Food For Sale – Everywhere
By George Anderson
Looks like just about everyone is in the food business today.
Drugstores are.
As Jay McIntosh, director for retail and consumer products at Ernst & Young, told Investor’s Business Daily, “If you think of what a drugstore really is, it’s two things. It’s where to pick up prescription drugs and it’s also a convenience store. We’re seeing them become more effective convenience stores. Now that they have people in there, they have what people want.”
Walgreen’s spokesperson Tiffany Bruce agrees. She said the drugstore chain is able to grow its business by “being more convenient for our customers,” adding “that pretty much speaks to why we have increased our assortment of products in the refrigerated section.”
Dollar stores are steadily moving into the food arena, also.
Family Dollar Stores launched a refrigerated and frozen foods program earlier this year and the chain is looking to have over 500 stores with cases humming by August.
“The sale of milk and bread and eggs and cheese and some frozen foods is very consistent with the convenience aspect of our business,” said former Family Dollar executive vice president George Mahoney.
Convenience stores have always sold food but now the channel is expanding its horizons to more fresh items and upscale prepared dishes, as well.
The CFO of 7-Eleven, Edward Moneypenny, told investors last month, “There’s a huge market out there for fresh food or fast food today. We think we’re well-positioned as a chain to capture more of the portable fast food business.”
The big losers to date with the growing number of places for consumers to buy food have been the traditional supermarket chains and independent grocers.
Howard Davidowitz, chairman of Davidowitz & Associates, said, “The traditional supermarket share has collapsed. In 1988, 90 percent of food and consumable dollars were spent at traditional supermarkets. Today it’s less than 56 percent and going south.”
Moderator’s Comment: With the clarity of 20/20 hindsight, was the decline of traditional grocery’s share of market inevitable? Do you think further serious
erosion is also inevitable? Why or why not? –
George Anderson – Moderator
Supermarkets started, developed and grew within communities as people moved from rural areas to more highly populated towns. As the towns continued to grow and the supermarkets moved outside of them, trying to re-define themselves as one stop shops that met every conceivable need and simultaneously encouraged bulk purchasing, communities began to disintegrate. There may still be neighbourhoods in big towns and cities now but how many of them have proper supermarkets and places dedicated to shopping for food and other family needs without all the associated non-food products and services? Yes, I think it was inevitable that supermarkets would be superseded by a range of different kinds of stores, all of them trying to fill all of their customers’ needs no matter what their original product line might have been. There was also a great deal of merger and consolidation within the supermarket sector so that they, in turn, could bulk buy from manufacturers and fight the price fight.
The erosion doesn’t have to continue though and I think that in the current surge in speciality store development, the corner has almost turned. Customers are looking for reliability, excitement, quality in stores they can trust. Trader Joe’s, Whole Foods Market and the rest may start out as food stores but if they also supply their customers’ other grocery needs a whole set of replacement stores may flourish. And to link in with my answer to today’s discussion on eating and running, those stores can also regenerate interest in cooking and family eating, attracting and tempting those who sense the passion with which they are run and want to get a bit of it for themselves.
Of course, the mass-oriented supermarket was destined from day one to gradually cede its dominance to competing forms. That’s the dual wheel of retailing in action. The retail format that stands at the center – positioned with wide assortment for a broad audience – will always suffer attrition at the hands of more efficient and/or more specialized competitors. The supermarkets that succeed at providing an optimal product-service bundle (I call this “home pantry management”) will survive the longest. The generalists – high-low priced, 35,000 square-foot convenience stores – will fall soonest.
The most valuable thing that shoppers have the least of is time. C-stores are best positioned to sell time. If I were a c-store operator, I’d make sure that I had the best offering of MRE, fresh produce and pre-pack meats in the area. What is it? About 35 steps from my car door to the sales floor to the register and back to my car? Time for sale. Why is Houchens 10,000 sq. ft. store turning 140K per week? Time for sale.
As many as one out of five shoppers in a supermarket buy only a single item, and nearly a third may buy only two items. More than half the shoppers buy five or fewer items.
As long as supermarkets think their REAL target is stock-up shoppers, they can expect to see these short trippers leaving for more convenient stores. However, they have some real advantages in competing for these shoppers. Will they use their advantage? Who knows? But so far, mostly they haven’t. Hence the steady erosion of the supermarket share.
No one else thinks Moneypenny is a great name for a CFO? Have a great weekend and enjoy finding your food, wherever your travels take you!
Hindsight is always 20/20, so it’s really hard to say if the erosion of the supermarket could have been avoided. What is for sure is that some supermarket retailers actually have been able to both avoid the erosion and thrive in meeting their customers’ ever changing needs.
The real opportunity lies out there for supermarkets in general to grow and reduce the erosion. They are best equipped to respond and serve the changing needs. Why don’t they? That remains a mystery.
The fact is that consumers are willing today to make more stops and more trips. That is contrary to the notion of being a ‘one stop’ destination that supermarkets have attempted for so long and, in many cases, are failing at relative to supercenters.
