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Paper, plastic, or cheap gas?

Grocery stores offer fuel promotions and expand formats to stay competitive

CINCINNATI -- The days of gasoline price wars aren't over. They've moved from service stations to grocery stores.

''It's convenient, so why not take advantage of a chance to save some money on gas?" said Vikki Weisbrod, a nurse in Fairfield, Ohio, of Kroger Co.'s discount of 10 cents per gallon for frequent shoppers.

Most of Kroger's competitors in Ohio markets -- such as Giant Eagle, bigg's, Meijer, and Wal-Mart -- also have offered gasoline promotions. The gas discounts, usually tied to total shopping purchases or use of loyalty cards, vary in different markets.

The fuel promotions are one of the latest forms of competition in the grocery industry, where traditional grocery chains led by Kroger battle Wal-Mart Stores Inc., Costco Wholesale Corp., and other big-box discounters on one side, and upscale specialty food stores such as Wild Oats Inc., Trader Joe's Inc., and Whole Foods Inc. on the other.

''It's not a simple business," said Jason Whitmer, a food retailer research analyst at FTN Midwest Research of Cleveland. ''It's not just putting discounts in the weekly circular or giving double coupons."

Some Kroger stores have also added bargain-priced nongrocery items such as televisions, deck furniture or toys, meant to make store visits ''like a treasure hunt," said spokesman Gary Rhodes.

The chain has expanded to compete with both superstores and specialty grocers. It opened two dozen ''Marketplace" stores nearly double the size of its typical stores, selling expanded food offerings and nongrocery goods such as furniture, office supplies, kitchenware, and fine jewelry.

''Kroger has been able to experiment more with alternative formats," said Whitmer, whose company has a ''buy" rating on Kroger stock. ''They're definitely ahead of other companies . . . in becoming more relevant to a broader customer base."

Pleasanton, Calif.-based Safeway Inc. is in the midst of a makeover, in which the nation's third-largest supermarket chain is remodeling hundreds of stores to give itself a more upscale look. Second-ranked Boise, Idaho-based Albertson's, which owns Osco Drugs and Shaw's, has tried lower prices on high-volume items, opening Extreme Inc. discount stores and slashing costs, but the struggling company has put itself on the market.

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