Supermarkets Struggle

Discussion
Nov 12, 2010
George Anderson

By George Anderson

The numbers aren’t pretty. Supermarket sales were up only
0.12 percent last year and same-store revenues fell 0.82 percent, according
to the 2010 Food
Retailing Industry Speaks: Annual State of the Industry Review
from the
Food Marketing Institute (FMI).

"Shoppers’ overwhelming focus on price and value has led to fierce
price competition among food retailers," said Leslie Sarasin, president
and chief executive officer of FMI, in a press release. "As a result,
supermarkets are focused on trying to distinguish themselves from the competition
by fine tuning their private label strategies, SKU reduction and price differentiation
in order to retain their current customers and attract new ones."

Roughly
57 percent of supermarkets reported declines in same-store sales last year.
As a point of comparison, only 16.9 percent of stores reported declines in
2008. Interestingly, FMI reported that independents (companies with one to
10 stores) bucked the trend with same-store sales increasing 1.62 percent.

Profits
took a hit along with sales. Net profits among supermarkets fell from 1.43
percent in 2008 to 1.22 percent last year. Profits in 2009 reached a low point
over a 10-year period.

While supermarkets pointed to the normal means of differentiation
— produce, fresh meat, private label, etc. — the vast majority (86.9 percent)
said they were using price to attract shoppers.

Discussion Questions: What is your view of the state of food retailing today?
Where do you see the business going in the next year or two?

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9 Comments on "Supermarkets Struggle"


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Fabien Tiburce
Guest
Fabien Tiburce
10 years 6 months ago

I find it interesting that large supermarket chains are using price differentiation to stand out while smaller chains are using their personable service advantage to win over new customers. And who’s wining? The small guys! Price is important but consumer survey after consumer survey indicate that consumers are generally more sensitive to local service these days. I don’t want to drive 30 minutes to get to an impersonal supermarket (full of stuff I don’t need and can’t afford) the size of a football field. Smaller stores, closer to where people actually live, that focus on what customers really need and offer friendly service are here to stay.

David Biernbaum
Guest
10 years 6 months ago

How do supermarket executives expect to grow sales in this era of SKU rationalization? It’s hardly even possible to accomplish.

SKU rationalization has created a supermarket environment where nearly all the stores carry the same products, the same assortment, at all the same prices. All that remains to differentiate one retail supermarket from the other are the discounts on any given week. And guess what? The discounts still are not as deep or as wide as the EDLP at Walmart.

Come on supermarket executives, get a clue! Surprise the consumer by carrying the unexpected, at least in a couple of spots in every aisle!

Gene Hoffman
Guest
Gene Hoffman
10 years 6 months ago

The supermarket is the old lady in today’s Miss America food retailing contest. Younger “boutique beauties” and powerful new contestants have entered the fray and are attacking her long-established fortress. Nearly everybody sells food today. Restaurants are proliferating and diversifying. The economy is tanking. These forces as well as new nutrition paradigms are changing the landscape and robbing the supermarkets of her appeal and wrenching up her wrinkles.

The future of food sales will belong to the new, innovative, different and excitingly contemporary retailers. Some will build on price alone, some will build on uniqueness, some will build on Sense of Theater, some on freshness and a few could succeed via sheer dumb luck. The stage will be full of new interesting actors and the Academy Award will be sought my many contestant other than today’s supermarkets.

This is a great opportunity to reinvent the supermarket.

Bill Bittner
Guest
Bill Bittner
10 years 6 months ago
The classic business model for supermarkets has been declining for years. Supermarkets used to run on “other peoples’ money,” carrying fast selling merchandise that allowed them to collect sales revenue before the accounts payable bills became due. Although they still have a small advantage in the fresh departments, many of the classic high turners such as snacks, bread, cookies, etc, are showing up in other retail channels. Supermarkets need to respond to the encroachment from other areas by expanding their offerings in the departments outside center store. They need to increase their sales per employee by offering online and pick up at store services for products beyond their traditional fare. The simple fact is that in many parts of the country there are simply too many stores. Retailers have to bite the bullet on the need to “cull the heard” and reduce their operations overhead by reducing the number of venues they are maintaining. Finally, they need to push their fresh departments even more. They are the differentiators.
David Livingston
Guest
10 years 6 months ago

