R&FF Retailer – Meijer: Back on Track
Through a special arrangement, what follows is an excerpt of
a current article from Refrigerated & Frozen Foods Retailer magazine,
presented here for discussion.
What a difference a few years can make. In September
2003, Meijer, Inc. laid off 350 headquarters workers – 15 percent of its corporate
work force of about 2,300 – “to increase its competitive position in the supercenter
discount industry.”
It was the second time in two years that the Grand Rapids, Mich.-based retailer – the pioneer of the supercenter – had eliminated hundreds of jobs. With Wal-Mart Supercenters invading its turf, Meijer seemed to lack a coherent strategy, and its plans for expanding beyond its 158 stores were reportedly on hold. Only a month earlier, observers had scratched their heads when Meijer inked a deal with the United Food and Commercial Workers Union, giving its 36,000 Michigan employees raises that the union said made them “the highest paid in the retail business throughout the Midwest.” Was this any way to compete with Wal-Mart?
Fast forward to 2007, and Meijer seems to have found its footing again, just as Wal-Mart is taking a needed breather. Now with 178 stores and about a dozen more (including its invasion of Chicago) on the drawing board, Meijer is flexing its muscles. The chain is heavily promoting its Meijer Gold brand, and has launched Meijer Organics, a new label that will eventually have more than 200 SKUs. All stores more than five years old are being remodeled.
If Meijer once briefly tried to emulate Wal-Mart on pricing, sources say it is now more inclined to emulate Kroger, which seems to have cracked the code in competing successfully against Wal-Mart. Others say Meijer is even taking some cues from paragons such as Wegmans, especially via upscale items and popular regional brands.
Observers say the chain is putting more emphasis on food versus general merchandise, as it continues to differentiate itself from Wal-Mart with variety, local brands, high-quality perishables and service.
Says one observer, “I see them re-balancing. Right now, a 200,000 square-foot store might be 40 percent to 45 percent grocery in terms of floor space. I think you’ll see the relative emphasis tip back toward grocery in the next few years. Remember, Wal-Mart came at this as a mass merchandiser that added food tactically, to drive traffic and ring. But at heart, Meijer is a grocer. They’re just better at food than Wal-Mart is.”
But the stores remain fairly price competitive.
“In markets where we have both Meijer and Wal-Mart data,” said one observer, “Wal-Mart is usually around 13 percent to 15 percent below traditional supermarkets, and Meijer is seven percent to eight percent below. So Meijer has noticeably lower prices than most supermarkets, but not as low as Wal-Mart.”
A year ago, looking to reinforce its history of being a low-cost leader, Meijer unveiled its “Price Drop” program of unadvertised specials. On average, about 5,000 items are part of this program on any given day, with items being added and dropped each week.
Observers note that while Meijer’s competitors are either EDLP or Hi-Lo, Meijer uses its Price Drop program to straddle the fence successfully – offering not only decent everyday prices and ads that are hot enough to get attention, but a sort of treasure hunt for specials.
Said consultant David Biernbaum, Chesterfield, Mo., “Meijer is large enough to offer competitive discounted pricing yet still small and regional enough to offer the local flavor. It executes well on supplier promotions as well as its own (private label).” He adds that the chain executes well on niche brands and products – not just the same major brands being footballed by other chains.
“The perimeter departments look great,” added one vendor. “They’re obviously spending a lot of money consistently improving their stores. And their weekly one-stop shopping fliers are very effective at getting the word out about hot prices. Wal-Mart doesn’t do that, they just rely on the shelf tags, so I think Meijer’s strategy is working to give them a decent-enough price image.”
Discussion Question: What lessons can be learned about the turnaround at Meijer? What in your mind sticks out as the biggest contributors to Meijer’s recent success?
In each and every case study that I have come across, service was the reason that people did NOT return to Wal-Mart. Especially in the grocery category which can be service intensive. So in comes Meijer and fills in the gap. They have a great associate training program and really put an emphasis on customer service as part of the shopping experience. Throw in a great house brand program and some store remodeling and that, in effect, contributed to the Meijer turnaround. Freshening up stores and bringing in new products is key in keeping customers interested. Price battles can no longer be won while Wal-Mart still has its doors open. It has to be the entire shopping experience that brings customers back. The next question is, can Meijer keep it up?
Living in Western Michigan, we have the ability to view first-hand what Meijer has done to defend itself from the Wal-Mart invasion.
Here is how I see it:
1) Meijer is privately held and has a tremendous advantage in being able to invest the necessary resources to defend its market share without having to explain itself to the Street!
2) Meijer contiues to invest in market expansion, new stores and store remodelings to improve its position with the consumer despite the Wal-Mart invasion into Meijer’s core market.
3) Meijer’s “Price Drop” program appears to have been very successful in blunting Wal-Mart’s “Always Low Price” program.
However….
1) Wal-Mart is converting its Michigan Division I stores into Supercenters (all three outlets in the Kalamazoo area are being planned for conversion as we speak). This will trigger the next phase of the battle as many of Wal-Mart’s stores are strategically positioned near Meijer outlets. Wal-Mart is also expanding its Supercenter presence into additional locations in SW Michigan.
2) The less than robust economic situation in Michigan (and the Detroit area in particular) will place some additional strain on Meijer’s revenue and profit stream.
