GHQ: Solving the GM Puzzle
By Craig Levitt
Through a special arrangement, what follows is an excerpt of
a current article from Grocery Headquarters magazine, presented here
for discussion.
To paraphrase Winston Churchill, the general merchandise category
in the grocery channel is a riddle, wrapped in a mystery, inside an enigma.
Current general merchandise trends may not be quite as confusing as World War
II politics, but for GM manufacturers it can be just as frustrating.
With a fluctuating economy, rising gas prices and personal time at a premium, consumers are limiting their shopping trips. Industry observers suggest that these trends present grocery stores – more than any other retail channel – with a tremendous opportunity to capture GM dollars simply because of the frequency of consumer visits. Yet supermarkets continue to lose GM market share to mass merchants and even dollar stores.
Perhaps most perplexing to manufacturers is not the languishing sales, but the indifference of many food retailers when it comes to the category. GM products at grocers often include items such as greeting cards, candles, batteries, pet accessories, back-to-school items and cookware. While space is always at a premium, too often, GM manufacturers say, when new categories arise or gain favor with consumers – organics or naturals for example – extra space is provided, usually at the expense of the potentially more profitable GM category.
“Many supermarkets have not focused a great deal of time or effort on the GM business and therefore shoppers often overlook traditional GM aisles,” says Jon Hauptman, partner with Willard Bishop. “Too often consumers don’t even think of the supermarket as a place to buy general merchandise.”
Industry observers say retailers that simply accept that consumers are going to shop for general merchandise products at alternate channels are doing themselves a disservice, citing the fact that general merchandise products often provide some of the highest profit margins in the store. Supermarkets that neglect GM are also inviting customers to shop at dollar stores or mass merchants, thus running the risk of losing the more traditional supermarket purchases to those outlets. Industry observers further suggest that consumers want to make GM purchases at the supermarket.
“If you look at the retailers that have committed themselves to GM, there is a very strong case to be made that those retailers that have made the commitment have the results to support the fact that the commitment was well founded and the investment had a high return,” says Mark Deuschle, president of Gartner Companies, which includes Gartner Greetings and Gartner Studios. “GM is underleveraged. It has the potential to grow significantly, in some cases with more space, but in more cases with greater attention and greater focus.
“For grocery it becomes a balancing act. I look at the retailers that I think have the best balance, an H-E-B or Safeway. Also what Kroger is doing with a lot of its new stores [demonstrates] that they all get it. Sure, they are going to provide organics and meet the needs of that customer, but they aren’t trying to be a Whole Foods.”
Discussion Questions: Do you think grocers should be reducing or increasing their commitment to general merchandise categories? How can supermarkets do a better job selling GM products? Which GM categories do you think offers the most revenue potential for grocers?
It’s been a self-fulfilling prophecy: if you don’t believe the category will grow, you don’t support it. If you don’t support it, it dies. At many supermarkets I visit, GM categories are hidden away somewhere, with poor signage, poor merchandising and lots of stockouts. I think supers are working on so many fronts at once, it’s hard to allocate the time, money and resources to what they know the least about: GM. Supers should take a realistic assessment of their resources, and then either fish or cut bait on GM, or specific segments of GM. Doing it half-heartedly doesn’t work.
Totally agree with the “self-fulfilling prophesy” comment. Retail is a dynamic dialog between consumers and the industry; one speaks and the other responds, and vice versa.
It seems to me that the drug channel has wisely and quietly scooped up these GM sales. Look at what’s happening in aisle at Walgreens and CVS. Sure, consumers are consolidating shopping trips, but their baskets are being filled with GM at drug, for many middle income shoppers. Dollar stores also are grabbing share of GM, but from a different profile of shopper. Meantime, all manner of grocery loses because they got caught up chasing the winner in fresh foods.
First, take a look at the numerous models that do work–Wegmans, Stop & Shop, Wal-Mart, Tesco in the UK, Metro in Germany and Aldi both in Europe and the U.S.
It takes a tremendous commitment to be successful in general merchandise. The margins on many items and categories are not what they used to be and that means working harder at creating the revenue stream. You can’t just throw cheap Chinese goods on the shelf and expect shoppers to swarm. Create the need and desire. It’s about MERCHANDISING!
GM and HBC have been step-departments for many years. A change here is unlikely unless food retailers bring in new talent, have a vision and learn to execute real change in these departments.
The thesis presented is one stop shopping. Only the food industry bought into this thesis, never the consumer. I have yet to see any credible research that says consumers want one stop shopping, only retail executives drawing on wishful thinking. In this time period, the American consumer has changed their shopping profile. Supercenters and Clubs will not see a sales drop due to high gas prices. They are more likely to see a sales increase.
Retail food simply does not have the space to do a credible job on GM, but could do much better on HBC.
Grocers should do what they do best: food. Any extension of that base premise makes sense and will work. Some proof of that has been seen in private label organic goods, better prepared meals, deli service, wine, coffee bars and even restaurants (Safeway). Stick with what you know best and then drive it! It is easier to differentiate if you’re perceived as experts vs. generalists.
Grocery stores are not big box stores…they’re food stores!
M. Jericho Banks hit the nail on the head. Many supermarket GM sections are a sorry junk parade. So many supermarkets seem to have no pride. Aren’t they ashamed of selling low-end commodity junk? I’ve seen many supermarkets in the richest counties in the country, with GM quality a half-notch higher than dollar stores, and prices 3 notches higher. An aluminum pot that would be $4.99 in a low-end mass merchant marked $14.99 in a supermarket whose parking lot is full of Lexus, Mercedes, Yukons, and Audis.
Grocers should recognize that they are in the retailing business. They should be offering, at the same competitive retails, the top selling (perhaps 100 SKUs) that a MM or BB store does. This includes all of the key impulse, and GM items that are seen everyday at these stores. Grocers also need to update their model. They will continue to lose food business to large MMs like Wal-Mart, who have a more current and consumer sensitive model, than most grocers.
Add Raley’s, the multi-billion-dollar (privately-held) supermarket chain based in Sacramento, to the list of retailers who do GM successfully along with food. The Raley’s legend is that founder Tom Raley opened Drug/GM stores next door to his grocery stores and one day, during an epiphany, decided to “knock down the wall” between them. Though not as dramatic as knocking down the Berlin Wall, it was supposedly the birth of the “Combo Store” format and has been extremely successful. That’s because, Frank Dell, they continue to devote about 40% of their floorspace to Drug/GM. You ought to see some of their fishing equipment sections in locations near lakes and rivers. Fresh bait includes worms in a refrigerator.
With local food chains other than Raley’s, I avoid the GM offering because of the usually-inferior brands offered. I buy for quality, not price. A screwdriver purchased in a typical supermarket will have its chrome coating begin to flake off the first time it’s used. My recommendation is to begin by upgrading the quality of GM products in conventional supermarkets.