Food Retailers in Massive Shift of Roles
By James Tenser, Principal, VSN Strategies
(www.vsnstrategies.com)
The theme was “What’s Next in Marketing, Consumer research and Technology?” as the ACNielsen Company and its VNU sister company Spectra hosted some 1,100 retailers, brand marketers and retail technologists at its 2006 Consumer 360 conference this week.
Among many highlights were remarks by Alan Noddle, “retired” former CEO of Ahold USA, who shared his seasoned and incisive perspective on what’s coming in the supermarket industry. Evidently enjoying the intellectual freedom earned following a long record of accomplishment as an industry leader, Mr. Noddle worked the packed ballroom like a pro, provoking the audience with his views.
He was at his best in outlining what might be described as a massive shift in roles among food retailers in this country. Here are some of his sharpest observations on this topic:
- In 2002 the average U.S. household made 99 supermarket visits per year; by 2006 that number dropped to 84 visits per year.
- “The big guys are not leading the industry any more. The debt of Kroger and Safeway is rated one step above junk bonds. Also food sellers are everywhere today – drug, convenience store, dollar stores, office product superstores, home centers, and more. Everybody is in the food business, because it brings traffic.”
- “The FMI CEO may deny there is a middle, but I’ve got news for you: There are thousands of stores in the U.S. that are basically the same. You could blindfold a consumer, drop him or her at a store in any town, remove the nameplate and they couldn’t tell you where they are.”
- With every major food company and many retailers developing organic, functional foods and nutraceutical product lines, there may be some question whether the producers are capable of responding with sufficient quantity and quality. “The Organic Trade Association is trembling over how the standards are going to continue to be met.”
Mr. Noddle went on to detail what he called the “blurring of formats” among traditional and non-traditional sellers of grocery products. Among his best observations:
- Drug stores are largely displacing old-style convenience stores. Walgreen and CVS are leading the way with high-density strategies (stores three miles apart). Noddle doesn’t think Rite Aid can keep up.
- Convenience stores are moving quickly into fresh fast food, especially salads and sandwiches. 7-Eleven, Wawa and Sheetz are leading the charge here.
- Wal-Mart is setting the reference prices for many products as it closes in on 15 percent of the grocery market after just 17 years selling food. It’s continuing to improve its format and presentation, with 1,800 remodels planned in the coming 18 months.
- The role of supermarkets is changing. Mr. Noddle forecasts future stores where center store will be largely reduced in size relative to the perimeter. He sees “an enormous move by supermarkets into almost the restaurant business.” He forecast three promising areas for grocers: (1) Prepared RTE meals; (2) Cooked meals that must be heated to eat, and; (3) “Modular cooking, where the retailer does all the value-added work – chopping, measuring, mixing, etc – and the customer can take the ingredients home and cook.”
- Meanwhile, chain restaurants are fighting back. At Applebee’s, Chili’s and Ruby Tuesday’s, all the closest parking spaces are reserved for carry out customers. Prepared meals are delivered to their cars, “and they’re getting very good at it. About three years ago,” he added, “restaurants captured more of the food dollar than supermarkets do. Now eating at home is starting to come back, but cooking at home is not.”
Moderator’s Comment: Alan Noddle’s speech at the Consumer 360 Conference brought up many of the factors driving change on the retail landscape and the
impact they are having on grocers. What do you see as some of the most significant?
There was much more detail to Mr. Noddle’s talk, but the net result was a picture of an industry in tremendous flux as it scrambles to stay ahead of changing
consumer lifestyles and innovation that comes from across channels, not just from within.
Alan Noddle has great standing as an expert observer. He’s walked the walk. Now he’s talking the talk. Besides, who else in this industry could possibly
get away with calling Supervalu Inc. Chairman and CEO Jeff Noddle (his younger brother, who had addressed the same audience on the previous morning) “a terrific kid”?
Mr. Noddle did a fine job of synthesizing a “big picture” of American food retailing in his Consumer 360 presentation. Taken in aggregate, his observations
point toward complex, disruptive challenges for the industry. Not only are changing consumer habits leading to strategic responses from retailers, but retailer innovations are
leading consumers to reconsider and adjust their lifestyles.
Brand marketers will need to be prepared to reckon with shifting sands underfoot, and adjust their offerings and go-to-market strategies to suit changing
channels. – James Tenser – Moderator
I am afraid Jeff Noodle’s big brother is telling us that today’s consumer is a coddled, big dummy when it comes to grocery shopping.
If the supermarket shopper can’t prepare a simple meal from a zillion ingredients found on grocer’s shelves, something is wrong.
Rachael Ray shows her loyal viewers how to make 30 minute delicious meals from basic ingredients found in supermarkets. While her emphasis is on freshness, her meals are something which anyone can make.
So as long as today’s supermarket arranges the store in a way to get the ingredients to prepare such meals in an easy to maneuver layout, then the consumer will continue to put up his or her hands in disgust.
Grocers such as A&P Fresh with their successful New Jersey prototype are leading the way in providing the consumer with a pleasant shopping experience. Buying only the freshest ingredients at reasonable prices is the way to win over the consumer.
Maybe something old like smaller store footprints, recipes on packages like Ann Page did in years gone by, are the prudent way to gently hold the consumer’s hand. Maybe less being more, like limited selection grocers, Food Basics and Sav-A-Lot, is one way to go. It all depends on the marketplace, so listening to the local customer must be the number one priority of all grocers today.
