March 20, 2007
GHQ: Against the Tide – Supermarkets Battle Alternative Channels
By Jessie Male
Through special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.
A decade ago, a Costco card hanging from a keychain was not a common sight. Nor were milk cartons at a dollar store or gourmet candy at Home Depot. People came out of drug stores carrying prescription medicines, not bags of snack foods. It’s all too obvious to supermarket operators how things have changed since then. As non-traditional channels diversify their offerings, they have increasingly battled supermarkets for market share. To compete requires a focus on service, assortment and a complete understanding of the consumer’s needs.
“We are seeing a major shift in loyalty, and it is being driven by a new generation of formats, products and innovations,” said Thom Blischok, president, retail solutions North America & strategic consulting at Information Resources. In 2001, he said, the average consumer would have bought about 300 distinct UPCs in the grocery store; today the number is 250.
The major formats taking grocery share are supercenters, warehouse clubs, dollar stores, drug stores and convenience stores. While grocers’ struggles largely reflect difficulties competing on price, the convenience of one-stop shopping – and in cases of drug stores and convenience store, location – has also helped many of these other formats gain share in consumables. Overall, Willard Bishop projects by 2010, traditional retailers’ dollar share of food and consumables will fall from 50 percent to 44 percent.
The best advice consultants have to offer retailers is to not play Wal-Mart’s pricing game and instead highlight their strengths. “They need to hone in on non-price factors,” said Jenny Halterman, a consultant at Retail Forward. “Many that are doing this are getting away from the cookie-cutter approach and really building their portfolio toward a new format.”
Among Retail Forward’s suggestions:
- Offer the different and unique in terms of merchandise mix, i.e., add more
specialty lines. - Micro-merchandise the store.
- Carry category-killer assortments that stand for
something. For example, some H.E. Butt supermarkets offer full-aisle
selections of specialty condiments. - Add value and shopper solutions, such as prepared
meals. - Provide superior service.
- Use technology to create a competitive advantage.
Many proposals from consultants call for supermarkets to further capitalize on their food roots. Copying Whole Foods, grocers could play up health & wellness/fresh offerings and ready-to-eat meals; but chains can also copy Costco’s sampling stations as a marketing ploy.
“There are opportunities to pull some of the playbook back from what club stores are doing in terms of offering club packs or using sampling programs as a way to create excitement in the store,” said Todd Hale, senior vice president of consumer insights for ACNielsen. As a counterpoint, he also suggested emphasizing what club stores don’t have: small portions. This particularly applies to produce, meat and other perishables, which some consumers don’t want to buy in bulk.
Grocers can also tailor offerings to a specific market, a move exemplified by the rise in ethnic-oriented stores. Turning the tables, some might look at adding more general merchandise as impulse-buys to broaden the mix.
To compete effectively will require experimentation and perseverance.
“There are enough success stories out there today with traditional supermarkets who are successfully competing,” concluded Jim Hertel, managing partner at Willard Bishop Consulting. “It is not a question of if anyone can survive; it is a question of choosing to take actions that are going to guarantee that as a supermarket you will be vital in the future. I think it is doable, but staying the course is not the right answer.”
Discussion questions: What do you think of some of the proposals to help supermarkets regain (or stabilize) market share in consumables? Can you come up with some others, including any “outside the box” solutions?
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Differentiate or die. The article contains a lot of good data and options to consider. In my opinion, there are three great opportunities for supermarkets to create a differential advantage: delightful customer service, unmatched freshness, and community leadership.
Defend and attack. Grocers need be aggressive in their strategy or fade away. The supercenter is hot right now but just like our culture, it changes. People change. People cheer for the underdog and they will support you if you support them with new, fresh and safe products. General Motors once thought game over but Toyota had the new, better idea. Let your customers know you care. People work hard for their money and they want to know it was well spent.
The article makes some very good points but also misses a very important one. The shift in demographics in the Western World that is driving changes in consumer spending habits. This change has not happened overnight–it has been a long process–nor has this process completed.
