Consumers Consider the Alternative…Formats

Discussion
Jun 29, 2005
George Anderson

By George Anderson


A report from Retail Forward, Food Channel Industry Outlook, says “alternative formats” will capture most of the increase in consumer spending on food-at-home sales in
the years ahead.


The result, says the report author, is that supermarkets will need to redefine their value proposition and the customer shopping experience if they wish to keep pace.


“The middle-of-the-road approach historically taken by many conventional supermarkets no longer offers many compelling reasons to shop there,” said Nick McCoy, author of the
Retail Forward report.


“In the coming years, expect the supermarket industry to look different than it does today as new formats targeting specific shopper segments take shape,” he said.


Food Industry Channel Outlook identifies four areas where store operators will need to concentrate to remain competitive.



  1. Understand consumers better — Shoppers continue to find food-at-home from outlets other than supermarkets.

  2. Develop new formats — Concepts including extreme value, upscale/gourmet, etc. may prove more effective in reaching targeted consumer segments.

  3. Become more efficient — Business needs to be continually reexamined to weed out unnecessary costs.

  4. Throw out the cookie-cutter — One size does not fit all. “Food concepts of the future will center around consumer needs,” said Mr. McCoy. “There will be less emphasis on
    price and more emphasis on creating value and an improved shopping experience via a focused assortment, better service and unique technology.”


Moderator’s Comment: What grocery store concepts do you see gaining popularity in the years ahead? Which operators and their concepts have shown an ability
to adapt to the changing needs and behavior of consumers?

George Anderson – Moderator

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9 Comments on "Consumers Consider the Alternative…Formats"


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Al McClain
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Al McClain
15 years 8 months ago

The upscale/gourmet area represents a tremendous opportunity for mainstream retailers, as consumers become more sophisticated and “fussy.” Stands to reason that the most valuable shoppers are those with lots of discretionary spending ability, yet many traditional grocers continue to worry more about having the lowest prices and getting the best deals. Meanwhile, operators like Balducci’s, Kings, Ukrops, Whole Foods, Wild Oats, and the like are making a killing on upscale prepared, gourmet food. And, while they’re there, shoppers looking for tonight’s convenient gourmet meal are doing their fill-in shopping. So, grocers lose the profitable gourmet sale and some traditional items to boot. For upscale shoppers looking for meal solutions, it’s all about quality and the shopping experience (and a fair price).

Bill Bishop
Guest
Bill Bishop
15 years 8 months ago

The grocery concept that we’re seeing gain a lot of traction in many markets is the fresh store, i.e., the supermarket that devotes a large percentage — 20%-plus — to produce and then offers expanded fresh departments but limits/edits the center of the store.

Independents in a number of markets like Chicago have done exceptionally well with this format. Good examples include Pete’s Fresh Market and Caputo’s. We expect this will be one of the faster-growing formats over the next couple of years.

Many food chains have adapted their newer stores to changing consumer needs. We’ve been particularly impressed by what we’ve seen done by Hy-Vee and A&P.

Michael Richmond, Ph.D.
Guest
Michael Richmond, Ph.D.
15 years 8 months ago

It’s all about understanding the consumer and about Value, where Value = Benefits/Cost vs. Competition. Value can mean lowest cost but more and more it means consumer benefits like time saving; portable; easy to read labels; natural/organic; fresh; fun; trading up; sustainable, etc. Too often one retailer (Wal-Mart, etc) does something and everyone follows. Stores know what sells but my guess is they often do not understand why. Hence, the conundrum. Retailers need to start doing consumer research and get the answers. Food and Beverage, including Food Service, is nearly a trillion dollar industry in the USA and there is a lot of money to be made if you really understand what the consumer wants/needs. It’s that simple!

