December 27, 2006
BrainTrust Advice 2006: ‘Told You So, Delhaize’
Delhaize America knows one-size does not fit all. That much is clear when looking at what is happening at its Food Lion business where three distinct formats – Food Lion, Bloom and Bottom Dollar – have been developed to meet the needs of the diverse consumer groups the company serves.
Food Lion
The chain’s main business is looking to become the anti-supercenter in the minds of consumers. The company is focused on smaller stores and convenience (departments grouped in a logical, complementary flow; prepared foods close to entrance for grab and go).
Bloom
Smaller stores focused on fresh and using technology to help sophisticated consumers
do it themselves. Karen Petersen in Bloom’s media relations described the operation
to PL Buyer as being “a specialty store with traditional grocery store
pricing.”
Bottom Dollar Food
Food Lion’s extreme value format comes with a twist. The company puts much greater emphasis on fresh than others in the same space.
“Food Lion’s development of store formats targets both up (Bloom’s) and down (Bottom Dollar) market opportunities and is perhaps the boldest initiative yet by a large grocery
chain to make clear and distinct offers to certain shopper segments. These new formats have been designed with a lot of thought to the needs of the target shopper segments and
in terms of how to execute profitably against these needs. The new formats offer two additional growth platforms for Food Lion, both of which should produce above-average performance.”
– Bill Bishop, President, Willard Bishop Consulting
“The mass market in America no longer exists except if there is only one store in town. The concept of market segmentation by format has generally failed in the USA, but is
the norm around the world. The difficult task is keeping true to the concept over time. Just because it is a good deal does not mean the item should be stocked in all formats.
Certain economies of scale are lost with different formats, but the go-to-market path should be different anyway to be successful.” – W.
Frank Dell II, CMC, President, Dellmart & Company
“We have been talking about customer centricity, enhanced shopping experience and occasion based merchandising for a long time now. It’s refreshing to see a retailer introducing
these concepts into their business. However, such a large-scale change affects the entire company. Re-education to corporate and store teams needs to be completed. Business process
re-engineering is key to ensuring that these new concepts and strategies are supported. This isn’t going to happen overnight.” – Shaun
Bossons, Executive Vice President, US, Galleria Retail Technology Solutions
Discussion Questions: What are you looking for from Food Lion in 2007? What can others learn from Food Lion?
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Food Lion continues to do one of the best jobs of taking learning from one format and seeing how best to utilize it within the goals and objectives of another format. Their internal, real life data give them a clear advantage from other retailers that operate only one strategy and try to learn from the outside.
Food Lion should continue to grow the three formats and continue to strengthen from within as they share talent and experience.
Food Lion, like Publix, is offering formats to fit shoppers versus a format for everyone. My expression is “there are no longer supermarkets that everyone likes a little, there are only supermarkets that someone likes a lot.”
Again, supermarketers need to look no further than other retail offerings to recognize that “mass” is dead and “customization” that provides differential advantage is the long term key to an industry marked by “plain vanilla.”
Delhaize’s segmentation strategy makes good sense within those markets that it presumably has a keen understanding of the demographics.
To say that this is more proof positive of the death of “mass” retailing is, in my opinion, a bit premature. It certainly is another example of the continuing evolution of retail. Until the great A&P brought “mass” retailing to the American consumer in the early twentieth century, retailing was the epitome of segmented marketing. There were few retail “chains” with most of the retail being local to neighborhood. This is the purest form of market segmentation, yet it is interesting that customers were none too reticent to trade these advantages for those of a mass retailer (selection versus price/convenience).
Segmentation of offer and format makes good sense as long as it doesn’t cause increased costs to the retailers through loss of leveraging scale in purchasing and logistics. If any of the operations result in increased operating costs which are then reflected in increased retail prices, I find it a stretch to believe that customers would be willing to sacrifice price for selection. Therefore it seems doubtful to me that this multi segmentation approach can be successful on a national scale.
So far I’ve heard a lot of positive talk about these three distinct formats. However, I have yet to see each group of stores broken out along with comparable store sales stats. At this point it’s hard to tell if this perceived good idea is actually working. From what I hear, it is.