The increasing number of households and households of only one or two people, both of whom work, plays a part in explaining why there is a slow decline in the traditional “weekly shop.” It does not fit in with a growing number of people’s lifestyles.
The question is, will the trend continue? Supermarkets also need to look at their product offerings for this increasingly large group–how easy or convenient is it to actually buy groceries for a one or two person household when many products come mainly in “Supersize” format, especially in the US? I also take with a pinch of salt grocers complaining about other stores diversifying and stealing market share from them–that is a bit rich considering many traditional grocery chains were more than happy to diversify into in store pharmacies, clothing, hardware, electrical and white goods, etc., etc. Maybe the worm has turned. Perhaps this is a trend back to the shopping patterns of previous generations where specialist stores with genuine quality, choice, value and service were valued by consumers. I hope so.
I love that we’re no longer discussing the demise of the traditional grocer (thankfully!), but how these companies can develop strategies to both defend and attack share. I agree with many of the proposals outlined in the article, but several have either proven unattainable or have been heard before. Of the traditional grocer’s competitive tactics I have seen in recent years has been Publix’s real estate strategy, aimed at infilling urban locations such as Atlanta and Tampa, with smaller footprints, closer together. Urban density is an excellent defensive measure against both the supercenters, and and the emergence of alternative, more convenience-oriented formats. This is of course supported by excellent service in line with the Publix tradition.
Interestingly enough, Publix had launched an even smaller, convenience-oriented experience of its own, called Pix. My advice to grocers: control the city centers and re-merchandise to smaller, more productive formats. Defend against the supercenters, attack the convenience-oriented formats, differentiating on offer.
I have to agree with everyone: the customer experience trumps all.
We know that customer satisfaction scores translate directly into revenues and margins, and we know that chains like Whole Foods and Trader Joe’s understand that. And still, major chains–even in locations where the average home value tops a million dollars–continue to skimp on cleanliness, maintenance and selection.
But if we take a good look at who’s living in those big houses, it’s not the housewife of old whose sole focus was saving as much of her husband’s hard-earned money as possible.
Now it’s a hard-working, time-starved parent of either sex who’s much more interested in the quality of the food that goes on the table–whether it comes from the prepared-food departments or they cook it themselves.
So the store that can deliver great prepared food as well as great ingredients, in an environment that’s easy to navigate and easy on the eyes, with helpful staff and promotional media that’s suggestive rather than obtrusive, won’t just satisfy customers. It will delight them.
All the way to the bank.
I wonder where these competitors are coming up with these nefarious ideas? How much (what percent) of your normal supermarket is devoted to edibles? What would the supermarkets volume be if they only had edibles?
I think “we started it” and have to accept the fact that, these days, retail is retail. Yes, play your strengths…but remember, we should always try to figure out how to get one additional dollar from each customer we already have (maybe today it’s $5). I think it’s called merchandising.
We should go back to the premise that advertising is designed to get people in the store. Then it’s up to the “salespeople” in the store to sell more.
Guess it comes down to your people in the end.
First of all, be a little careful about the word “differentiate.” It implies that you are letting competition set the agenda. “Relevance” is better–be top of mind in a way that is relevant to shoppers’ lives and desires. Also, supermarkets are still the leading channel for groceries, so they need to act like a leader and not a minor player looking for a flanking strategy.
Now, can supermarkets reverse the trend? Absolutely! Department stores did, Penney’s did. How might it play through for supermarkets? As a market leader, get on trend. What do shoppers want? Consider drivers such as convenience, indulgence, simplicity (not the same as convenience!), affordability, wellness and longevity and a sense of personal identity. If you think about the retailers who are remarkably successful today, you will see that their success is contained in these themes. Consider Whole Foods, Trader Joe’s, Costco, Stew Leonard’s, Target, and the Apple stores in Manhattan.
I’d give most supermarkets high marks on some but not all of these trends, so there is obvious low-hanging fruit.
Supermarkets will certainly find it difficult to play the pricing game with competitors like Wal-Mart and Costco. So I agree that they should play some of their strengths in terms of offering better fresh produce and ready-to-eat meals (many are already doing this with some amount of success in retaining consumers, but not enough to stop the bleeding).
