Differentiating to the Same Place
By Bernice Hurst, Managing Director, Fine Food Network
After years of beating the drum about how low their prices could be, Britain’s supermarkets are finding that they have a significant number of customers willing to pay a little bit extra to ensure that they are purchasing high quality food.
Sainsbury’s unique selling point in its competition with Tesco and Asda has always been quality. Now, it seems, more shoppers are buying the quality message and realizing that it comes at a price. All three chains, as well as smaller competitors Morrisons, Waitrose and Marks & Spencer, are responding to demand by re-launching and increasing their premium ranges.
According to Patrick Mitchell-Fox, a senior business analyst at the Institute of Grocery Distribution (IGD), “Retailers that are not involved in the premium market are now the exception rather than the norm.”
True as this may be, there are still plenty of customers looking for those everyday low prices to which they have become accustomed. So where does this leave manufacturers and retailers? Assuming that none are willing to back out of a large, and growing, section of the market, how can they differentiate themselves?
Competition is likely to get even hotter but in a wider range of categories. After years of cutting prices, retailers may not be able to comfortably inch their way back into the hearts and minds of middle income families without losing the market share they have so painfully won. More to the point, shoppers may not accept a mixed market place, with middle and lower income customers walking the same aisles and all lining up at the checkout.
The increasing discrepancy between middle class consumers wanting to know more about their food and being willing to pay higher prices for quality may force retailers into differentiating by fragmenting into formats that serve customers at polar extremes.
A similar scenario has played out in the U.S. where many grocers have gone more upscale. Softer lighting, European-style fresh food departments, wider aisles, greater selection of organics, prepared meals etc. have helped to convince many they are shopping in a store that addresses their lifestyle needs. Chains such as Wegmans, Ukrop’s, Raley’s and others have always followed this path and now numerous others such as Safeway (Lifestyle format), Delhaize (Sweetbay and Bloom), A&P (The Food Emporium) are moving in a similar direction.
On the other end of spectrum, chains such as Aldi and Save-a-Lot have gone a fairly bare bones route with an emphasis on private label to help them compete with price-first businesses such as Wal-Mart and major players in the dollar store channel.
Discussion Questions: How can retailers, particularly those operating in the grocery channel, differentiate from one another when so many are moving away from the middle to either a more upscale or extreme value position? How is this shift away from the middle affecting the food and non-foods manufacturers who sell to these businesses?
- Premium brands boost Sainsbury’s as Britain gets the taste for fine foods
– The Independent - Supermarkets revamping strategies – The Florida Times-Union/Sarasota Herald-Tribune
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13 Comments on "Differentiating to the Same Place"
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A terrific point of differentiation, even for national chains and perhaps more so, is the offering of locally grown or raised foods. As people become more conscious of what they are eating, the next step is where the food came from. Particularly for those stores offering prepared foods, the use of local foods, with the facts highlighted and information freely shared, will ensure that the retailer is engaged with their customers at the most basic level. And isn’t that what grocery stores were all about anyway?
And, as the retailer gets more engaged in the purchase and offering of organics and locally grown foods, they can take a larger role in encouraging best practices at every level. Thus, integrating themselves even more into the food supply channel.
Yesterday, one of the topics was the outsourcing of data and data management to 3rd party providers. This practice, if utilized correctly, can lead to good retailers really understanding their consumers and beginning to differentiate formats based on consumer purchase patterns. Truly knowing your consumer’s preferences affords the opportunity to develop formats, change product mix in existing formats and develop a pricing strategy that will allow retailers to not only differentiate themselves but also to maximize price points and margins. Better use of good information will pay for itself.
Impact on vendors can also be positive if they work closely with retailers to market to the consumers who are identified as new customers or customers who can be moved up to higher quality and higher sales and margin items and categories.
We are seeing the same trends in our business, where consumers are eschewing the larger, big box stores (like Wal-Mart) for smaller grocery chains that cater to better, high quality products.
In our research, respondents often mention that they feel overwhelmed by the larger retailers (where you can find everything from car tires to milk). This product breadth, however, comes at a price. More and more consumers find the experience chaotic, and prefer to shop at smaller retailers where they can find better quality products, in a more approachable environment.
The trend will undoubtedly continue as more and more retailers come to realize the best way to compete against giants like Wal-Mart is not to fight them on their own ground, but instead in an area where they are not.
First, three cheers for David Zahn and his excellently phrased reminder of what the word “merchant” means. The late Ed Hampe put it in parable form….
“…When it rains, a merchant brings the umbrella barrel from the back of the store to the front and puts a sign on it that says ‘In Case You Forgot Yours!’ A trader calls up his umbrella supplier and says ‘It’s raining here in Chicago today and we are going to sell a ton of umbrellas. What kind of deal pricing can you give me?’ That’s why we refer to retailers as ‘the trade’ today.”
To Bernice’s question on differentiation, part of the answer is not what format a retailer chooses, but being flexible enough to maintain multiple formats and matching them to markets. We don’t often hear Delhaize mentioned as great strategist, but one of their strengths is doing just that–matching concepts to markets. The site selection for Bloom versus Food Lion stores in the Charlotte market being the best example so far.
Customer service, customer service and product offerings. The key to the mid and high-end segments is excellent, well-trained staff, who love what their doing and have the knowledge and information to create an enjoyable experience for every customer in the store. After this, it is a mix of offering and displaying great products in an environment which reinforces this image as well as delivering the same kind of experience that the customer is expecting. Wild Oats, Whole Foods, Draegers, etc. all meet this kind of criteria and then some.
Kai Clark is absolutely right! But, wouldn’t it be great if all customers were treated like millionaires? Unfortunately, if you actually did treat everyone special, then the “not so special” customers would become so dominant that the special customers wouldn’t feel comfortable.
Middle positioning is the hardest. High and low positions are easier. Examples: Pathmark is in the middle. It’s not known for fancy or organic or prepared foods, like Whole Foods, and it’s not low-end like Aldi. All the upscale and downscale supermarkets have easy to copy profitable leaders. When a retailer is in the middle, it’s not easy to make decisions such as: (1) how much service is too expensive? (2) how much of the assortment can I afford to flex due to local conditions? (3) how much does price need to be emphasized? (4) how much of my space should I devote to nonsupermarket uses (banks, pharmacies, Dunkin’ Donuts, etc.)?