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?
Bernice raises the question that is bouncing around inside every industry pundit’s mind. The answer is simple at the 30,000 foot level (about 10,000 meters for the non-Americans)–stand for something that is uniquely yours and that you do better than competition. In the execution is where the problem resides…. What do we do? How? For whom?
One can purchase jewelry at a Warehouse Club store and it will be a perfectly comparable product to one that comes with a pretty white bow in a uniquely colored blue box that is immediately identifiable by the recipient. A family can shop at a retailer that emphasizes customer service and feel “catered to” and still another family can go to a retailer for the entertainment value of petting zoos, automated/robotic characters singing, etc.
It is not SOLELY about price and it may not be SOLELY about assortment either (though those CAN be the points of difference). It is about your identity and what you do better than everyone else.
Years ago, every retailer had a “bulk/generic” department where shoppers could buy rice and other products out of bins (once all had it, it stopped being “special”). Then, there were the “value aisles” or the “family-sized product aisles,” etc. Playing “follow the leader” is no way to ever be out in front.
The imagination and creativity of being a TRUE merchant is what is missing!
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.
There is an adage in marketing that you can’t be all things to all people. If grocery retailers are shifting away from the middle to a more up-market positioning, this clearly represents a challenge in communicating that your store represents something different and unique when so many others are doing the same thing. An astute merchant can make his store stand out using a variety of strategies: superior customer service; selection/product mix; pricing strategy; store decor/ambiance and size. So there are lots of ways to market your store, but is an upscale retail strategy right for every location and market?
Retail strategy should be driven by shopper lifestyle and demographic data. In S. Orange County California, Gelson’s, Bristol Farm’s, Trader Joe’s are all present and focussed on an upscale shopper who appreciates and can afford an extensive organic department, in-store “bistro” restaurants, an artisan bakery, fresh sushi, 75 feet of deli and prepared food, a huge wine selection and products from around the world.
Now let’s swing across the country to say, Schenectady, in upstate NY–part of the American rust belt and where consumer demographics are clearly different from OC. Does it make sense for retailers to invest in an upscale grocery stores here? Most likely, this market would support a greater proportion of “no-frills”-type grocery formats or dollar stores with warehouse-style shopping, lots of private label and a commitment to low everyday price. Ultimately, underlying consumer demographics and location drives whether upscale, mid-market or basic is the strategy with the best chance for success. Then its up to a creative retailer to market his store in a way that is meaningful to potential customers.
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.
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.
Allow me speak with some small authority about Raley’s, where I spent time in the early 90s as VP Adv. This “new positioning” is not new to Raley’s, where quality (and higher prices) have been part of the chain’s fabric for over fifty years. Also a major part of the fabric is the culture of service.
Service at Raley’s comes in many unexpected forms, but is not lost on its customers who have ranked Raley’s at or near the top in service nationally for a number of years according to Consumer Reports Magazine. Two cases in point: 1.) Raley’s carts and checkout counters are specially designed to “mate.” This allows the checkers to unload the carts instead of the shoppers having to stretch for items in the bottom of the cart and load them onto the belt. I’m 6’2″ and limber, and even I have to stretch sometimes to reach small items in the bottom of a deep Safeway cart. 2.) Most or all Raley’s store employees are empowered to exchange or replace a product for customers. Instead of having to hunt down a store manager and being cross-examined, Raley’s customers simply get what they want without a hassle.
I could go on and on about Raley’s service, but it’s probably time to reveal the roots of their historical excellence. First, they’re privately held and the owner insists on superior service. Second, although their prices are higher than competitors’ prices, they tend to spend the extra margin on service rather than stockholder dividends.
It’s the “little things” — the devil is in the details as they say— the little points and fine points — and there ARE SO many which could be listed. Look at the grocers at the upper end and you see them all — paying attention to detail and focus will pay off big and, of course, assortment and fine touches and finer offerings ALL must be there.
The higher end is the only way to survive and thrive in grocery. Wal-Mart OWNS cost although it is seriously challenged by Sav a Lot and Aldi. Any way — the low end is taken and most remaining grocers can easily take advantage of the upper end anyway as they are – for the most part– fairly good — at least the healthy ones.
Fine meat and FINE butcher service is BIG — ask any American housewife OR working mom who actually wants to endeavor to create a meal. Great deli — etc etc and ancillary services are a bonus too and the experimenting by Whole Foods is pointing to even more ways to provide more options and unexpected services. And they will become loyal and spend IF they feel special and if it is worth it — no one said it was easy but the food business has NEVER been easy!
If you conduct a focus group though, you would be surprised at the incredible ideas the shoppers have that THEY can see would add value and would make them feel good —some VERY inexpensive and overnight “fixes”. Upscale with attention to detail !!
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.
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.
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.
Bernice Hurst makes an interesting point. Thus far the only comments appear to have come from the U.S. Let me add a few from Europe.
Tesco is by far and away the most successful U.K. grocery retailer. Why? Because it offers to meet the needs of all its customers within the context of ‘every little helps.’ Tesco serves the needs of the value shopper, just as they serve the needs of the Harvey Nicholls shopper. The mantra of Tesco is a simple one. What’s in it for the customers? If you can’t see that, don’t do it.
It has to be better for the customer, simpler for the staff and cheaper for the corporate. The Tesco shop is designed to provide the customer with the best shopping trip, not best prices, not EDLP, not high end groceries in particular, but an all embracing enjoyable experience. It’s got nothing to do with range, as such. It’s doing what people want. Tesco follows the money, with the flexibility to do anything, and that’s the secret. Not heading upscale. Oh, and having Clubcard helps. And as a long term supplier to the industry, do not think me an apologist for Tesco. Quite the reverse most days!
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.)?
Supermarkets have to walk a very slippery tightrope when going upscale.
The SuperFresh division of Great Atlantic and Pacific (A&P) realized that late last year, when it decided to drop Boar’s Head deli products from its deli departments.
Boar’s Head is a fine product, but so is Dietz & Watson and Master Choice. Sometimes price does dictate tinkering with a successful strategy.
The “Fresh” movement is going full steam. A&P is having tremendous success with its upscale Food Emporium makeover at its 59th Street Bridge Manhattan flagship location. But still, there is tinkering with the product mix. You got to constantly analyze and evaluate a concept to make it work, and not every concept will work everywhere.
Safeway is realizing this as it embarks on phase II of its Lifestyle remodelings. These sites are not all located in upscale areas, so they too will have to tinker with their prototype.
Differentiating is great. Smelling the fresh smell of just ground Eight O’clock coffees in the store, along with the smell of fresh baked bread, tantalizes the senses and promotes consumer demand.
Clean stores, fresh product, fair pricing and friendly, helpful service staff make for the best customer shopping environment. Carrying this out, while looking simple on paper, is no mean feat. The successful chain that can execute this strategy will be ahead of the game.