GHQ Cover Story 03/05: Adapting for survival
By George Anderson
Through special arrangement with Grocery Headquarters magazine, we present these opportunities to discuss the subjects of GHQ’s monthly cover stories.
It’s the law of the retailing jungle: Adapt or perish.
According to the March 2005 issue of Grocery Headquarters magazine, many well-known names in grocery retailing – Winn-Dixie, A&P, Pathmark, Penn Traffic and others
– find themselves confronting this reality with an extreme sense of urgency as shoppers leave these chains for Wal-Mart and other retail competitors.
Winn-Dixie’s and Penn Traffic’s survival plans required the companies to regroup under Chapter 11 bankruptcy protection. What these filings will mean in the end is not yet known
but store closings and the sale of company assets or, for that matter, entire businesses is within the scope of the possible.
A&P has focused on a number of fronts, including selling off such assets as Eight O’Clock Coffee. Recent press reports suggest the chain is actively shopping its Canadian
division, as well.
The chain has also set off on a dual high-end/low-end banner strategy.
Fresh Market is A&P’s upscale concept catering to consumers in more affluent areas.
In January, A&P’s chairman and CEO Christian Haub told analysts, “Customer response to the first Fresh Market has been exceptional, and we’re also encouraged by the margin
structure and bottom line pricing picture beginning to emerge as the concept is refined in successive locations.”
The Fresh Market format features a greater selection of natural and organic produce and restaurant-quality prepared food items than previously seen in A&P.
At the other end of the economic spectrum, A&P has rolled out its Food Basics limited assortment stores.
Bill Bishop, president of Willard Bishop Consulting and a member of the RetailWire BrainTrust, said, “At A&P, Food Basics represents a kind of reinvention strategy. In Michigan,
there were some problems with people knowing what a Food Basics was,” he said. “But when it is dropped in the right neighborhood in Newark or Paterson [New Jersey], and other
metropolitan areas that are underserved, people will get that idea pretty quickly.”
Bi-Lo, which along with Bruno’s, was sold by Ahold to Lone Star Funds, has also developed new prototype stores but the biggest change made since the sale was the decision for
the business to go from a self-distributing chain to one supplied by a wholesaler (C&S Wholesale Grocers).
Dean Cohagan, president and CEO of Bi-Lo Holdings, told Grocery Headquarters, “Our agreement with C&S will only improve operations. We gain access to best-in-class
distribution expertise, and it will give us greater supply chain efficiencies.”
C&S, according to reports this week, is a possible suitor for the Pathmark supermarket chain.
Moderator’s Comment: What have been some of the most successful adaptations you’ve seen grocery store operators make to survive and thrive in a tough
competitive market? –
George Anderson – Moderator
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6 Comments on "GHQ Cover Story 03/05: Adapting for survival"
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I might be a little biased but I think Roundy’s has done one of the best jobs. You could say that I am “banking” on their success. Highlights: Their stores are not the lowest priced or the prettiest, but with shrewd and intelligent business stratetgy they have been able to achieve a 60+ market shares in the Milwaukee metro area, kept Wal-Mart Supercenter standing outside the Milwaukee County line looking in, managed to keep unions from penetrating new stores, increased gross margins and taken advantage of the competition’s mistakes. I hope they can take advantage of Safeway’s mistakes at Dominick’s next and continue to grow Roundy’s retail. In my opinion, Roundy’s is the only company with any reasonable chance to get Dominick’s back on track.
Wal-Mart and their ilk are famous for bringing in SKUs, then squeezing the manufacturers for higher margins as the manufacturers become more and more dependent on Wal-Mart for their survival. The manufacturers, chasing the quick buck, think they can survive by diversifying distribution, but as Wal-Mart attracts more shoppers, the broad distribution issue becomes a red herring. Manufacturers are digging their own graves by putting themselves into this Catch-22, and supporting price cutting. This kind of price cutting behavior can only result in jobs going overseas.
If I were the supermarket chains, I would be pulling out all the stops to get Wal-Mart and the others unionized. Only when their labor costs increase will we begin to see a return to equilibrium in the marketplace.
A key factor is positioning the store with a unique and special branding proposition such as “fresh,” “ethnic,” “unique,” etc. Many supermarket operators (examples include Wegmans, Price Chopper, United, and HEB) are offering some great destinations that promise to be interesting, rewarding and special. And they are doing so particularly well when it comes to fresh and prepared items.
At times, we forget the consumer and marketing side of the equation; to fight off competition and bring operations in balance. But look what Food Lion and its other companies have done to transform it to a more focused consumer outlet… a better shopping experience with new formats, informational systems, micro marketing to the area and neighborhood, and signature lines including its new wine line.
WOAH… Retailseer just hit the bullseye from 2 1/2 miles away.