GHQ: Against the Tide - Supermarkets Battle Alternative Channels
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?