If supermarkets want to diminish the erosion, they need to become a ‘destination.’ That is to say, they must give their customers a ‘reason’ and be the ‘destination’ for, at a minimum, one thing that they simply can’t do without. The best position would be to become the ‘destination’ for 4-5 ‘reasons’ that make you the place that customers respond to each week for multiple stops. Fuel, baked goods, coffee, take-out, etc. can lead to those ‘reasons.’ Alliances with other collocated retailers are an option as well – taking advantage of those retailers that surround you in a plaza or strip. Innovation, continuous improvement, and constant change are necessary. It also requires courage to give up the current offering in some areas to respond to the new offering.
Yes, it was inevitable that supermarkets would lose share with everyone selling groceries these days. Supermarkets countered by having pharmacies and longer hours than most drugstores. Now supermarkets are selling gas, which negates a big advantage that c-stores have had. Having express checkouts that work is another equalizer with c-stores. I believe the decline in supermarket sales is about over and things will begin to improve for them. Supercenter sales should be recorded as supermarkets and not mass merch and then you will get a true accounting.
The market share decline of conventional supermarkets was born in the crucible of the Nixonian price freeze that was the progenitor of slotting, and was nurtured by an increasingly mobile society in which women began working more outside the home.
Slotting encouraged supermarkets to look inward at their own operations more than they looked outward at customer needs. Slotting fees generated more bottom-line income for supermarkets than retail sales, and customers became less important.
Simultaneously, cheap gas and the nation’s burgeoning highway system lured citizens to the open road, and improved transportation made it easier for women to hold down jobs and still raise a family. These twin influences marked a decline in home-cooked meals and an increase in convenient road food and take-out meals eaten at desks. Not good for supermarkets.
However, these changes were obscured by the baby boom and our growing economy, and the grocery industry failed to react quickly or at all. This left a “convenience gap” which was filled by several emerging retail food formats.
An old axiom is that when housing sales are strong, there are fewer discretionary dollars to spend on out-of-home or convenience foods, signaling a return to conventional food sources like supermarkets. That axiom no longer holds, since out-of-home and convenience food purchases continue to grow in spite of a prolonged housing boom. Gens X, Y, and Z consider it normal for most of their meals to be out-of-home or ordered-in.
So, “traditional” grocery sources are morphing in several directions to catch up with consumer preferences. Some work and some don’t. Boston Market worked well for a while and then faded as tastes changed. Change is now the norm, and flexibility is the watchword of today’s successful grocery purveyors.
The quick answer to both questions is “yes.” Everyone finds it attractive to offer certain food items as a convenient draw to their store and as an impulse purchase opportunity. Why would it stop?
I just visited brand new Dollar General and Wal-Mart Neighborhood Market stores in Nashville last week and was amazed at the variety of traditional convenience items they offered. A dollar store with 50 cooler doors?!
Convenience stores have a bit of a head start in making a grab for consumers’ on the go food spending, but their biggest advantage is that convenience is their middle name (actually, it’s their first name). Still, C-stores have to get on their horse and begin to upgrade their food offers to keep up with the sizzling demand for portable meal and snack solutions.
Sure, the decline was inevitable, as supermarkets weren’t special enough. But, versus two big forms of competition, they have some things going for them. Versus supercenters, supermarkets are clearly more convenient and less daunting to shop. Many shoppers are literally overwhelmed in the largest supercenters. (Ever stand at the entrance and watch shoppers’ eyes glaze over when they enter?) With easier parking, quick check outs, friendly service, good produce, convenient meals, etc. supermarkets can recapture lost sales IF they get their pricing right. Drug stores, while they have increased grocery, frozen, and dairy selection, really don’t have the assortment most people want except for a quick trip and many don’t have any sort of express check out, so they can easily become inconvenient if there are 3 or 4 people in line at a single register.
The answer to both questions is a resounding yes! The consumer today is so time challenged that any time stops can be consolidated purchases will happen. The smart retailer is looking at this trend and placing the “to go” items in a prominent place and making margin at that!
Traditional Supermarkets need to find innovative ways to incorporate the one-stop mentality of the consumer into their offerings to better compete.
Corner grocery stores gave way to “Super” markets, which in turn have given way to Wal-Mart Supercenters.
Since Wal-Mart came on the scene, over 9,000 grocery stores have gone out of business. Wal-Mart will soon have 35% market share in groceries through their Supercenter expansion. It now makes sense that only 56% of the population currently shops at traditional supermarkets.
Families no longer eat together and Wal-Mart will be the Microsoft of groceries in ten years. One day you will be able to buy groceries on a computer while you’re filling your gas tank…Then you can be proud that you’ve supported Bill Gates, the Bentonville Billionaires, and the oil Cartels at the same time. Doesn’t it feel good to live in a free market society that supports family values?
If the erosion of higher income and better educated shoppers, AND the consumers who aren’t currently receiving the attentiveness and friendly service from the major, national chains, continues… you bet the specialty food outlets will secure or capture the most profitable shopping segment with the highest disposable food dollars to spend.
Every major, national chain (the Big Boys) are approaching the business the same way they did 5 to 20 years ago…shopper-wise, and price fighting for the same food dollar, whether the shopper is in lower income bracket or the highest.
Marketing to the shopper segments and better service might help the Big Boys’ erosion… Hmmmmmmm!!