Gains by Safeway, Kroger hold retail index in check

February 20, 2004 11:03:02 (ET)



CHICAGO (CBS.MW) -- Shares of the nation's largest grocery stores forged ahead Thursday, offsetting weakness by other stocks in the retail sector after an analyst declared that the big supermarket chains are able to hold their own despite the growth of Wal-Mart.

The S&P Retail Index ($RLX) was fractionally lower at 390.37. Shares of Safeway (SWY, Trade) tacked on 26 cents, or 1.1 percent, to .47 while Kroger (KR, Trade) was higher by 17 cents to .42.

In a new report for its clients, Merrill Lynch urged clients to buy shares of Kroger and Safeway, saying an upturn in the economy bodes well for food retailers.

Additionally, the report asserted that Wal-Mart doesn't deserve being branded as the bane of big-city grocery stores, which have cited the effects of competing against the retail behemoth.

"Wal-Mart is hammering away at the whole industry, but its growth is focused on smaller-town America and its impact is greatly overestimated in big cities," analyst Mark Husson wrote in the Merrill Lynch report.

Husson said that neither Kroger nor Safeway has lost share. "In some markets," he said, "Wal-Mart is more important than the cycle, but the large big-city retailers, these can be counted on the fingers of one hand and are often in Texas," which has seen an explosion of oversized supermarkets in the last 18 months.

Elsewhere, Albertson's (ABS, Trade) added 31 cents, or 1.3 percent, to .77. Great Atlantic & Pacific Tea Co. (GAP, Trade) bagged 20 cents, or 2.6 percent, to .92. Supervalu (SVU, Trade) was up 18 cents to .55.

Winn-Dixie (WIN, Trade), which has been hardest hit by the influx of new competitors to its Texas hold, declined 7 cents, or 1.1 percent, to .12.

Wal-Mart (WMT, Trade) shares climbed 46 cents to .84.

There's going to be a pretty big "revolution" in retail coming soon with RFID, and I suspect that people want to get in on it over the next couple years. Wal-Mart is pioneering this work.

RFIDs are product labels that uniquely identify products. It's similar to a UPC code, but instead of being scanned with a laser beam, they're scanned by radio waves. You'll put your bag of groceries on a scanner, and the whole bag will be scanned.

Needless to say, this will mean that checkers will be put out of work. Will the union have the clout to do what Harry Bridges did with the longshore workers back in the early 1900s? Back then he knew automation was coming to shipping, and it's would be good, but it would put workers out of a job. They cut a deal where increased productivity would mean increases in wages. That's why longshore union pay is up into the six figures. (Two senior longshore workers make, combined, almost what Rick Icaza makes.) (And is that high pay destroying American trade? Seems to be doing okay to me.)

Soon, over the next decade perhaps, they may replace four checkers with one. Will this remaining person get paid four times what a checker makes? Hell no. But where's the justice in the situation if this new person makes less than a current checker? That could happen, and the bosses (and big shareholders) would love it. Justice is a raise for everyone at the store, at every store. This helps the workers, helps competing small businesses who can't afford the RFID scanners right away, and helps the local economy by pumping more money back into it.

Increased efficiencies can be turned into better wages for everyone, but only if you have some clout to demand them, and requires developing politics.