GHQ: Rough seas

Discussion
Sep 08, 2008

By Richard Turcsik

Through a special arrangement, what follows is an excerpt of a current article from Grocery Headquarters magazine, presented here for discussion.

The roster of major companies filing for bankruptcy over the past year reads like a who’s who list of corporate America: Bennigan’s and Steak & Ale; IndyMac Bank; Sharper Image; Bombay Co.; Linens ‘n Things; Steve & Barry’s; Frontier Airlines; Mervyn’s; Boscov’s; Lillian Vernon; and even Las Vegas’ Tropicana casino. Supermarket chains have been noticeably absent from that list – so far. And to stay off it, they have to do far more than embrace the old adage that “people have to eat,” because by no means are traditional supermarkets immune from this economic maelstrom.

Not only do many expect this recession to be far more turbulent and prolonged than past downturns, but supermarkets also have to face a slew of competitors fighting for a piece of the ever-shrinking consumer budget. Traditional supermarkets are battling for a share of the food dollar with a host of outlets, ranging from the overbuilt “fast casual” restaurant industry to Wal-Mart Supercenters, Costco, Trader Joe’s, Aldi, Save-A-Lot, dollar stores, as well as drugstores such as CVS, Walgreens and Rite Aid, which are increasingly using grocery items as loss leaders.

One particular problem facing traditional retailers in this current recession is that Wal-Mart, Costco, BJ’s, Save-A-Lot and Aldi have already carved out niches catering to shoppers who are watching their pennies.

“The key to the ‘big middle’ chains is to provide some value options for customers,” said Richard J. George, Ph.D., professor of food marketing at the Erivan K. Haub School of Business at St. Joseph’s University. “It may mean taking a stand on the top 50 consumer products – things like Cheerios, Scott tissue, Heinz ketchup and things like that which can differentiate you in terms of strength in the market and recognizing that times are tough,” he said.

Consumers have been substantially trading down throughout 2008, and supermarkets need to address that phenomenon to win back sales, said Bill Bishop, chairman of Willard Bishop Consulting.

“Stores can do more with their internal signing and price communication to let customers know that they have some trade-down opportunities,” Mr. Bishop said. “Highlighting comparisons with the national brand and private label would be one way,” he said, noting that an increasing number of retailers are adding second tier private labels with names like Value Time.

“It is not so much a generic as a second tier that’s a lower quality than a first tier,” Mr. Bishop said. “Some retailers don’t want to draw attention to these labels because they don’t want to trade down people, but we’re in a world where people are looking for those. It is worth your while to draw attention to them because you’d be better off with a half-loaf than none at all,” he said.

Discussion Questions: Is the current economic downturn different from ones in the past? How would you, for example, compare trading-down activity during this economic cycle versus past periods of slow or no growth? What should traditional grocers be focusing on to come out ahead of the pack when the rebound happens?

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15 Comments on "GHQ: Rough seas"

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Raymond D. Jones
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Raymond D. Jones
9 years 3 months ago
In past economic downturns, most retailers were simply able to tighten their belts and ride it out. This time may be different for several reasons. First of all, most retailers have already learned to manage their inventories closely, so reduced buying investment is not as easy. Secondly, most operators are more highly leveraged today, so even small downturns can have a major impact. (This is why we see major banks folding, even thought the actual percent of bad loans is not that high a portion of their business.) Perhaps most important is the impact of changing consumer shopping patterns. In… Read more »
Mary Baum
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Mary Baum
9 years 3 months ago
I think Camille’s hit it on the head: Know your customer and listen to her feedback. Retailers who are already doing that ought to be well ahead of the game–as for the ones who aren’t, it’s time to start. If you think about it, keeping the family fed and the pantry stocked is a huge part of the life of the person in charge of that. From shopping to cooking and serving, and even fielding questions about why we ran out of cat food, it easily consumes 15 hours a week, and more if there’s a major holiday coming up.… Read more »
Ryan Mathews
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9 years 3 months ago

Part of the complexity of the current downturn relates to our role in a true global economy. We are no longer economic isolationists and the ability of any business to thrive in the future depends on finding a way to become part of the larger economic fabric.

Joanna Kennedy
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Joanna Kennedy
9 years 3 months ago
Traditional grocers need to consider at evolving market opportunities and tools to help price positioning. (1) The consumer is avoiding restaurant spend. Although the consumer hasn’t found additional time to prepare a healthy and/or tasty meal, the consumer certainly feels pressure in the wallet. Traditional grocers need to jump on the emerging market of transforming preprepared meals into a commodity. (2) The simple act of lowering prices on a whole might not be the right decision. However, using advanced logic tools like price optimization, making recommendations for product/site price combos throughout the entire lifecycle can definitely aid retailers in taking… Read more »
Doron Levy
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Doron Levy
9 years 3 months ago

I think the focus should be on higher margin, value products such as private label. Grocers should expand house brand sections.

