FDBuyer: Clubbing The Clubs
Through a special arrangement, presented here for discussion
is a summary of a current article from Frozen & Dairy Buyer magazine.
For
supermarkets getting clubbed by club stores and losing share, experts advise
grocers to focus on selection, convenience and quality. And — perhaps most
important — be sure to stand for something.
“If you are all things
to all people, you are nothing to anybody,” said
Jim Hertel, managing partner, Willard Bishop LLC.
He advises being sure you
are equal or better than your competition on things that are important to your
best customers. That starts with a thorough understanding of your best customers,
something that supermarket operators are getting better at all the time.
“Go through everything in your offering — meat, produce, service,
cleanliness, dairy, frozen and all the key differentiators,” Mr. Hertel
said. “Consider your own strengths and vulnerabilities, and do the same
for your competitors. Choose areas where you want to make a stand, and then
be the significant leader in your market.”
Michael Clayman, editor of Warehouse
Club Focus, a newsletter based
in Foxboro, Mass., said that part of every supermarket operator’s homework
should be walking the club stores on a regular basis.
“Theoretically, at least, the clubs stock only those items with high
sales per square foot, or they wouldn’t be there. If you see something
you don’t
have, consider it — either branded or private label,” he said.
Discussion Questions: How should supermarkets position themselves to face
competition from club stores? What advantages should supermarkets be exploiting?
Where shouldn’t they try to best clubs?
Not only are supermarkets losing market share to club stores but even worse, the forward buying and volumes purchased by consumers actually take them right out of the market for many days, weeks, or months, for any given product.
What supermarkets need to do is to stand for something. SKU rationalization is NOT the answer. Ironically, supermarkets need to carry several items and specialties NOT carried by club stores. In addition supermarkets need to show consumers that they can still purchase smaller convenient sizes and quantities of their favorite products without paying a premium.
So interesting that we worry over share taken by club stores, even as we rationalize the assortment down to club levels.
At the end of the day, it’s about selection/convenience vs. quantity. Supermarkets differentiate themselves through broad assortments and small quantities. Warehouse stores differentiate through large quantities for somewhat lower prices (not always lower…but sometimes).
The best thing supermarkets can do is keep reasonable pack-size and broad selection.
Club stores have proven their value and role across the US retail landscape–great products, unique services, stock-up sizes, tremendous price value, and a highly predictable shopping experience for better or worse. Just as with all formats though there are reasons why clubs alone can’t satisfy all our shopping needs for groceries–longer drive times, limited variety, almost no service, and long checkout lines.
There certainly is room for supermarkets to compete effectively with clubs, just as they can compete with any retail format, but it requires a very clear definition and delivery of a unique reason to be. Sure, talk about differentiation isn’t new. But it is the foundation of any retailer’s success in today’s over-stored and under-spending environment.
Supermarkets are still best positioned to be the most frequently shopped food channel. The challenge is getting people to push off that trip to Costco, Sams or BJ’s for another week and instead run twice to the local market. Why would I do that? Ease, friendliness, fresher produce, more relevant prepared meals, a neighborhood feel, local ownership, and more environmentally correct, etc. There are tons of reasons. Grocers need to choose the ones that work for their shoppers in their communities, based on their strengths. There just isn’t room for just another grocery store any more.
When our company works with a supermarket, one of the first things we look for is top shoppers with “category voids.” As an example, think about bath tissue (well, don’t think about it too hard).
Virtually all households in the US buy bath tissue, so if a frequent shopper at a supermarket hasn’t bought bath tissue in 3-6 months, you can be sure that they are shopping club stores, dollar stores, Walmart, or other channels. And, while David Biernbaum’s point about forward-buying is important, I think an even bigger issue is the *other* items in the shopper’s cart when they go to Costco to buy the 48-pack of Charmin: cereal, steak, pasta, etc. The shopper isn’t just punching a hole in their future bath tissue purchases at the grocery store, they are cutting out entire trips to the supermarket.
