Food retailing has become an increasingly difficult juggling act.
Economies of scale tempt companies to offer everyone everywhere the same products. Customers, however, come from communities that more and more stress their differences, whether ethnic, regional or demographic.
Meredith Adler, analyst, Lehman Brothers, New York, told SN, "There are many more psychological and cultural obstacles emerging as retailers grow geographically, and synergies work against neighborhood marketing."
Faced with this challenge, supermarket operators have adopted several strategies to maintain and improve their local focus.
Some have created store, or store-within-a-store, formats to cater to specific ethnic groups.
Others have extended community service beyond traditional charitable donations.
And a number of global retail players have carefully structured their business to ensure that marketing and merchandising decisions stay close to the store level.
Strength in Diversity
To increase its connection to the communities it serves, Nash Finch, Minneapolis, recently created two new formats. One is aimed at the Hispanic market, while the other is an "extreme value" retail format.
The Hispanic format, in the pilot stage since 1997, now has three stores. They feature ethnic foods as well as bilingual employees, packaging and merchandising, said Deborah O'Halloran, Nash Finch spokeswoman.
The stores have been well received, O'Halloran said, adding that Nash Finch is dedicated to moving forward with the concept.
"Hispanic customers have responded very well to the freshness of the perishables department. The merchandising and produce assortment are familiar to them, and they've also responded well to the store associates, who can speak to them in English or Spanish. In short, the stores have the products this Hispanic customer is looking for and a very comfortable and familiar environment for them to shop in," O'Halloran said.
Last month, Nash Finch hired Rafael Hernandez to refine the concept further and roll out the format in more Upper Midwest markets that have growing Hispanic populations.
While the pilots have been successful, Nash Finch said it believes with further refinement, their success can be even stronger. Under Hernandez's leadership, the stores will be renamed, new markets selected and a general rollout plan announced later this year.
"With Nash Finch's retail expertise and presence in the Upper Midwest, combined with my ethnic marketing expertise, we will be able to develop a very well-defined, targeted retail store to meet the expectations of Hispanic consumers in these localities," Hernandez told SN.
Meanwhile, O'Halloran said that customer response has been very positive to Nash Finch's extreme value (more commonly known as limited assortment) Buy-n-Save concept. Nash Finch currently has pilot versions of this format in four Midwest locations. Nash Finch said its internal surveys show that customers like the size of its 15,000-square-foot stores, which O'Halloran said was a pleasant surprise to the company, considering that the stores compete against much larger formats. She noted that even though, like most retailers, Nash Finch's conventional stores are getting larger, there is a portion of the population that feels more comfortable in the smaller format. The company said a large percentage of customers said they enjoyed the savings and easy-to-shop atmosphere they found at Buy-n-Save.
"Nash Finch has become a more diverse company, although still a retailer," O'Halloran said. "As its different store formats perform in a moving economy, Nash Finch can avoid major shifts in total corporate sales revenues. The Buy-n-Save growth will be concentrated in the Upper Midwest, and mainly in existing Nash Finch markets, to coexist with our conventional stores. Nash Finch is also looking at new markets in which our customer profile and population would fit. Rollout plans will be announced later this year."
Stacey Mack, whom Nash Finch appointed last month to head its extreme value stores, told SN, "As the population demographics change, retailers need to look at new methods to reach consumers. With the Buy-n-Save concept you can save up to 40% when compared to traditional retail food stores. This concept will fit well with the aging baby boomer population."
Meeting the dietary needs of a changing marketplace is something Jewel-Osco, Melrose Park, Ill., a division of Albertson's, Boise, Idaho, says is a major operating goal, as evidenced by the chain's recent addition of extended kosher offerings at one of its stores. The company unveiled what it calls a full-service "One-Stop Kosher Experience" at its Highland Park, Ill., location earlier this month. The section contains a glatt kosher meat department, fresh-baked kosher parve Pas Yisroel bread, rolls and bagels.
A full-service kosher deli will be under the strict supervision of the Orthodox Union and have a full-time mashgiach, Rabbi Hershey Reichman. This initiative is the first of its kind in Chicago by a national supermarket chain.
