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The 23-year-old bought his second Foodland store this summer, in West Mifflin, and has designs on acquiring more stores in the Shop n' Save and Foodland family of stores as he emerges as the third generation of Spagnolo supermarket operators.

Having learned the business from age 10 at the knee of his late grandfather, who opened one of the original 13 Shop 'n Save stores, in Spring Garden, Spagnolo has come of age as Wal-Mart and other alternative formats have taken a huge bite out of supermarket sales.

To survive in a Wal-Mart world, local grocers, from little guys like Spagnolo to the region's dominant chain, Giant Eagle Inc., are re-evaluating nearly every aspect of their business and working to stay relevant to consumers increasingly less beholden to the traditional supermarket.

From piloting new formats to strengthening store brands to using technology and industrial engineering to cut waste and cut prices on key products that drive Wal-Mart defections, supermarkets are reacting.

In Giant Eagle's case, a brilliantly timed promotion to link fuller grocery carts to bigger gas pump discounts is adding fuel to their fire.

Consumers checking out

According to the latest Progressive Grocer magazine annual report on the supermarket industry, the average annual number of trips to a supermarket declined to 69 in 2004, from 83 in 1999, while average annual trips to supercenters like Wal-Mart, Target and Kmart increased to 27 from 15 in 1999.

Retail Forward Inc., a Columbus, Ohio-based retail research firm, says 23 percent of groceries were bought at Wal-Mart supercenters in 2004, from near nothing 15 years ago, now taking more than $100 billion in annual sales out of supermarket baskets.

And Wal-Mart recently said it will step up the opening of new supercenters, which sell groceries in addition to general merchandise. UBS Warburg Wal-Mart analyst Gary Balter has predicted the company will add another 4,000 supercenters to is current count of about 1,700.

Competition also comes from warehouse club stores, dollar stores, and so-called limited assortment stores like Aldi, which has 10 stores in the region, that stack cans and boxes of private label merchandise on pallets and have customers bag their own groceries, all to pass along big discounts at the register.

Some operators have simply called it quits. A Shop'n Save in Chippewa, Beaver County, shut down last month after a Giant Eagle and Wal-Mart moved in nearby.

And Minneapolis-based SuperValu Inc. is selling off its 20 corporate-owned Shop 'n Save stores to incumbent independents like Spagnolo, as it focuses more on its distribution business.

The Retail Forward report said 4,400 supermarkets have closed since 2002. It predicts another 2,600 will close over the next five years as it predicts a "steady dwindling" of smaller chains and independents.

Spagnolo doesn't plan to be one of them.

"I'm going to run my sales, promote my name and keep giving my customers reason to come into my stores," he said. "I'll get my share of the pie."

Spagnolo's strategy is to be "faster, fresher and friendlier" than Wal-Mart and maintain a neighborhood grocer feel. It's evident in the store's name, Spagnolo's Village Foodland Fresh, where his name supercedes the Foodland brand.

He spent the past three months sprucing up the store, installing new deli counters, expanding the fresh produce section, adding a 40-foot "Dollar Wall" of discount specials and hanging black-and-white photos of his family at the entrance.

Price check: Aisle 5

The old saw in retailing is that "you can't compete with Wal-Mart on price."

There's an enormous truth there, says Michael Bergdahl, a McCandless retail consultant and former Wal-Mart executive, who authored "What I Learned From Sam Walton: How to Compete in a Wal-Mart World."

He explains that Wal-Mart uses groceries as a lure to bring people through the doors. Where a grocery store typically earns a profit margin of 1-2 percent, comparable with the grocery section of a Wal-Mart Supercenter, the general merchandise side of the store earns a wider 8-9 percent margin.

"When you blend the two sides of the store, Wal-Mart has such a tremendous advantage. They can drop their (grocery) prices and still maintain a significant 7 percent margin per store. When you get into a price war, it's not a fair fight."

While that may be true in a general sense, retailers are discovering that while they can't compete on price on all items all the time, they need to be price competitive on key items.

This was the conclusion of research by Carnegie Mellon University marketing professor Vishal Singh, who was part of a team that tracked customer behavior at an unnamed East Coast supermarket over 20 months before and after the opening of a Wal-Mart Supercenter nearby.

Sales fell 17 percent after Wal-Mart opened. Using database information from the store's frequent shopper card, Singh's team found that 70 percent of lost revenue came from only 20 percent of customers -- many of whom shared something in common: a dog or an infant in the family.

The study also found that the likely Wal-Mart defectors tended by buy store brands over name brands.

"In many cases, local retailers already possess the information they need to be potent competitors," Singh said. "The challenge is to figure out how to best use this data to improve performance and compete effectively."

Giant Eagle is running Singh's playbook with its Advantage Card frequent shopper program by cutting prices on select products purchased frequently by potential defectors to other retailers.

"We have put together a whole series of strategies to improve our everyday pricing offer," said Kevin Srigley, senior vice president of marketing, referring primarily to the company's announcement of its third round of price cuts announced last month.

"We talk to customers about where price decreases would be of the greatest benefit to them; things like cereal, dairy, frozen, juice, packaged vegetable, sauces, soups, detergent, pet food. Those are areas where customers would find a true benefit in lowering everyday prices."

Richard George, professor of food marketing at St. Joseph's University in Philadelphia, said retailers need to be "in the range" of Wal-Mart on prices.

"Wal-Mart gets all the attention for its low prices; but they are only cheaper in about 15 percent of all categories," he said, but added, "You can't be $2 a pack higher on diapers. You have to be in a fair range (of Wal-Mart). If people perceive your prices are fair, they would rather shop at a Giant Eagle because it's a nicer store."

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