David Livingston
Guest
15 years 8 months ago
I see our country growing in two areas. We have a fast growing affluent segment and a fast growing low income segment. Trader Joe’s, Fresh Markets, and Whole Foods can’t build stores fast enough for those at the high end. Wal-Mart, Aldi and Save-A-Lot continue to have endless opportunities on the low end. Wegmans, Publix, and WinCo are moving into new market areas where the old line traditional supermarkets are becoming obsolete. I agree with Bill that the 20%+ produce stores are hot right now. But not A&P, Bill. Take a good look; they are just painting by numbers with their Fresh concept. Give them a year and they will look like a 1980s A&P again. Now I’m seeing these extremes making some changes. Aldi has been constantly adding high quality gourmet items in their stores and Wal-Mart is talking about going a bit more upscale. Trader Joe’s is trying to make organic and gourmet products more affordable to those with lower incomes. Seems the more extreme our stores get, the more they move towards… Read more »
Bill Bittner
Guest
Bill Bittner
15 years 8 months ago
There is another subtlety in the move to unique customer offerings. On one hand, the “big banners” were thought to have increased clout in an ever more mobile society. When someone moved, they looked for the store they were comfortable with based on banner. If banner no longer means a consistent “look and feel,” then the attractiveness to the relocated consumer is reduced. On the other hand, the ability of the independent operator to target their “banner” to the local market is a big factor in their success. Their focus captures the loyalty of the “hometown” consumer. In order to be successful at customizing their offer, the big banners must retain their efficiencies of scale while at the same time producing unique results. This is going to be a challenge. The same equipment may not be able to handle the requirements of two different formats. This means procedures for processing and stocking merchandise will be different. Management is going to have to be more flexible as individual stores deal with different fixtures and layouts. The… Read more »
Bernice Hurst
Guest
15 years 8 months ago
Excitement, fun, passion and change – all achievable concepts, I’m convinced. Customers may cross the threshold hoping to get out quickly without having to think about what’s for dinner but give them a chance to let their imaginations run riot and see where it gets you. Sounds and smells should stimulate. I agree with others that the price has to be right but Al is also right in saying that the shoppers with the most disposable income will be the ones to target. To that I’d add my own firm belief that there is benefit in tageting kids so long as it’s done the right way. As we probably all agree on the amount of pressure they put on parents, make them see and taste what’s on offer and show them how to do it. Get them to encourage their parents rather than fobbing them off with more and more packs of stuff with cartoons or ads or plastic toys. Give them a bit of encouragement and you will have at least two generations of… Read more »
Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 8 months ago

As in all businesses and industries, everything starts with the consumer. Know them and know them impeccably well. Then, all else follows, e.g.: new formats. And, by all means, a superior approach to the shoppers’ in-store experience!!!!! 20% allocation to any major department of a supermarket means nothing unless the shopping base wants it!!

Our Industry must keep in mind that operational issues are second to the shoppers’ needs and wants! Major change in execution. There are solutions for all operation issues. Hmmmmmmmmmmmm

James Tenser
Guest
15 years 8 months ago

Let me echo Bill Bittner’s comment about “craftsman mentality” just a bit. This is a very useful way to begin thinking about supermarkets’ need for operational excellence at the local level. At most conventional supermarket chains, store and regional managers are so pressed to keep up with headquarters’ programs and strategic objectives that they don’t stand a chance as merchants. We need to give these crucial players better decision and implementation support so they can pursue their retail craft. This is true regardless of the retail format: Hire good retail craftsmen and craftswomen and give them every help and reason to excel.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 8 months ago

The whole idea of supermarkets redefining their value proposition misses the point completely. When will we start to understand that customers define their own value propositions, and that they change in some ways weekly and even daily? For instance, that expensive chunk of brie doesn’t fit the ol’ value proposition most days, but it does on payday or during the holidays.

The trick is being flexible enough to appeal to dynamic value propositions, not to rigidly adhere to some revolutionary new format.

So, who’s the most flexible, meshing their offering to changing value propositions? Internet retailers, that’s who. And theirs is the model that will succeed best. The trick is incorporating the malleability of online retailing into brick ‘n’ mortar operations.

One last hammer-smack to sink this nail home: Consumers determine their own value definitions, and those definitions change regularly. Successful retailers will recognize this and learn to react fluidly to it, rather than staking out a value proposition territory and either living or dying by it.

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