"What better way to demonstrate our commitment than by offering the convenience of a kosher shopping experience in a full-service food and drug store for our customers who keep kosher dietary laws," said Pete van Heldon, Jewel-Osco president.
Van Heldon added that Albertson's has extensive experience in operating kosher departments in its stores, with a dozen such formats across the country.
"The new One-Stop Kosher Experience gives us an opportunity to get closer, not only to the kosher consumer but to kosher vendors as well," said Andrew Kramer, Jewel-Osco sales manager, ethnic marketing. "At the same time, we are always looking for new ways to promote local businesses. That's why many of our kosher foods will be provided by local vendors."
Jenny Enochson, Albertson's corporate director, media and community relations, said, "At Albertson's, we strive to make decisions as close to the customer as possible, which allows us to stay in touch with not only our customers but also the communities we serve. Our divisions are charged with operating successful stores, which includes making the necessary decisions to meet the needs of the diverse communities they serve. Taking ownership of their area is not only allowed, it is expected."
Supermarkets have a long tradition of helping their surrounding communities, sometimes through participating in annual fund-raising events and, at other times, by providing emergency supplies during a hurricane, flood or other natural disaster.
Recently, however, several supermarket companies have taken this concept of community aid up a notch and have begun not only to provide support to needy individuals or organizations, but to help their communities survive and even prosper. Consider the ongoing preservation efforts of Boise, Idaho-based Albertson's in inner-city New Orleans.
"Albertson's has a rich history of being an active community member," Jenny Enochson, corporate director of media and community relations, told SN. "Each of our stores is encouraged to develop and maintain meaningful partnerships in their community."
In summer 2000, the chain donated $150,000 to New Orleans to aid in the relocation of several 19th century homes on a piece of land on which the chain planned to build a store.
Explained Peter Lynch, Albertson's president and chief operating officer, "We want to be good neighbors and good corporate citizens, and we want to give something back to the community, and this project speaks volumes about our efforts to achieve those goals."
Lynch also noted that the company's first store in the area will also provide job opportunities in the community.
Pathmark, Carteret, N.J., is another retailer that has developed community ties based on the location of its stores. The company has opened inner-city supermarkets in understored, low-income areas since 1965, and has become more aggressive with urban marketing in recent years, according to Harvey Gutman, Pathmark spokesman. Areas the company serves include the urban cores of New York, Philadelphia and Camden, N.J.
Gutman pointed out that opening supermarkets in such neighborhoods frequently provides an important economic stimulus. "Urban supermarkets always bring other businesses," he said. "Just as the anchor in suburban centers makes a shopping center viable, a supermarket in urban locations makes the neighborhood more viable for other businesses."
Gutman also noted that there are a lot of challenges to urban marketing -- limited and expensive real estate, restrictive zoning laws and traffic congestion that interferes with distribution -- but Pathmark is willing to take the risk.
"It's always a learning process, but we have terrific merchandising and store operations people who understand how to merchandise and serve ethnic customers," he said. "The process is the same, but the plan of development is more complex, lengthier, riskier. Pathmark has an advantage because we have knowledgeable merchandising and operations people who know how to run stores in urban communities.
"We're always trying to learn how to run better total stores -- we do that every day by listening to customers and associates at stores."
Consolidation in the supermarket industry is driven in large part by companies looking to achieve economies of scale, not searching for how to best customize their stores and its products to meet the needs of the communities they serve.
Still, even some of the largest food retailers have developed strategies to maintain their focus on local concerns.
IGA, Chicago, has been steadily entering new international markets for several years. Its core strategy is to recruit existing retailers to license the franchised IGA banner.
Thomas Haggai, IGA chairman and chief executive officer, explained, "Ours is an entrepreneurial approach. We don't focus down from a grand plan and apply it locally. Our view is to take the local plan and then broaden the things we have in common. It's kind of a reverse process than what other retailers are doing.
"With this approach we have come to see that we're not just creating retail stores, but community centers. The IGA store in a community becomes a place for people from all backgrounds to come together.