They also need to really take customer retention as a serious strategy. Many have Frequent Shopper databases; instead of using them just to give on point-of-sale discounts, they could also use them to implement a rewards program. Every time I am checking out, I get a bunch of discount coupons that I end up never using; if they instead let me accumulate rewards points, towards a reward I could choose…that may give me enough reason to come back.
Maybe I am wrong, but I seem to recall that in the last couple of years, we have discussed this same topic, one way or another, perhaps 20 or 30 times. Maybe more. I am not complaining about this fact, but wondering about it. Do we feel collectively we don’t have the answer for this yet and we keep bringing it up to get one? Or is it one of those topics that is just fun to talk about over and over, like a favorite political issue? I don’t know the answer.
I also have noted that we seem to offer the same ideas each time: some say differentiate with customer service and with your strengths, not your weaknesses (I think I remember that most discussion participants say this); I and others say that that is okay, but that grocers need to stop surrendering their market to other players who take it without really having a right to (such as certain big-box retailers, ahem!, who claim to have lower prices than they really do).
It is interesting to see us all dance this dance, many times. Here we go again.
The author is partially correct in that grocers need to focus on their strengths. However, what they really need to focus on is their customer service. Every retailer is recognizing that they are in the retail business, not a specialty niche, and this is why Home Depot, Best Buy and others are all going after consumers, not just their focused niche consumer. Each of their consumers purchases other products, so why not give them these products when they are shopping at their retail establishment and enjoy the profits? This is the key question that is being posed at each retailer, since the cost of attracting and keeping customers is so high. Add to this the demand for incredible customer loyalty and great customer service and it is no wonder that Home Depot is now selling water and Plasma TVs. One-stop shopping is a very cost-effective way to minimize the overhead costs of modern-day retailing!
The Grocery HQ article mentions Whole Foods. Ever been in to a Whole Foods before? The themed grocery store is amazing–it is an experience rather than a traditional grocery store. Their prices are more expensive, but their check-out lines are always busy. The key to their success? Same concept again and again: differentiation. Customers like new offerings and are willing to pay big $$$ for the experience and choice.
Everybody knows that the grocery industry is a tricky business. But, success is certainly possible…you just need an ounce of creativity and a way to differentiate yourselves from the traditional model.
Supermarket chains need to grow their margins and one great lever is a creative private label program. Not just commodity private label, but private label items that can’t be easily found elsewhere. Supermarkets in modest income areas will have trouble growing their prepared foods and organic foods businesses. Maybe they should sublet space to dollar store operators to help drive traffic and collect rental income. For modest income neighborhoods, supermarkets need to buy more deals and closeouts because their shoppers are focused on value, not time saving or prestige or social responsibility. Food stamps don’t just keep the poor alive, they keep thousands of supermarkets alive.
In a recent speech to the Magazine Publishers Association, Lee Nichols (President of DHC) told the audience that the key issue facing retailers today is “differentiation.” And he went on to say that the first decision retailers need to make in the quest for differentiation is whether they are “going to be a brand–or a place to buy brands.” In essence, the decision comes down to whether your concept is as distinct and compelling as Whole Foods, Trader Joe’s or Aldi. Another alternative is to be a category killer ala PetSmart or OfficeMax. If the decision is to be what Nichols termed a “convenience retailer” (a place to buy lots of different categories in one trip, ranging from C-stores to supercenters) then another compelling proposition for differentiation must be found. Wal-Mart obviously does that very well with price. At one time 7-Eleven did it by owning extended hours availability. As one song puts it “…you’ve got to stand for something–or you’ll fall for anything….”
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Differentiate or die. The article contains a lot of good data and options to consider. In my opinion, there are three great opportunities for supermarkets to create a differential advantage: delightful customer service, unmatched freshness, and community leadership.
Defend and attack. Grocers need be aggressive in their strategy or fade away. The supercenter is hot right now but just like our culture, it changes. People change. People cheer for the underdog and they will support you if you support them with new, fresh and safe products. General Motors once thought game over but Toyota had the new, better idea. Let your customers know you care. People work hard for their money and they want to know it was well spent.