So what’s a supermarket to do? Use loyalty data to fight back. First, find top shoppers who aren’t shopping the entire store, and market directly to those individuals with special discounts for the aisles and items they don’t buy. These discounts don’t need to come out of the chain’s pocket–they can be brand-funded, provided there’s active collaboration with the brands to give them access to the shopper insights that are driving your decisions.
Second, use the insights gleaned about these shoppers to make fact-based merchandising and marketing decisions. Maybe you need to offer a few items that are “club sizes at club prices” in these key areas. Or, you can alert your best customers when the unique products that they like (and can’t get at Sam’s club) are about to go on special.
The point is, use your existing competitive advantages–the large number of items on the shelf, the deep shopper insights that loyalty data can deliver, and the willingness of brands to be partners in the process–to fend of the threat from clubs.
I have the sinking feeling that I am about to embark on an “army of one” mission here, but what the heck.
The battle between Club and Supermarkets is indeed about selection. But it’s not what Club’s don’t have that is making the difference–it’s about what they DO have. We started out buying supplies for our small office at Sam’s Club before Costco came to Chicago. Within a year we had switched, and our trip missions went from 90% business and 10% personal at Sam’s Club to 50/50 or better at Costco.
We buy produce, seafood, cheeses, crackers, ice cream, wines and occasionally meats or bakery that are all superior to the quality we can get at our local supermarket. And “we” are an army of two in our household–not ten.
Costco is simply providing higher quality selections of unusual items and brands at good prices. It works.
Great A&P has been testing club paks with some success.
During its current Festival Italiano, a large club pak of various pasta sauces and pastas are being offered at special savings.
Also their private label offerings of Via Roma authentic Italian food products, Green Way organic dairy, poultry, produce, juices, jellies and preserves, pastas, veggies and organic cleaning products are priced lower than equivalent club paks. Same holds true for the newly launched Food Basics line of quality entry center aisle food products as well as Home Basics line of bathroom tissues, detergents, paper towels and food protection wraps.
I’m going to enlist in Ben’s army. The quality of many items offered at COSTCO is superior–certainly at the price point–to what’s available at their competition.
Now, having said that, this conversation strikes me as a bit of deja vu.
Hasn’t the time to worry about inherent channel advantages or disadvantages passed a decade or two ago? The surviving clubs also have customer loyalty on their side–something I haven’t seen discussed–again except for Ben.
There are no magic bullets or secrets. Know your customers. Who are the 20% that provide 80% of your sales? What do they NOT get at the club stores that they want? How can you provide more of what they want? Then position yourself as that solution provider in your community.
Supermarkets are in an interesting conundrum of truly being all things to all people–the clubs aren’t and they’re unapologetic about it. As a shopper I hate it–I find myself having to go to 2-3 stores to complete a shopping mission–but (to camp on to what’s already been said) the quality and price of the meat, cheese, bread, etc, at my local Costco makes that inconvenience worth it.
I would add to the comments about loyalty cards to also think about messaging and marketing at a neighborhood level. The grocers aren’t going to be able to compete on price and perceived value of the clubs: instead of creating “me too” club packs being somewhat flexible about store assortment and planogram, carrying items at the neighborhood level and then shifting media spend down to the neighborhood around that store to message and market that local feel can help the average grocery store distinguish itself. It’s not quite Tesco/dunnhumby broader strokes–more media driven and therefore less costly than one to one–but it can help the grocers segment better within a market to provide the neighborhood feel and experience that can separate them from the club.
Great discussion. As many have already pointed out, the “right” selection for the market is a key element to remaining competitive after the intrusion of a player like Costco. That obviously presumes an in-depth understanding of the customer base, both the customers you have as well as the customers you want and then delivering what they want (hey, retail isn’t that hard).
The hard part, which hasn’t been mentioned so far, is that these customers and what they want will vary, in some cases substantially, between locations, definitely geographically and even in the same market areas. This is, in my view at least, the reason that SKU rationalization has been so problematic. SKUs are typically rationalized based on company total sales, although relative SKU contributions vary significantly by locale. Some retailers, like Whole Foods, got this from the start. Others are beginning to get it, as evidenced by Wal-Mart’s recent re-organization into three separate regions.