Gene Hoffman makes a good point. Right now the economy is exploding and growing but there are a lot of chains out there whining and complaining because they simply fell behind and can’t keep up. A&P, Winn Dixie, Supervalu, Roundy’s, Safeway and a few others seem to always show up late to the party. They are going after the middle of the road market while at the same time Wal-Mart, Woodmans, Costco, Aldi, Whole Foods, Trader Joe’s and others have been on a building terror as the economy booms back. Those plain vanilla chains that can’t remotely compete on price or can’t remotely compete on quality and service are just like deer in the headlights. So it’s no surprise if sales are not growing.

Gene Detroyer
Guest
10 years 6 months ago
Great line by Gene Hoffman, above, “The supermarket is the old lady in today’s Miss America food retailing contest.” Things change, and the future is not an extension of the past. My grandmother who didn’t drive a car, had her groceries delivered every Saturday morning her local grocer, “John Standard.” She always offered John a cup of coffee, but he had to decline because he had a lot of deliveries to do that morning. My mother, who didn’t work, would drive to the supermarket weekly and do her shopping. My wife, who has her own business, orders from Fresh Direct online and gets delivery. The Federal Reserve released a fascinating study in April 2008. In 1950, wives worked an average of 7 hours per week. By 2005 wives were working an average of 25 hours per week. In 2010, do you think it is higher? The husband’s hours increased only slightly from just above 40. While retailers might want shoppers to spend more time in the stores, including supermarkets, where are the hours going to… Read more »
Ben Ball
Guest
10 years 6 months ago

I knew food retailing was in trouble the day I found milk in a Menard’s.

Seriously, food dollars have only three realistic growth engines; inflation via either price increases or trade-up to higher priced alternatives, stealing share of stomach from food away from home, or population growth.

Despite the Fed’s best efforts (to date) we aren’t seeing much inflation–although some commodity prices are starting to climb. Immigration in all forms is down due to our poor employment environment and U.S. per capita birth rates are below 2.0 so population growth isn’t the answer. The food away from home segment is making a small come back as consumers prove they value convenience over price when they can afford it. And private label is deflating prices per unit faster than any product innovation is increasing them.

So just where is food dollar growth supposed to be coming from?

Mark Plona
Guest
Mark Plona
10 years 6 months ago
Perhaps the supermarket industry shouldn’t only think about moving more food, it should focus on moving better food. More will come as a result. We can no longer deny the impact Health & Wellness trends are having in the market. Not only in the amount of information that today’s consumers are exposed to, but the overtness of the message. America is as unhealthy, inactive and nutritionally ignorant as she has ever been and our food supply seems to be partly to blame. Supermarkets are learning this. Dr. Oz, Dr. Mercola and The Supermarket Guru himself and countless others seem to share a common message to consumers, know what’s in your food and buy food that is better for you and your families. NuVal and Guiding Stars are nutritional algorithms that are resonating with consumers and making an impact on their purchases. Food allergies represent another opportunity for small more flexible operations to be unique in their approach to addressing those challenges in their own local communities. While the article states the vast majority are using… Read more »
Olivier Lawer
Guest
Olivier Lawer
10 years 6 months ago

In most countries, supermarkets are fighting on price. Price wars aren’t a good thing for either retailers or suppliers. Furthermore, volume sales increase won’t compensate for lost value sales.

As shown by Todd Hale (“Mind the gap” published in Feb 2010 in FDBuyer.com), price is not all. Retailers need to focus on:

Store accessibility
Store format and wide selection
Pricing & value
Stocking quality products
Efficiency and loyalty programs

This was confirmed in another study published in March 2010 in RetailWire by DechertHampe.

Shopper experience and customer service come first for customer satisfaction; followed by product assortment. Then we find deals & promotions; low prices; and product information.

Two other points to keep in mind: 1) Low price will mainly attract deals seekers. These customers are the less profitable and loyal to stores. Retailers should focus on their best shoppers (Importance of Best Shoppers by J. Karolefski; Jan 2010 – CPG Matters). And 2) What does EDLP say to shoppers? That they have been paying too much in the past. Therefore, it will be hard for them to accept to pay normal price again.

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