Very interesting comments, all of them prescient but the most interesting one I saw was the comment on the restaurant drive-up. I have not seen anyone do it yet, but if a supermarket could combine some personal shopping with their Ready To Eat products and deliver it through a drive up they would really have something. I don’t know how you make it profitable; maybe include a limited list of packaged goods on the menu list, but by offering to throw a quart of milk or in with the Boeuf Bourguignonne (or better yet maybe a package of noodles or other items appropriate to the entree) you offer a real service that the restaurant takeout services cannot match.
Alan Noddle is an insightful grocer and a compelling presenter.
He sees “an enormous move by supermarkets into almost the restaurant business.” If Supervalu’s CEO Jeff Noddle agrees with his older brother, what does that foretell about the future of the merger of Supervalu and Albertsons?
With supermarket chains nursing heavy debt and with Wal-Mart continuing to build grocery market share while setting price point standards, will we see the future linking of some supermarket chains with restaurant chains and organic food specialists?
And with everybody selling food and everybody serving prepared food will an aggressive and financially-powerful Wal-Mart want to move into the restaurant realm too? It may be premature to speculate but I’m inclined to think so.
No loyal RetailWire reader would be surprised by any of Mr. Noddle’s analysis. Another major issue: How will traditional branded food manufacturers thrive when so many of the their major customers are getting weaker and weaker? In the recorded music business, as the music retailers withered away, the suppliers faced major profit challenges. Yes, much of the market was simply stolen via file swaps, but even without the swapping, the suppliers were having a harder and harder time finding solvent retailers. If major supermarket chains get more and more marginalized, how will that lost volume be recaptured by the manufacturers? Does anyone believe that the volume can be preserved via increased profitable sales to dollar store, drug chains, and mass merchants like Target and Wal-Mart? Or will the volume be preserved but the manufacturers’ margins and shelf space reduced? The recorded music manufacturers are merging. Will the food manufacturers enter into more and more mega-mergers, too, for similar reasons?
This is an excellent summary of many of the issues on the table for supermarkets today. The biggest problem area is those stores that are undifferentiated, where a consumer can’t tell where they are. If those stores haven’t gotten the message that they need to pick a few things to stand for, it’s hard to believe they ever will get it in time to avoid going out of business.
The biggest food trend I see is higher quality packaged food, that the consumer just heats up. Suppliers are increasingly delivering restaurant-quality food that shoppers just heat and eat, or maybe add one or two ingredients to make it their own. As this trend accelerates, one wonders if quick serve restaurants will start carrying 100 or so key items like milk, eggs, soda, etc. that a consumer can pick up as they pick up their family dinner. That could really hurt the efforts of supermarkets and convenience stores to grab the “what’s for dinner?” shopper.
One of the interesting classes of trade to watch over the next several years will be fast-food, and not just how the current players respond to competition but which new players get into it. With grocery moving into drug and the drug channel becoming more like a convenience operator, it means convenience operators have to become more like fast-food operators to find a place to survive. The twist comes in when we notice how the grocery channel is moving into the convenience channel with multiple formats, etc. In the end it means we’ll see both the grocery and convenience channel fighting for the fast-food consumer resulting in more fast options, particularly those fitting a more healthy lifestyle. Fast-food, of course, will not watch this occur without a fight and they’ll respond by working to segment their formats further and begin to offer “convenience” items, making them more like a convenience operator. In the end, the channels that survive the best will be those that have the optimal real estate locations with traffic patterns that fit their marketing plan.
Alan Noddle’s analysis was most interesting and insightful based on his experience in the industry. I agree with Alan that overall there are few supermarkets that have distinguishing characteristics from the customer’s point of view. And today’s consumers have so many more choices of stores in which to shop. That makes it more interesting for consumers, but more and more challenging for retailers.
I think the successful retailers will focus on customer convenience in all areas of the store-from presentation of products, shopping layout, ability to find products quickly in the store, abundance of meal choices and meal solutions, freshness, flavor, and healthfulness of product selection, and of course customer service. Convenience also includes location (and cleanliness) of restrooms and related services (coffee bars, dry cleaners, in store nutritionists, community rooms, etc.) In addition having a number of “distinction private label” products that consumers cannot easily find elsewhere creates positive word of mouth advertising and helps to distinguish one store from another.
And don’t forget the important role that employees play in retail success. Engage them so they will engage the customer. If I use one recent example, the Bed, Bath and Beyond store I visit always seems to have employees who say hello to customers (I am often greeted 2-3 times per shopping trip) and who seem to work as a team.
Unless you have employees well informed of your company strategy and engaged in delivering it to customers, you are not likely to stand out from the crowd.
I think the majority of these comments have been on the list of challenges and opportunities for retailers for the last twelve months or so.
As retailers search for key differentiation to gain loyalty and competitive edge, pressure is being applied on the centre store to give up space to the more aesthetic areas. A number of retailers are now introducing specialty food, tasting and prepared meals on the edge of the store to increase satisfaction for busy consumers who are making less frequent trips to the store. Centre-store now needs replanning at a more granular level, allowing SKU rationalization and accurate inventory in store to be achieved.
I personally feel that one of the biggest impacts on US retailers today is how they handle channel blurring in the market. Traditional grocers have all but vanished, placing pressure on all retailers to sell across sector with categories they have no real experience of. The retailers who gain customer insight and then use this to plan efficiently for these “alien” departments will gain a huge advantage. Customers simply are becoming more educated in relation to product and more demanding in their requirements of their local store. Loyalty is becoming harder to gain leading to the retailer with the more advanced loyalty programs achieving an advantage over the rest.
I continue to read with interest Tesco’s forthcoming introduction into the US market, having one of, if not the best loyalty reward programs in the industry, they will place additional pressure on existing retailers to catch-up.
This had to be good for the US consumer and retail market in general.