This also presents a problem for Food Lion. For many years, the competition has enjoyed having Food Lion as a competitor because of their small stores and low sales volumes. As the word gets out that these Food Lion stores are “comping up,” the competition is going to react. The feeling I get it is that it’s acceptable to get beaten by Publix, Wegmans, Wal-Mart or Ukrop’s. But getting beat by Food Lion is not. I expect the competition will turn the heat up to get their market share back.
I don’t know a whole lot about the Food Lion corporate structure so it is difficult to set expectations. Just judging from their initial start I give them a lot of credit for making a clear distinction between their banners. Just by knowing their names you begin to build your expectations.
I agree with the other readers’ comments regarding the segmentation of the market. The challenge has always been that when chains try to benefit from their economies of scale while at the same time diversifying banners, someone loses. Either the economies get compromised so the banners lose any advantage of belonging to the larger whole with processes that are so generalized that they are inefficient for everyone, or the merchandising and assortment plans become so homogenized that the consumer can no longer distinguish between the banners.
Understanding this conflict, it is important that Food Lion accept some inefficiencies. They should not expect all banners to receive orders or plan promotions the same way. Warehouse and fleet requirements should be targeted to the banner needs. Promotion planning must be conducted separately and separate merchandisers must be allowed to make the decisions the are best for their target banners. If they can maintain this, then the marketing plan will succeed.
Oh yeah, what’s new at Hannaford?
As all the Delhaize entities in the US, Food Lion has a very astute management team that understands the difference between remodeling and retail format innovations. Bloom and Bottom Dollar are clearly format innovations that deliver a new value proposition to their markets. In the case of Bloom, it’s hassle free shopping and in the case of Bottom Dollar it’s low prices (even lower than the standard Food Lion banner) and more perishable foods than are usually carried in a price cutter format.
This company knows how to innovate. They test 4-5 prototypes and learn from them before expanding the concept. I suspect Bottom Dollar still needs more refinement to sharpen its differentiation from other low price players. Food Lion needs to push the envelope in more latent or unmet needs of budget constrained customers.
Successful strategies for three (or more) formats takes a long term commitment and dedicated merchandising and operations teams. Keeping these formats differentiated will be a challenge as others have commented. For a large company like Delhaize, this could prove difficult to maintain, but they are to be congratulated for implementing a new approach from the “standard” Food Lion store.
It would be interesting to see the differences and similarities in customer base among the three stores as they continue to refine their strategies and offerings going forward.
Delhaize makes a decent profit in America. Their best lesson for everyone else: it’s worthwhile to test new concepts. All too often, retail “testing” is done badly because it’s hard to steer a reasonable path between premature commitment and not enough commitment. Big-ego executives sometimes find it hard to allow their brilliant concepts to be tested before committing to a major rollout. And few new concepts take off immediately.
The biggest problem Food Lion has is itself. The fact that advertisement is limited to newspaper circulars in the northern is a killer. If they would spend a little extra, they would be able to increase their sales. However, Food Lion has a strong loyal customer base and is here to stay. As an employee, I believe Food Lion will be the non-supercenter of the future.
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Food Lion continues to do one of the best jobs of taking learning from one format and seeing how best to utilize it within the goals and objectives of another format. Their internal, real life data give them a clear advantage from other retailers that operate only one strategy and try to learn from the outside.
Food Lion should continue to grow the three formats and continue to strengthen from within as they share talent and experience.
Food Lion, like Publix, is offering formats to fit shoppers versus a format for everyone. My expression is “there are no longer supermarkets that everyone likes a little, there are only supermarkets that someone likes a lot.”
Again, supermarketers need to look no further than other retail offerings to recognize that “mass” is dead and “customization” that provides differential advantage is the long term key to an industry marked by “plain vanilla.”
Delhaize’s segmentation strategy makes good sense within those markets that it presumably has a keen understanding of the demographics.
