Supermarkets' food fight over pricing pares corporate profits.

L.A. County supermarket chains are losing bushels of money by cutting thousands of prices in their continuing battle for shoppers' dollars.

"This is a game of who can lower prices more," rather than "games of bells and whistles," said Don Beaver, president of the California Grocers Association.

With market growth stalled, the chains are slashing prices to nibble into rivals' pieces of the pie. And the fight is splattering their bottom lines.

Vons, which dropped prices in January, reported a 76 percent decrease in profits during its second quarter compared with a year earlier. Also, Lucky reported a 29 percent drop in profits during the first quarter of 1993, when it lowered prices, and an 8.2 percent drop the following quarter as well, compared with a year earlier.

In the price skirmishes, Lucky led the way by slashing prices in February 1993, and Vons, Ralphs and Food 4 Less are all following suit, Beaver said.

Most recently, Food 4 Less lowered prices on 10,000 items July 28, said company spokesman Darius Anderson. Food 4 Less operates the Alpha Beta, Boys, Viva and Food 4 Less chains in Southern California.

The division of the supermarket pie has changed slightly in the price-slashing process. In 1993, Vons gobbled the biggest share of sales in Los Angeles, Orange, San Bernardino and Riverside counties, Lucky took second, Ralphs ran third, and Food 4 Less ranked fourth, according to statistics compiled by Georgia-based Food People, a national food trade newspaper.

This year Vons and Lucky retained their No. 1 and No. 2 shares, but Ralphs and Food 4 Less switched places, according to the statistics.

Until a couple of years ago, supermarket chains in L.A. County refrained from cut-throat price wars because they believed lowering their prices would just lead to their competitors following suit. Then everyone's profit margins would be hit, and no one would gain market share, said Edward Comeau, senior vice president with Lehman Bros., a New York-based investment banking firm.

And until recently, Buena Park-based Lucky Stores Inc. carried the most prominent reputation for being a low-priced, full-service supermarket chain, noted Thomas Meyers, director of research with Conseco Capital Management Inc., an Indianapolis-based investment advisement firm.

But during the past 18 months, Lucky has boosted its emphasis on lower prices and started heating up competition, Comeau said. It lowered prices on 2,500 items in February 1993 and has continued to drop prices on selected items periodically since then, said Lucky spokeswoman Judy Decker.

In addition, population growth in L.A. County slowed down a bit during the past couple of years, leaving fewer new consumers for the supermarket chains to hook, said Debra Levin, a food retailing analyst with Morgan Stanley Inc., a New York-based brokerage firm. Chains could no longer count on boosting sales just by riding a wave of overall market growth.

And all the while, the supermarket chains are trying to perform against the backdrop of a local economy that is still in a recession, analysts say.

Thus, "I don't think things are going crazy, but they're heating up," Meyers said.

Illustrating the wages of heightened rivalry, La Habra-based Food 4 Less Supermarkets Inc. announced in July it plans to seek a court order prohibiting Lucky from calling itself the "low price leader," according to published reports. A hearing on the issue has not yet been set.

And Arcadia-based Vons Companies Inc. blamed its second quarter drop in profits on squeezed margins resulting from competitive price-cutting. Vons earned $4.5 million on revenues of $1.16 billion in the fiscal second quarter ended June 19, vs. $17.7 million on revenues of $1.17 billion the year before.

"We made dramatic decreases in our pricing to allow us to be even more competitive in the marketplace," said Vons CEO Larry Del Santo in a prepared statement.

Vons announced in January permanent price reductions "on thousands of items" at all of its Vons stores, more vigorous promotions and more staff to improve service, according to a company statement.

Analysts say Vons' price cuts are a delayed response to Lucky's lowering and to increased competition for market share.

Vons acted in response to an average 9 percent decline during 1993 in stores open at least 12 months, said company spokeswoman Mary McAboy. The decline was due to continuing competitive conditions and the lackluster economy, she added without naming Lucky.

But analysts say Vons didn't respond right away to Lucky's aggressive price-cutting last winter, and Vons' sales suffered as a result.

Lucky's profits have also taken some hits since the chain lowered its prices. Profits for the entire chain, including stores in both Northern and Southern California, fell 29 percent in the first quarter of 1993 and 8.2 percent in the second quarter, Comeau said.

In the third and fourth quarters profits rose, though, because Lucky's pricing strategy was starting to work and Vons hadn't yet responded, he said.

During the first half of this year, as Vons' program kicked in, Lucky's profits rose compared with the year-earlier poor results. Comeau said he estimates profits in the third and fourth quarters will be about flat.

Vons and Lucky aren't the only victims of the increased competition, Beaver said. Ralphs, Lucky, Food 4 Less and Boise, Idaho-based Albertson's, which has the fifth largest share of the Southland supermarket industry, have experienced sales declines recently at stores open at least 12 months.

These chains have lowered prices in response to the competition as well, Beaver said.

Food 4 Less watched and waited after the market "got very hot" in January when Vons lowered its prices, Anderson said. Then in July it decided to lower its prices and wage a more aggressive advertising campaign on television and radio and in print, he said.

Food 4 Less reported profits of $100,000 during the fiscal second quarter ended Jan. 8 on sales of $800 million, compared with a loss of $10.4 million on sales of $845 million a year earlier.