Local approach works for Whole Foods
Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.
Recently, in a casual dinner conversation, a "know it all" but well-informed friend of mine asserted that Whole Foods was doomed to fail. The reason: Store managers are allowed to significantly impact what merchandise gets put in each individual store.
I asked him, "How could you possibly see store managers affecting their mix in a personalized, localized way as a bad thing?"
Mike told us that he’s friends with a Whole Foods store manager where he lives who’s constantly overwhelmed trying to figure out what to order and when to order it. He went on to insist that part of what makes a national chain powerful is its ability to standardize its product mix.
While certainly entitled to his opinion, Mike bases his opinions off both tradition and his own industry (online automotive parts and sales). In auto parts, it would be foolish to have a part available in one store and not in another. Or would it?
That’s when we started talking about differences in consumer demographics — how a mall-based apparel retailer in New York would most certainly not want to have the same selection as one in Miami, even if both were in largely Hispanic-American communities and even during the summer months. Enabling a store manager more input — even with some added stress — would indeed help make the store "feel" more like it should: stocked with the items that people there want to buy. Even in auto parts, he agreed Montana drivers have different vehicles and needs than LA drivers.
To drive the point home, the next day we visited the Whole Foods nearby in midtown Detroit. The store had a bunch of products neither one of us had ever heard of (a local bakery provided baked goods, a local salsa company provided chips and unbelievably delicious salsa), and it made the place seem just a little more like it belonged. So did the Detroit-style graffiti over the dairy department and the classic Motown vinyl 45s serving as checkout lane markers.
But here’s the thing: It’s not just people like Mike who still cling to the notion of "standardized equals professional." In our most recent Merchandising Report, only Retail Winners had any real grasp on the value of localized assortments (55 percent considered it "Very Important" for Retail Success) — and that’s certainly not a windfall. Apparently, when it comes to the value of making stores feel more like the communities they represent, change may come one conversation at a time.
Discussion Questions
Are stores only paying lip service to localization efforts while still relying on standardization? Are localization efforts paying off in most cases? Can chains rely on local managers to manage the efforts?
General merchandisers have worked hard on assortment “localization,” with Macy’s (and its “My Macy’s” initiative) leading the pack while its competitors play catch-up. But it’s hard to imagine how any grocery retailer—operating on a local, regional or national scale—can succeed without catering to wildly different food preferences from market to market.
The best illustration I can think of is yesterday’s food section in the New York Times, devoted entirely to the “art of the sandwich.” There are multiple pages devoted to a cross-country appreciation of sandwiches favored only in particular cities or regions. Any grocer ignoring this variation in tastes does so at his/her own risk … especially a store like Whole Foods that tries hard to build ties to its communities.
It’s too easy to fall back on standardization. Localizing product assortments takes time and effort, something few managers have or are rewarded for. True localization can pay off through differentiation from other local retailers and presenting unique offerings to consumers. With many consumers wanting to buy local, retailers should pay attention and make more local options available in-store.
A level of standardization will always be a part of retail chains—as it should be. There are essential items that will belong in every store. But putting more effort into localization will increase customer satisfaction and make for a more enjoyable, unique shopping experience. Local managers are certainly the most informed to make these decisions but it is important that they are empowered with data and support.
Yes localization will work and have a very dramatic effect on the bottom line, if two things are in place:
To say that Whole Foods is bound to fail, at least anytime in the foreseeable future, is pretty nonsensical. However, I do agree that store managers can be completely overwhelmed with making localized decisions on choosing which items and which SKUs to carry in his or her store.
The truth is somewhere in the middle. The notion that “standardized equals professional” also enters into erroneous territory on its own.
Store managers do not always have the knowledge, data or time to fully understand each of the product categories, the nuances or the trends. I think they do rely too much on personal intuition and individual customer feedback, which often is very misleading.
It’s all in who does the choosing and how much time they can reasonably devote to finding the best local products, not just local products.
The example cited with different local vendors may sound great, but if there is a brand I’m used to seeing at Whole Foods and don’t, they may lose out on the category, as not everyone is adventurous.
Localization efforts need not solely fall on the shoulders of the store manager as a manual process. Syndicated panel data and retail systems can streamline those decisions, add insights in a centralized model as well as supporting the store manager in a de-centralized model. Standardization of processes and use of systems are a must for efficient operations. A store’s ability to localize does not have to equate to chaos or working outside the system.
Driving for efficiency and localization efforts need not be an either/or trade-off. Today’s retailers, including grocers, can enjoy the power of both at the same time.