Safeway’s lines are an excellent example of offering high quality at value pricepoints. I agree with communicating the value message to the customer. There are effective methods of signing value throughout the store without going downscale. And of course, sharpen up the customer service experience. Consumers now see value in that and will shift dollars accordingly.

Camille P. Schuster, PhD.
Guest
9 years 3 months ago
For those grocery chains that have done a good job of not only learning about their consumers but setting up an interactive dialog with their consumers, they should be able to adapt to the changing times. If consumers are spending more time at home, then maybe more meal solutions are appropriate. That may mean meals for a family, meals for friends, or individual meals. Guessing will not lead to success. If consumers are more concerned about value, then using more private label or being selective about brands may be more appropriate. The solution for the grocery store chains is in… Read more »
John Gaffney
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John Gaffney
9 years 3 months ago
This downturn is very different from anything since the Great Depression because two of the pillars of the way society and business runs – energy and banking – are broken. The endgame for each of these issues has not shown itself, so it is up to retailers to become leaders. Supermarkets have a chance to lead the way in terms of product information and budget information. They should focus on using loyalty programs and internet communications to disseminate valuable information. Show loyal customers how key product price increases effect their weekly spend. Give loyalty program members a reason to insist… Read more »
Gene Detroyer
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9 years 3 months ago
What should traditional grocers be focusing on to come out ahead of the pack when the rebound happens? They should focus on the very same thing they do when there is no recession. Each of the traditional grocers holds a position in shoppers’ minds. If they determine to change that position, they’d better be ready to communicate it heavily and keep it when the recession is over. If a retailer is known for service, they must keep the service. If they are known for selection, they must keep the selection. Their shopper is coming to their store because they have… Read more »
Susan Rider
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Susan Rider
9 years 3 months ago
The current downturn is similar but has some complexities that the ones of the past did not. For instance, multichannel offerings by many retailers and a broadening of non-traditional retailers into the grocery world. Traditional grocers need to focus on service, convenience and value. They should identify the 80 or so top staples and be competitive on them. Consumers will go to the large box stores for price but they almost always have to go somewhere else for the fill-ins. Today, if you can avoid the second stop, you save money. Therefore, if the price was relatively close…. Plus, a… Read more »
Dick Seesel
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9 years 3 months ago

The movement toward store brands with more upscale appeal than yesterday’s generics seems to be the biggest shift going on in the grocery business. This may be a sea change that outlasts the current economic slowdown, partly because of changing consumer habits but also because of continued share gains by Walmart, Costco and so on. Short-term, it’s essential for the traditional food retailers’ survival that they establish a strong value position and brand differentiation.

John Crossman
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John Crossman
9 years 3 months ago

They should be focusing on new store development. The change in the real estate market has made today’s market the best tenant’s market in 10 years. Landlords are giving incentives and competition is down. If a grocer wants to ramp up, they should be doing deals.

Matthew Spahn
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Matthew Spahn
9 years 3 months ago
For the most part, grocers have a fairly loyal customer base and do a great job capturing who those customers are through their loyalty programs. Like any relationship, there will be good times and bad times and customers need to know that you are there for them to accommodate their needs reflective of the times and shopping habits. Use this competitive advantage of customer data and relationships to regularly dialog with customers not only to make them aware that there are more choices for a value-conscious shopper but also to give them a chance to keep you on top of… Read more »
David Livingston
Guest
9 years 3 months ago
For poorly run grocers, it’s always an economic downturn, regardless of the economy. Since we all have to eat, the grocery industry is recession proof. I don’t see consumers trading down but rather trading smarter. Shopping at Aldi is not trading down in my opinion. When someone chooses to buy better quality products and at prices lower compared to traditional supermarkets, consumers are simply trading smarter. Walmart, Aldi, Trader Joe’s and many others have been growing for years–good times and bad. While the plain vanilla conventional supermarkets are improving, they are still plain vanilla and I foresee them continuing to… Read more »
W. Frank Dell II
Guest
9 years 3 months ago
This economic cycle is different. Housing is their greatest single investment for 90 plus percent of consumers. When the home value is no longer going up, the “live for today” attitude has to change. This economic time will not change consumers until housing stops dropping in value, which is a year or more away. Consumers are cutting back on non-essentials and this will continue. Note: even upper income consumers have scaled back and fixed income consumers are being conservative in their purchases. Retail food needs to understand who their consumers are and what state they are in before implementing a… Read more »
Mark Lilien
Guest
9 years 3 months ago

The recession is a great time to recruit top performers and buy retail assets in bankruptcy court. It’s also a great time to approach suppliers you’ve wanted, who’ve previously limited their distribution. They may be hungrier now.

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