GHQ Cover Story 01/05: Bowed But Unbroken

Discussion
Jan 11, 2005
George Anderson

By George Anderson

Through special arrangement with Grocery Headquarters magazine, we present
these opportunities to discuss the subjects of GHQ’s monthly cover stories.

The supermarket as we know it may not be dead, but there’s not much doubt when you look around and see the problems companies such as Penn Traffic, Winn-Dixie and others are having that many within the industry are in need of some serious resuscitation.

Many, as Grocery Headquarters 12/04 cover story pointed out (see RW 12/01/04,
The Pursuit of Relevance
), such as Delhaize, Marsh, Albertsons, Safeway and others, are developing new store concepts to offer an alternative to the price is everything
world of grocery retailing dominated by supercenters and limited assortment stores.

In its January 2005 cover story, Grocery Headquarters builds on December with an analysis of just how far supermarkets have come in their efforts. The consensus of those interviewed for the article was that supermarkets are proving an old adage to be correct: “Whatever doesn’t kill you will make you stronger.”

Edward McLaughlin, professor of marketing and director of the Food Industry Management Program at Cornell University is among those supporting this view. “Those that remain, in many ways, were strengthened by the exit of the fringe players who weren’t as strong as they might have been initially,” he said. “And those that remain have slowly begun to learn how to defend themselves against Wal-Mart and compete successfully against Wal-Mart.”

It’s nearly impossible to talk about grocery stores and the need for differentiation without bringing up Wal-Mart. Still, some such as William Whipple, executive vice president of the investment bank Harris Nesbitt, and Richard Kochersperger, a professor at St. Joseph’s University, think Wal-Mart’s ability to impact traditional grocery has its limits.

“We think Wal-Mart has played 80% or more of its expansion out, so most companies have seen whatever they’re going to see from Wal-Mart,” said Mr. Whipple.

Professor Kochersperger sees Wal-Mart eventually capturing 35 percent of the grocery market. “That still leaves about 65% of the market to competent retailers,” he said.

While it is generally assumed that large chains have the best chance of surviving in Wal-Mart World because of their financial resources, contrarians such as Bonnie Tonneson, a principal at the investment banking Demeter Group, sees an alternative scenario.

“Because an independent is able to specialize and be more selective, they are oftentimes able to pull in those products that have the higher margins, and be able to really tailor their store to direct their consumers to much more profitable areas,” she said. “But with the big chains, they are being forced to play on the price volume and being forced to compete with Wal-Mart. It all becomes about turns.”

Moderator’s Comment: As an industry, are supermarket operators in a better or worse position to compete against so-called alternative formats than they
were five or ten years ago?

Sherif Mityas, vice president, retail and consumer practice at A.T. Kearney in Chicago, pointed out the complexity of the retail grocery trade where companies
have a stark choice: Define yourself or being defined by your competitors.

“There used to be three or four basic channels where consumers could obtain grocery products, and now there are more than 27, including online, a Mobil
station’s On the Run store, Walgreens, Sears Grand, dollar stores and even [television shopping channel] QVC,” he said.

George Anderson – Moderator

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