 3,000 nationally to increase nonperishable food offerings, said Erin Pensa, senior public relations manager for CVS.

“CVS is increasing these offerings so customers can save time and grab last-minute items when picking up their prescriptions and everyday essentials,” Pensa said.

Items include CVS’ Gold Emblem line of snacks and popular national-brand staples, Pensa said.

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Source: Miami Herald

When a customer in Louisiana likened the new Winn-Dixie prototype store to a Whole Foods with cheaper prices, it was the best compliment Chief Executive Peter Lynch could have received.

It’s also a sign of hope for the chain that emerged from bankruptcy in 2006 and has been slowly trying to remake its image.

South Florida shoppers will get a chance to judge for themselves when Winn-Dixie opens the prototype’s first Florida location on Wednesday in Margate at the site of a former Publix. It’s also the first new store for Winn-Dixie in the state since 2004.

While Winn-Dixie has remodeled about half its stores in the last couple of years, this is the difference between a makeover and major cosmetic surgery.

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The U.S. Agriculture Department trimmed its food inflation forecast for 2010, projecting prices at grocery stores and restaurants will rise at the same rate.

The USDA lowered the consumer price index for all food to gain 2.5% to 3.5% from its December forecast of 3% to 4%. The outlook changed because government forecasters don’t expect food prices at restaurants to advance as much as expected.

The USDA also pared its price inflation outlook for fish, oils and fats at grocery stores.

It affirmed its inflation targets for meats, cereal and sugar. Sugar prices are flirting with 29-year highs in the futures market due to tight global supplies.

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Source: The Packer

Supervalu Inc.’s shelf simplification plan suggests slimmer fruit and vegetable pickings for consumers and tougher dealing for produce vendors, analysts say.

The Eden Prairie, Minn.-based supermarket chain, aiming to curb costs and sell more store-branded products, will reduce the number of items offered per store, Supervalu chief executive Craig Herkert told analysts in a mid-January conference call.

Supervalu hasn’t specified to what extent produce offerings may be reduced, if at all, and it’s unlikely popular items like bananas, apples and lettuce would be affected. But it might get tougher to find the more exotic items, said Harry Balzer, analyst and vice president of market researcher NPD Group Inc., Port Washington, N.Y.

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