Supermarkets already have the differentiator in convenience, customer service and product range over the super club stores. Supermarkets have to continue to let their customers know they stand for something the clubs do not give. That is the convenience of buying smaller, more readily usable quantities and product availability at all times.
I often shop both the same day. It interests me to see watch the level of service seen and the differentiators. I rarely see poor customer service at the traditional supermarket chains and rarely see high quality customer service at the club level. Supermarkets have to continue to stress that they are your neighbors.
Todd Hale in an article on The Nielsen Company’s website predicts that warehouse clubs (along with e-commerce, supercenters, dollar stores, and some other channels) will gain dollar share between 2010 and 2015. Supermarkets are predicted, according to The Nielsen Company, to lose share, albeit at a declining rate. However–and this is key to the present discussion question–high-end and low-end niche supermarkets will gain share, that is, those that have a clear-cut identity and provide the consumer with a well-defined shopping proposition will be winners.
To be sure, it’s also a question of doing all the right things. One of the most important points, given that we are not out of the economic woods yet, is to be very, very competitive on price. Another is to take great care on managing a private label program. Paying very close attention to the integration of social media is another. Making sure there is good variety and assortment is yet another. There’s plenty more, but at the bottom, as the quotes in the discussion say, it is absolutely essential to stand for something, for the store to have a personality, to give the customer a good reason for shopping there.
Club assortments have been improving in both quantity and quality in recent years, making this a harder area for traditional supermarket retailers to differentiate themselves. It is worth noting that smaller “neighborhood store”-format supermarkets seem to be doing well, as are extreme-value formats. Someone who just needs to buy a few items probably doesn’t want to deal with navigating a crowded, mammoth club store or pay jacked-up c-store prices. By going local and low-price, supermarkets can effectively compete.
My guess is that many supermarket leaders haven’t visited Costco. If they had, they’d make some changes and make them rapidly.
The problem isn’t that Costco doesn’t have items that consumers want. The problem is that they DO have the items consumers want. They have them visible. They have them priced at a value. They have them in an environment that’s easy to shop.
They are killing the supermarket in areas that one might not expect – meat, produce, bakery, etc.
On top of that, they are hands down better at service.
It’s the selection. It’s a competitive price (not always better). It’s the experience.
In reaction, supermarkets are chasing their tails on reducing labor that impacts service, failing at SKU rationalization, and losing the battle on innovation of what they sell and how they sell it.
Costco originally didn’t enter my region’s market as they said it couldn’t support one. One? They now have two! You can’t get near either location, even on a weekday. A threat? A bigger one than it was perceived prior to entering and even now.
Forget about club packs, which are a knee-jerk reaction. Supermarket shoppers want the unit price economy without the forward-buy commitment. I believe the best competitive opportunities lie in fresh foods, where club stores have trouble matching their operating style to household consumption patterns.
A huge tub of baby salad greens from Costco may seem like an astonishing deal until three-fourths of it wilts in the household fridge on day three. Ditto for that clamshell of berries or the two-gallon pack of milk. The six-pound multi-pack of bacon is a good-deal, but a perilous invitation to over-consumption–as are those trays of mega-calorie muffins.
When a supermarket makes itself an indispensable destination for items that households need to replenish several times a week, they win the opportunity to entice shoppers to purchase other staple items. That’s where broader assortment and refined in-store communications can pay off handsomely.
No doubt, the clubs offer some grocery items that are superior in quality and unit price. Supermarkets must accept the reality that many of their shoppers will hit the clubs too. But the battle is about share of wallet, not “owning” the un-ownable customer.
DEAR MR. SUPERMARKET EXECUTIVE,
DO NOT TRY TO COMPETE WITH CLUB STORES ON THEIR TERMS. YOU WILL LOSE AND LOSE BADLY.
