RETAIL VIEW: Are traditional supermarkets on life support?
- by Tim Linden | May 09, 2006
In the retail sector, news abounds about club stores and super stores. Organics are also making headlines, whether it's the growth of Whole Foods or the expansion of that line in Wal-Mart.
Most of the news about traditional supermarkets tends to revolve around disappointing quarterly financial earnings or the sale of one chain or another. Some have argued that the traditional supermarket is a thing of the past.
But by and large, the majority of retail fresh produce purchases in the United States are made in conventional, traditional supermarkets. Does that mean they are still viable, still a vibrant part of the retail landscape?
For some expert opinions on the subject, The Produce News
turned to four retail consultants who have well over 100 years of combined experience in the retail sector. They have each worked in the conventional supermarket business, and each of them has studied the sector extensively.
Ed Odron of Ed Odron Produce Marketing & Services in Stockton, CA, spent a good deal of his career with Lucky Food Stores. He quipped that if The Produce News
interviewed four retail consultants, "we must have four distinct viewpoints."
But surprisingly, there was a common thread among those interviewed.
Besides Mr. Odron, The Produce News
also spoke with its own columnist Ron Pelger of RonProcon.com, who spent the majority of his retail years with A&P; Dick Spezzano of Spezzano Consulting and formerly of The Vons Cos.; and Keith Horder of Business Vision, who worked in retail for a variety of companies, including A&P and Safeway.
Each of these consultants believes that the traditional supermarket has a vital role to play and can be very successful. And each of them pointed to success stories within the industry. The consensus seemed to be that while non-traditional retailers are garnering a larger market share, there is still a big piece of the pie left for the traditional supermarket - and they can capture it. * * * "I'd say the traditional supermarket model is bent, not broken," Mr. Odron said in response to a question about that metaphorical cliche. The longtime retail produce executive said that when a company gets into that position, there is pressure to constantly re- invent itself.
"It seems like the large supermarket companies are always looking for something new," he said. "I know I used to do that myself. But the key is to not lose sight of who you are."
In recent years, Mr. Odron said that too many of the traditional supermarkets have tried to change themselves to compete with whatever their competition is doing rather than perfect their own message. "[Supermarket chains] try to be like Costco or Wal-Mart. Or they try to be like Whole Foods or Wild Oats. In the process, they are trying to be everything to everybody and they forget what they are."
Mr. Odron advises supermarkets to find their mission and stick to it. "If you want to be everyday low prices, then do that every day and hammer home that message. If you want to be upscale, then carry those products and be that way every day."
Mr. Odron believes in demographic marketing and that a chain can and should change to fit the needs of its surrounding customers. He said that a chain also has to pay attention to its competition and adopt new trends and adapt to changing times. But there is a limit as to how far they can go without confusing the customer.
Typically, Mr. Odron said that the smaller chains have done a better job of maintaining their focus and maintaining their customer base. But he has seen some favorable trends from larger chains recently.
"I like the Lifestyle store concept that Safeway is pushing," he said. "They are doing a real good job with that, and it seems to be working. I also have seen the self-checkout stations that Albertson's have put in. That's a good idea."
Mr. Odron said that the chains have to walk a fine line when it comes to service. Service is an area where they can excel, but the cost of labor is one of the bigger costs a supermarket has, and they have to try to keep that under control while maintaining service at a high level.
A case in point, he said, is a recent program by Albertson's to institute a "three's a crowd policy," which calls for the opening of a new checkout line whenever there are more than three people waiting.
"We did that at Lucky's and it worked real well," Mr. Odron said. "But you have to make sure you have enough available checkers in the store at all times. If you only have three checkers in the store and the traffic calls for five checkstands to be open, the policy won't work." * * * The conventional supermarket needs to concentrate on what makes them different, according to Mr. Spezzano. "And that's service. They have to concentrate on that and they have to do it a whole lot better than they have been doing it."
Mr. Spezzano said that the traditional supermarket is being squeezed at both ends. Of course, there is Wal-Mart and other large club stores such as Costco making a dent in sales. There are also niche markets like Whole Foods garnering some of the supermarket dollar. And he cautioned against overlooking Trader Joe's, the dollar stores and even drug stores - all of which are taking sales away from conventional supermarkets.
But he believes that traditional supermarkets can still be successful by improving their service and giving the consumer more reasons to shop there.