3) It will also be interesting to see how the Kroger expansion in Detroit (Farmer Jack acquisitions) impacts the Meijer operation.
The battle rages on!
Meijer still has an entrepreneurial spirit and is a terrific partner for marketing oriented suppliers that still want to think and execute outside the box.
I recently had the opportunity to work directly with buyers and with Meijer’s marketing department to plan for, and execute local media and event programs for an HBC oral care company together in six Meijer markets. The managers and all the personnel at Meijer were excellent to work with, and the results of the promotion were outstanding for Meijer, its customers, and the HBC oral care brand.
A lot is written these days, and many speeches are made about partnerships, and thinking outside the box, but in Meijer’s case, this really happens in collaboration with its suppliers, and to the benefit of Meijer’s customers.
Wal-Mart’s murderous impact on the grocery business has been moderated. Meijer and Kroger aren’t the only healthy grocers left. For example, Safeway stock is up 40% compared to a year ago. Meijer’s focus on owning its real estate (often the whole center, not just their own store) undoubtedly helps its financials. Its stores draw big traffic, and Meijer can earn landlord profits from the adjacent stores.
Meijer has found a unique position in the marketplace. They are first and foremost a grocery store, but they carry a broad non-food assortment. They emphasize good value versus just low price. By contrast, a Wal-Mart Supercenter is basically a Wal-Mart that also sells food at low prices.
Meijer has also been very innovative in their merchandising, doing a lot of cross-category promotions and creating “solution centers” that appeal to shoppers. Perhaps most of all, Meijer has created a pleasant shopping experience, quite different from the warehouse-like feel of shopping in many big-box stores.
As a regular Meijer customer and a professional retail “observer,” its store remodeling in the unit nearest us has been very good; the store really looks nice.
As far as the grocery department is concerned, I would rate it somewhat better than Wal-Mart, but not outstandingly so.
Its Price Drop program is great overhead signing, but frankly, kind of hard to find as a consumer.
I will say that its Pharmacy setup is much more consumer-friendly than that of Wal-Mart.
Meijer has refocused on providing value to the consumer and is rebounding as consumers respond. This is a prime example of giving people what they want and reaping the rewards. No gimmicks here, just straight value. They have actually executed the one-stop-shop and in addition, they are selling it as a means of conserving gas, time, and also saving on food and other everyday needs.
I have seen no meaningful turnaround at Meijer. Just because someone writes an article doesn’t mean it’s really happening. Wal-Mart might be slowing down but Wal-Mart is still outpacing Meijer in new store construction in Meijer’s own territory. I’ve seen several Meijer remodels and someone had to tell me the stores were remodeled because it was so minor I didn’t notice. Meijer still had not recovered from the dummying down to be like Wal-Mart in 2003. They are still operating on a skeleton crew in the grocery department. Skilled employees have been replaced by part-time elderly and immigrants. Cashiers have been replaced by self-serve checkouts because the customer has a better experience with a machine than an employee. They are running out of weaker retailers to out-run like Farmer Jack, Food Town, Big Bear, Scotts, Thriftway, and Cub. Soon, they will be the one caught in Wal-Mart’s bear claws.
Meijer does have some opportunities. They could rebuild their reputation by offering higher quality perishables and upgrading their customer service…basically returning it to their previous levels. Chicago is an opportunity because that market is still dominated by slow bottom line oriented chain stores and Wal-Mart has not received the red carpet treatment there.
I agree with David Livingston’s comments. I agree that customer service in the Chicago area and Northwest Indiana is night and day with customer service I experience at Meijer stores around Grand Rapids, MI and West Michigan. If you walk into a Meijer store in Grand Rapids, the staff is so tip-top that it’s almost like shopping at Nordstrom, while in Northwest Indiana/Chicagoland, you can barely find anyone to help you…..or that cares about you as a customer.
I knew the end of Meijer being an upscale progressive supercenter occurred when they built the new Greenville, MI store in 2001. The store was drastically cheapened in design with everything from low budget fluorescent lighting to non illuminated exterior signage on the outside of the building.
While the products and merchandising did not change much, the feel of Meijer went to a cheap boxy feel. A few examples:
– No more natural light filtered into the store via a translucent front wall.
– 36 cash registers now had power poles leading down to them from the ceiling giving a cheap Wal-Mart feel to the store.
– Lighting was downgraded in the produce area and the produce department no longer felt like a special separate area of the store with specialty lighting and unique graphics.
I would say Meijer needs to bring back the “Fresh” that was attached to their name. Meijer with the cursive green Fresh added on the side was a very good name because it emphasized their core grocery business. It also followed through with their advertising and sales ads. Meijer was all about being Fresh…now for anyone unfamiliar with Meijer, they might confuse it for a ShopKo, Zayre, Kmart……or even Wal Mart. The Fresh logo showed the store was a grocery destination.
I personally miss the very refined Meijer stores of the 1990’s. Many fine stores were built from the South Bend/Fort Wayne area stores with a yellow circular cylinder at the front entry, to the late 1990’s Meijers that conveyed a Fresh Store concept with a Dutch influenced canopy above each entrance. These Meijer stores had dramatic lighting, classy graphics, clean architectural detailing, and each area of the store felt like its own area and the store didn’t feel like a big box.