Bravo Whole Foods, who has never been accused of being traditional. It’s nice to see localization in action. I agree localization is something more spoken about than done. The trick here is EMPOWERMENT, not just saying “yes you can” but giving them the tools, budget, space and goalposts to do so.
The danger here is a wandering brand statement, globs of unauthorized inventory, and AP challenges—BUT, there are tools to manage all of this. The tactic will be more relevant in some sectors than others, of course, but why not be more consumer-centric within a framework? Beyond the customer benefits, the empowerment (freedom with a framework) has the potential to instill greater staff ownership and pride in their own store. If you want a horde of disinterested, unhelpful staff, then script their every move, pay them poorly and stamp out innovation. But if you want staff to think “my store,” then seek motivated people and focus on strategy and tactics, and empower them to do the RIGHT thing.
Localization is important. It is one of the keys to having returning customers. Especially in the warmer months when local produce, fruits and vegetables are abundant. Maybe in the colder months standardization is easier to follow. But to get the best result grocers need to know what their customers want and are buying.
I live in Palm Springs, California. Walmart and Home Depot have historically offered more patio furniture leading into our incredibly hot summers and not in our awesome winter season. Go figure. But when I asked, I was told stocking was done at HQ. This may have changed in the last several years but it’s an example of inane standardization that should be eliminated. And my point, buying local or sticking to meet the local demographic or climate are varying degrees of the same issue. Success should follow the retailer that provides for the local customers’ tastes and preferences. A good mix seems essential.
The answer depends entirely on how broadly (or narrowly) you define localizing.
I live in Detroit as well and there are an amazing number of local producers in categories ranging from jams and jellies, juice drinks and cheeses to bakery, ethnic products, produce and beyond. How many of these need to represented to make an individual store’s inventory “localized” is a tough question to get a good answer to.
As to whether or not localization pays, I’d say so in most cases, although sometimes that payment takes a “soft” form, i.e., good will versus revenue.
As to the final question, the answer is a qualified “Yes” provided they give them the right tools. Without good “guardrails” it’s likely to be a hit AND miss policy.
Whoever said that Whole Foods is doomed to fail is stuck in the ’80s. Check with the list of successful efforts at localized management: Urban Brands, Whole Foods, Kate Spade, LuLu Lemon, Warby Parker, on and on. That’s what modern retail is going to HAVE to be like going forward. Autonomy built on trust, not planograms and machines doing the ordering.
If you want cookie-cutter efficiency and same-same retail, just emulate Amazon. But if you have stores, you’d better be thinking of autonomy solutions, like Whole Foods does.
MY own WF story: when they opened here in Oakland, someone had the idea of covering a wall with blow-ups of postcards (a la the 45s, I guess) ; I was looking it over, recognizing local landmarks, and then I got to one that I didn’t recognize at all…until I realized it was actually of the “Oakland” section of Pittsburgh.
Translation: localization can be a bonus, but it does take work to get it right. So, yes, the truth lies in the middle between Steve and Mike.
We could all submit strongly supported testimony for the above and below board reasons to commit in either direction. The need for a company to grow will be met in either direction. The opportunity to dominate a market in any and all geographical locations might be better served with that market’s needs in the forefront of inventory placement. So what we need is to enhance the structure and capabilities of the planning departments which should be cause for consideration for a need to incorporate Planning and Allocation as one group with a combined effort. Purchasing and Operations should be required to demonstrate reason and cause for deviation from plan within 2 weeks of the decision. This would set a course for mutual cooperation among the three departments and ease the response to sudden market needs or discovered opportunities among these groups. To set an outward expansion course the company must place higher value on the needs of the customers and out-of-stocks to make the most of the opportunities before them.
The store manager’s job is to manage the store. Individualizing assortment requires analysis of customers’ purchasing habits, trends, and preferences. This is a different skill set. Are the local mangers receiving appropriate training or do they have someone on their staff with this ability? If not, how can they do what they do not know?
Tailoring the store to the neighborhood works. Customers appreciate the effort, and word of mouth speaks volumes. But as was noted, you have to have a manager that is passionate and knowledgable about the demographic as well as developing relationships with local vendors to service their stores. But the due diligence needs to be consistent—change product with the change of the neighborhood, making sure product is rotated, and making sure that inventory levels don’t get out of hand.
The challenges with localization require that national chains provide store managers with the tools to better select and evaluate local products. Without those tools, managers are forced to rely on their “gut feel” without any quantitative support.
For this reason, most chains still rely on national product assortments (and designs)—the challenge of localization and measurement remain too daunting.