Like his colleague Mr. Odron, Mr. Spezzano is impressed with Safeway's Lifestyle stores. "But they better be working on the next generation - the Lifestyle II stores. You have to stay ahead of the customer."
Mr. Spezzano believes that traditional supermarkets can help themselves by being more customer-friendly and giving customers what they want, such as drive-through pharmacies, upscale coffee bars, in-store pizza shops and other home meal replacement options.
And though Mr. Spezzano believes that traditional supermarkets are still a viable model, he also believes that the United States is "over-stored," and there will be some losers in the foreseeable future. Wal-Mart and Costco are getting bigger, and the other niche venues will continue to take some of the business. This adds up to less business for supermarkets and a need for fewer traditional supermarkets.
On the plus side, he sees opportunities in the ethnic neighborhoods. He said that there are a number of smaller chains in Los Angeles alone that are in the 10- to 20-store size that are doing a great job catering to the Hispanic community. He believes the larger chains need to go after this business, quite possibly by buying these smaller independents. But he cautions against major changes and advocates keeping the management of these stores in local hands.
"I truly believe that you have to be in the Hispanic neighborhoods and cater specifically to their needs," Mr. Spezzano said. "You should not even try to attract Anglo customers to those stores."
Mr. Spezzano said that there are examples around the country of some traditional chains that are doing an excellent job in the Hispanic communities, but they are few and far between. * * * "There definitely is a place for the traditional grocery store in the future," said Mr. Horder, "and they have been struggling to find that place."
Like the other retail experts, Mr. Horder believes that the traditional supermarket needs to return to its roots and stop trying to compete with the Wal-Marts or the Whole Foods of the world. Using organics as an example, he said that it is foolhardy for a chain to believe it can carry a handful of organic SKUs in an effort to lure the organic customer to its stores.
"The buyer who is looking for organic food is not going to come to your store because you start carrying a few products," he said. "They are still going to shop at Whole Foods or some other [natural foods] store."
As he surveys the country, he said that there are many examples of traditional grocery stores doing well. "Look at H.E.B. or Fred Meyers or Publix. They are doing well because they haven't really changed their modus operandi."
He said that those chains are keeping up with the times and adding items and catering to ethnics and other demographic changes, but for the most part, they are keeping the same model they have had for years - and succeeding.
Mr. Horder said that the things traditional supermarkets have going for them are service, consistency of quality and product, and their perishable departments. He said that a well-run traditional chain supermarket can run a much better produce department with greater variety and quality than stores that are either super large or small. This is an advantage and a niche that the supermarket can fill.
Mr. Horder added that one problem for public companies has been the need to keep Wall Street happy. Creating a great quarterly financial statement is not necessarily synonymous with what is needed to keep customers happy. But on the other hand, he said that running a successful traditional supermarket is all about volume: The more volume you have, the better job you can do -- for both your customer and for your bottom line.
He agreed that service is a very valuable asset of a supermarket and something that can't be ignored if a chain is to keep a significant portion of the food dollar. If supermarkets try to get to a lower cost structure by cutting labor and service, Mr. Horder said that it is reflected in reduced business and lower morale. "Lost store hours can create a morale problem that can be very significant," he said. * * * "Maybe supermarkets are dying a slow death," said Ron Pelger. "I don't think the traditional supermarket will ever go away, but maybe they are going to have to downsize."
Mr. Pelger said that the most successful supermarkets today are those that are what he calls "niche marketers," or stores that are catering to specific segments of the population, whether they be organic shoppers, upscale buyers or the ethnic communities. He wondered aloud if the traditional supermarket that tries to be everything to everybody will survive in the future.
Mr. Pelger envisions these stores getting smaller and becoming niche marketers themselves, catering to the specific needs of their neighborhood. "The supermarkets have to find out where they fit in."
Like the others questioned, he advised against being nothing more than a copycat of one's competitors. "Don't go after Wal-Mart on a price niche because you are not going to win," he said.
Mr. Pelger believes that the supermarket industry is in trouble, and he believes closer attention to the needs of the customers in a specific neighborhood might be the key to success. He said that supermarkets do have an opportunity to carve out their own niche and get back to the basics to survive. He is not in favor of just adding departments in order to attract customers. He said that adding a large drug store component or general merchandise section to a store might add a lot of inventory, but it quite possibly defeats the purpose.
In the future, Mr. Pelger believes the successful store will be one that maximizes sales and profit per square foot rather than one that just offers more products and girth but actually reduces its sales per square foot.