The article makes some very good points but also misses a very important one. The shift in demographics in the Western World that is driving changes in consumer spending habits. This change has not happened overnight–it has been a long process–nor has this process completed.
The increasing number of households and households of only one or two people, both of whom work, plays a part in explaining why there is a slow decline in the traditional “weekly shop.” It does not fit in with a growing number of people’s lifestyles.
The question is, will the trend continue? Supermarkets also need to look at their product offerings for this increasingly large group–how easy or convenient is it to actually buy groceries for a one or two person household when many products come mainly in “Supersize” format, especially in the US? I also take with a pinch of salt grocers complaining about other stores diversifying and stealing market share from them–that is a bit rich considering many traditional grocery chains were more than happy to diversify into in store pharmacies, clothing, hardware, electrical and white goods, etc., etc. Maybe the worm has turned. Perhaps this is a trend back to the shopping patterns of previous generations where specialist stores with genuine quality, choice, value and service were valued by consumers. I hope so.
I love that we’re no longer discussing the demise of the traditional grocer (thankfully!), but how these companies can develop strategies to both defend and attack share. I agree with many of the proposals outlined in the article, but several have either proven unattainable or have been heard before. Of the traditional grocer’s competitive tactics I have seen in recent years has been Publix’s real estate strategy, aimed at infilling urban locations such as Atlanta and Tampa, with smaller footprints, closer together. Urban density is an excellent defensive measure against both the supercenters, and and the emergence of alternative, more convenience-oriented formats. This is of course supported by excellent service in line with the Publix tradition.
Interestingly enough, Publix had launched an even smaller, convenience-oriented experience of its own, called Pix. My advice to grocers: control the city centers and re-merchandise to smaller, more productive formats. Defend against the supercenters, attack the convenience-oriented formats, differentiating on offer.
I have to agree with everyone: the customer experience trumps all.
We know that customer satisfaction scores translate directly into revenues and margins, and we know that chains like Whole Foods and Trader Joe’s understand that. And still, major chains–even in locations where the average home value tops a million dollars–continue to skimp on cleanliness, maintenance and selection.
But if we take a good look at who’s living in those big houses, it’s not the housewife of old whose sole focus was saving as much of her husband’s hard-earned money as possible.
Now it’s a hard-working, time-starved parent of either sex who’s much more interested in the quality of the food that goes on the table–whether it comes from the prepared-food departments or they cook it themselves.
So the store that can deliver great prepared food as well as great ingredients, in an environment that’s easy to navigate and easy on the eyes, with helpful staff and promotional media that’s suggestive rather than obtrusive, won’t just satisfy customers. It will delight them.
All the way to the bank.
I wonder where these competitors are coming up with these nefarious ideas? How much (what percent) of your normal supermarket is devoted to edibles? What would the supermarkets volume be if they only had edibles?
I think “we started it” and have to accept the fact that, these days, retail is retail. Yes, play your strengths…but remember, we should always try to figure out how to get one additional dollar from each customer we already have (maybe today it’s $5). I think it’s called merchandising.
We should go back to the premise that advertising is designed to get people in the store. Then it’s up to the “salespeople” in the store to sell more.
Guess it comes down to your people in the end.
First of all, be a little careful about the word “differentiate.” It implies that you are letting competition set the agenda. “Relevance” is better–be top of mind in a way that is relevant to shoppers’ lives and desires. Also, supermarkets are still the leading channel for groceries, so they need to act like a leader and not a minor player looking for a flanking strategy.
Now, can supermarkets reverse the trend? Absolutely! Department stores did, Penney’s did. How might it play through for supermarkets? As a market leader, get on trend. What do shoppers want? Consider drivers such as convenience, indulgence, simplicity (not the same as convenience!), affordability, wellness and longevity and a sense of personal identity. If you think about the retailers who are remarkably successful today, you will see that their success is contained in these themes. Consider Whole Foods, Trader Joe’s, Costco, Stew Leonard’s, Target, and the Apple stores in Manhattan.