"We don't achieve this through tons of advertising but with education of our associates. With our whole educational method, we create a store that is before anything else the best place to work, then it can become the best place for a community to buy groceries." Haggai added that IGA stays connected on the local level because it embraces diversity rather than homogenization of the marketplace.
"We feel we have to comprehend, and then commit," he said. "We make a lot of feasibility studies, and we haven't always succeeded, like in India, where we failed. We just didn't do things right there. We were out of harmony."
Haggai told SN that because retailers around the world approach IGA to join, there is a much smoother integration and sharing of best practices within the organization, which has helped individual retailers reach out and connect with their customers on a more effective level.
"Also, with the structure of our organization, we have less turnover of personnel. I go out to the stores and it's the same faces year after year, and that helps us to remain a trusted operator in each community," Haggai said.
Paulo Goelzer, president of IGA Southern Hemisphere/Europe/Caribbean, said effective global marketing approaches are still in their infancy.
"There is a tremendous amount of fragmentation, diverse store formats and other areas of confusion that prove that no one really knows what it means to be a global retailer yet," he told SN. "Many aspects of management that people think should be global, should also be local, and vice versa. It will take time to learn how to balance operations.
"Some companies like Ahold will operate under different banners all over the world with much diversity. And companies like Aldi or Wal-Mart use the same format globally. At IGA, we are more of a global identity with a local execution. One example is Australia, where the chains have united under the IGA banner, but still operate in a variety of unique ways."
Goelzer also said that as companies grow to global proportions, they must be careful not to fall into a mode of what Goelzer calls "'mimetic isomorphism,' when companies mimic successful models, regardless of these models being appropriate to their own businesses."
Goelzer warns that companies must incorporate best practices from their various global operations carefully, as some successful models in Asia may not jibe in the United States, and vice versa.
While IGA franchises its banner globally, Ahold, Zaandam, Netherlands, has expanded globally via a series of carefully planned acquisitions, according to Jan Hol, spokesman for the company.
To stay connected at the local level while operating with extreme efficiency, Ahold synthesizes best practices and distributes that knowledge throughout the company's divisions.
"In our company, knowledge and best practices are two of the most integral corporate equities," he told SN. "For example, we took loyalty card knowledge we gained from our Bi-Lo operation and now have connected with 5 million Dutch customers who have embraced the card. And hypermarket information we learned from acquisitions in South America have helped our European hypermarkets provide better services to our customers here.
"To put it simply, whatever the customer sees is controlled locally, and what the customer doesn't see is globally operated."
Hol also said that the company uses register-scan data to stay local, altering its private-label offerings, and working promotions and loyalty card programs into the divisions according to customer trends in local markets.
Hol said that "finally, it all comes down to the question of what the customer wants. And 95% of our customer base tends to shop weekly in a store less than three miles from their homes. So we have created a philosophy of acquiring local banners that are trusted market leaders and capitalize on the brand identity.
"So after we come into a new market, we keep governance in the hands of local management. All we do is provide vision, strategy and economies of scale.
"The scale and scope that we provide because of our global experience is a value to each of our companies. It's like having an in-house consultant on best practices. And companies realize this. That's why many of our most important acquisitions have been done by invitation, the company actually asks us to make an offer. They understand our philosophy of taking a good company and making it better."
Barry Scher, vice president of public affairs at Giant Food, Landover, Md., an Ahold company, told SN that the global retailer's philosophy has helped Giant stay ahead of the pace in its local marketing area.
"Ahold has always had a policy of purchasing companies and letting the executive management continue to operate the company, coupled with offering significant synergies from among their peer group, such as what occurred when Ahold bought Giant in 1998," he said. "We have worked closely with other Ahold USA companies, but have also totally maintained our autonomy.
"Ahold has learned that what works best is to let local companies operate as strictly local," Scher added.
Ted Bernstein, analyst with Dresdner Kleinwort Wasserstein-Grantchester, New York, said Ahold's acquisition practices have helped to keep the company in touch with its varied markets.