Jim Hertel is right. Go to your strengths. Offer your customers what Club stores can not. Is it convenience? Is it personalized service? Is it unique items? But, one thing it is not is price.
DEAR MR. SUPERMARKET EXECUTIVE,
DON’T BE AFRAID TO STUDY THE LIFE CYCLE OF THE SUPERMARKET.
Just maybe the supermarket concept is in maturity, or even downturn. After all, the supermarket concept is already 60 years old. That is a very long time for a business concept. Does that suggest that supermarkets, as we know them can’t compete with new formats and concepts? Is the supermarket going to go the way of Five and Dime or even the Department Store? Why shouldn’t it?
A consumer who uses the combination of clubs, online and the likes of Whole Foods has very little need for the supermarket concept that so many try to defend.
DEAR MR. SUPERMARKET EXECUTIVE,
FEW COULD HAVE PREDICTED THE SPEED OF THE REVOLUTION IN PERSONAL TECHNOLOGY. GET READY FOR CHANGE!
If preference in grocery shopping is viewed primarily as a choice among price, selection, and perceived quality of products offered by clubs and supermarkets, the clubs have the current advantage. But innovative supermarkets have great potential to fashion a new paradigm for themselves.
The time is overdue for supermarkets to reinvent themselves by integrating deeper into the daily lifestyles and desires of today’s shoppers. Supermarkets should seek to be more than just accommodates of food and home supplies but also of life’s other “sought after values.” People want more “joys” in their growing troublesome lives. And since they go to supermarkets more frequently than most other places what better place to enjoy those other “values”–if provided–than at supermarkets. Wish I could share more info here but in the meantime–think about it.
As we’ve seen from the likes of Costco, sometimes even selection won’t help you when you compete against them. The only answer, it seems to us, is Customer Experience. Yes, that semi nebulous term that everyone’s bantering around is THE critical element in terms of competing against the boxes/clubs.
Why? Because they don’t have one. It’s a “non-experience”. You serve yourself, you almost check yourself out and you walk a mile to your car. I mean, it’s a warehouse! It really is!
Therefore, your customer experience needs to be about the opposite of that: service, comfort, speed, warmth, fast response … valet parking?? Think of the things they’re not and be that. As Sam Walton himself once said, “It’s easy to compete with us. Just do what we don’t do.” Right!
Although I was initially dubious about Costco, not being someone who needs to bulk-buy now that my family has grown, I am a definite convert to their selection and quality (Go Ben, Go Ryan, I’m with you).
I can see why people don’t like having to go to multiple stores to tick all the items on their shopping list. Here I’m probably in a minority – while shopping isn’t my favorite activity, I strongly feel that the balance offered by club stores and supermarkets shouldn’t be dismissed. There are huge opportunities for supermarkets to offer things that simply are not suitable for clubs. They shouldn’t try to compete or persuade shoppers to choose clubs vs supermarkets. Providing choice is what supermarkets were born to do. Don’t make shopping an either or proposition.
After reading the above comments, all I can think is, why am I still in business, if Costco will save the planet? I admit that clubs are an attractive choice for many consumers, and it takes all the knowledge and marketing skills of a well-run independent just to survive.
I have stated many times before in these articles that it is the perishables and perimeter selling that will keep us in business, because loyalty is gone, unless of course the local soccer mom wants a donation, and you’ve never seen her in your store before. YOU MUST run incredibly strong meat & deli deals, and provide fun cooking ideas to the time-starved consumers, who still crave the attention from a smiling face. Re-create yourself in ways that really provide an opportunity for customers to WANT to buy from your store, and the profits will continue to roll in.
Get involved with your chamber of commerce or join a BNI group, which will put you in touch with many other local business owners, thus giving you a leg up on establishing some future business. There is no answer to the big stores, other than outflanking them on perishable deals, and making sure they understand how to cook the baby back ribs in their cart. Start selling more on the floor and don’t be afraid to ask for their business, because the club stores could care less who you are, as long as you have the $$$ to pay for the goods.