GHQ: Rough seas
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?