I’d give most supermarkets high marks on some but not all of these trends, so there is obvious low-hanging fruit.
Supermarkets will certainly find it difficult to play the pricing game with competitors like Wal-Mart and Costco. So I agree that they should play some of their strengths in terms of offering better fresh produce and ready-to-eat meals (many are already doing this with some amount of success in retaining consumers, but not enough to stop the bleeding).
They also need to really take customer retention as a serious strategy. Many have Frequent Shopper databases; instead of using them just to give on point-of-sale discounts, they could also use them to implement a rewards program. Every time I am checking out, I get a bunch of discount coupons that I end up never using; if they instead let me accumulate rewards points, towards a reward I could choose…that may give me enough reason to come back.
Maybe I am wrong, but I seem to recall that in the last couple of years, we have discussed this same topic, one way or another, perhaps 20 or 30 times. Maybe more. I am not complaining about this fact, but wondering about it. Do we feel collectively we don’t have the answer for this yet and we keep bringing it up to get one? Or is it one of those topics that is just fun to talk about over and over, like a favorite political issue? I don’t know the answer.
I also have noted that we seem to offer the same ideas each time: some say differentiate with customer service and with your strengths, not your weaknesses (I think I remember that most discussion participants say this); I and others say that that is okay, but that grocers need to stop surrendering their market to other players who take it without really having a right to (such as certain big-box retailers, ahem!, who claim to have lower prices than they really do).
It is interesting to see us all dance this dance, many times. Here we go again.
The author is partially correct in that grocers need to focus on their strengths. However, what they really need to focus on is their customer service. Every retailer is recognizing that they are in the retail business, not a specialty niche, and this is why Home Depot, Best Buy and others are all going after consumers, not just their focused niche consumer. Each of their consumers purchases other products, so why not give them these products when they are shopping at their retail establishment and enjoy the profits? This is the key question that is being posed at each retailer, since the cost of attracting and keeping customers is so high. Add to this the demand for incredible customer loyalty and great customer service and it is no wonder that Home Depot is now selling water and Plasma TVs. One-stop shopping is a very cost-effective way to minimize the overhead costs of modern-day retailing!
The Grocery HQ article mentions Whole Foods. Ever been in to a Whole Foods before? The themed grocery store is amazing–it is an experience rather than a traditional grocery store. Their prices are more expensive, but their check-out lines are always busy. The key to their success? Same concept again and again: differentiation. Customers like new offerings and are willing to pay big $$$ for the experience and choice.
Everybody knows that the grocery industry is a tricky business. But, success is certainly possible…you just need an ounce of creativity and a way to differentiate yourselves from the traditional model.
Supermarket chains need to grow their margins and one great lever is a creative private label program. Not just commodity private label, but private label items that can’t be easily found elsewhere. Supermarkets in modest income areas will have trouble growing their prepared foods and organic foods businesses. Maybe they should sublet space to dollar store operators to help drive traffic and collect rental income. For modest income neighborhoods, supermarkets need to buy more deals and closeouts because their shoppers are focused on value, not time saving or prestige or social responsibility. Food stamps don’t just keep the poor alive, they keep thousands of supermarkets alive.
In a recent speech to the Magazine Publishers Association, Lee Nichols (President of DHC) told the audience that the key issue facing retailers today is “differentiation.” And he went on to say that the first decision retailers need to make in the quest for differentiation is whether they are “going to be a brand–or a place to buy brands.” In essence, the decision comes down to whether your concept is as distinct and compelling as Whole Foods, Trader Joe’s or Aldi. Another alternative is to be a category killer ala PetSmart or OfficeMax. If the decision is to be what Nichols termed a “convenience retailer” (a place to buy lots of different categories in one trip, ranging from C-stores to supercenters) then another compelling proposition for differentiation must be found. Wal-Mart obviously does that very well with price. At one time 7-Eleven did it by owning extended hours availability. As one song puts it “…you’ve got to stand for something–or you’ll fall for anything….”