To say that this is more proof positive of the death of “mass” retailing is, in my opinion, a bit premature. It certainly is another example of the continuing evolution of retail. Until the great A&P brought “mass” retailing to the American consumer in the early twentieth century, retailing was the epitome of segmented marketing. There were few retail “chains” with most of the retail being local to neighborhood. This is the purest form of market segmentation, yet it is interesting that customers were none too reticent to trade these advantages for those of a mass retailer (selection versus price/convenience).
Segmentation of offer and format makes good sense as long as it doesn’t cause increased costs to the retailers through loss of leveraging scale in purchasing and logistics. If any of the operations result in increased operating costs which are then reflected in increased retail prices, I find it a stretch to believe that customers would be willing to sacrifice price for selection. Therefore it seems doubtful to me that this multi segmentation approach can be successful on a national scale.
So far I’ve heard a lot of positive talk about these three distinct formats. However, I have yet to see each group of stores broken out along with comparable store sales stats. At this point it’s hard to tell if this perceived good idea is actually working. From what I hear, it is.
This also presents a problem for Food Lion. For many years, the competition has enjoyed having Food Lion as a competitor because of their small stores and low sales volumes. As the word gets out that these Food Lion stores are “comping up,” the competition is going to react. The feeling I get it is that it’s acceptable to get beaten by Publix, Wegmans, Wal-Mart or Ukrop’s. But getting beat by Food Lion is not. I expect the competition will turn the heat up to get their market share back.
I don’t know a whole lot about the Food Lion corporate structure so it is difficult to set expectations. Just judging from their initial start I give them a lot of credit for making a clear distinction between their banners. Just by knowing their names you begin to build your expectations.
I agree with the other readers’ comments regarding the segmentation of the market. The challenge has always been that when chains try to benefit from their economies of scale while at the same time diversifying banners, someone loses. Either the economies get compromised so the banners lose any advantage of belonging to the larger whole with processes that are so generalized that they are inefficient for everyone, or the merchandising and assortment plans become so homogenized that the consumer can no longer distinguish between the banners.
Understanding this conflict, it is important that Food Lion accept some inefficiencies. They should not expect all banners to receive orders or plan promotions the same way. Warehouse and fleet requirements should be targeted to the banner needs. Promotion planning must be conducted separately and separate merchandisers must be allowed to make the decisions the are best for their target banners. If they can maintain this, then the marketing plan will succeed.
Oh yeah, what’s new at Hannaford?
As all the Delhaize entities in the US, Food Lion has a very astute management team that understands the difference between remodeling and retail format innovations. Bloom and Bottom Dollar are clearly format innovations that deliver a new value proposition to their markets. In the case of Bloom, it’s hassle free shopping and in the case of Bottom Dollar it’s low prices (even lower than the standard Food Lion banner) and more perishable foods than are usually carried in a price cutter format.
This company knows how to innovate. They test 4-5 prototypes and learn from them before expanding the concept. I suspect Bottom Dollar still needs more refinement to sharpen its differentiation from other low price players. Food Lion needs to push the envelope in more latent or unmet needs of budget constrained customers.
Successful strategies for three (or more) formats takes a long term commitment and dedicated merchandising and operations teams. Keeping these formats differentiated will be a challenge as others have commented. For a large company like Delhaize, this could prove difficult to maintain, but they are to be congratulated for implementing a new approach from the “standard” Food Lion store.
It would be interesting to see the differences and similarities in customer base among the three stores as they continue to refine their strategies and offerings going forward.
Delhaize makes a decent profit in America. Their best lesson for everyone else: it’s worthwhile to test new concepts. All too often, retail “testing” is done badly because it’s hard to steer a reasonable path between premature commitment and not enough commitment. Big-ego executives sometimes find it hard to allow their brilliant concepts to be tested before committing to a major rollout. And few new concepts take off immediately.
The biggest problem Food Lion has is itself. The fact that advertisement is limited to newspaper circulars in the northern is a killer. If they would spend a little extra, they would be able to increase their sales. However, Food Lion has a strong loyal customer base and is here to stay. As an employee, I believe Food Lion will be the non-supercenter of the future.