Price wars weaken QFC, Fred Meyer owner Kroger Co.

CINCINNATI — The Kroger Co., which operates QFC and Fred Meyer stores, is hurting from California's ailing economy and the overall bite of a dollar-by-dollar price war under way nationwide for recession-pinched households' grocery spending.

The nation's largest traditional grocery chain reported Tuesday an $875 million third-quarter loss, largely because of a $1.05 billion charge to write down the value of its Ralphs division in California, which it acquired a decade ago. Even without that, its profit fell more than 25 percent.

Kroger also cut its sales and profit forecasts for the full year. Kroger shares plunged 12 percent, or $2.72, to close at $20.13. They reached $27.59 last December before falling to $19.39 in March.

More customers are coming into its stores, Kroger said, but they're spending less and focusing on bargains as price-cutting sharpens at Wal-Mart Stores, club stores like Costco Wholesale, and regional competitors like Meijer in Grand Rapids, Mich., and Giant Eagle out of Pittsburgh.

Walmart is the nation's largest grocery seller overall.

Chairman and CEO David Dillon said price competition remains wider and more intense than he can remember it ever being — and tougher than expected.

"Pricing and promotional activity increased to include more of our competitors, expanding to more of the markets we serve," Dillon said. "Retailers compete aggressively for every dollar."

Nationwide, Dillon said, shoppers are trading down and cutting back because they simply don't have the money they used to. With unprecedented numbers of Americans using food stamps, club stores have stepped up their competition with supermarkets for that business.

Kroger has some 2,470 groceries in 31 states under two dozen brands.