The food-retailing industry has been awash with bad news for years when it comes to nonfood sales.
Causing the scary news is the inescapable fact that nonfood sales in supermarkets have been eroding at a steady rate. Lost sales have been moving to discount stores, the class of trade that effectively captured the low-price image in consumers' minds. So, when a spark of good news happens to cross such a dark sky, it's time to look up and take notice -- even if the good news for supermarkets is rising on the wings of bad news for discount stores.
What bad news for discounters? During 1995, many regional discount-store operators fell into a deep swoon. Indeed, according to the newsletter, Intelligence Update, issued by Management Horizons, the consulting division of Price Waterhouse, "bankruptcies and liquidations are running rampant among the regional [discount] players."
And, according to Tom Conley, executive director and chief operating officer of the National Housewares Manufacturers Association, financial instability now dogging the discount sector may cause housewares vendors to look toward a channel of trade that's more financially secure, namely supermarkets. Tom Conley was interviewed prior to NHMA's International Housewares Show, running Jan. 14 to 17 at McCormick Place, Chicago. Results of the interview are on Page 28.
Emphasizing that he was in a speculative mode, Tom told SN Section Editor Christina Veiders that "you may see some of our members target supermarkets and be more prepared to spend the time and effort to be profitable in non-mass channels." Presumably, vendors of other nonfood categories will think the same.
And, Tom said, "supermarkets provide a lot of opportunity because of the large number of trips to the store that the consumer is making."
Not only do supermarkets win the shopping-frequency sweepstakes, they also win a much larger slice of shoppers' dollars. Findings from a Nielsen consumer-study panel show that shoppers go to supermarkets 88 times per year, spending $21.20 per trip. Mass retailers receive 33 visits per year, producing an average ticket of little more, $25.91 per trip. That means members of the Nielsen panels -- panels designed to be reflective of the nation's makeup -- spend about $1,865 in supermarkets per year, against $855 for shoppers at mass.
But the real point here is that many regional discounters are in dire straits financially. According to Management Horizons' newsletter, last year saw Chapter 11 filings from regionals such as Bradlees, Caldor, Jamesway, Stuarts and Prange Way. All these but for Bradlees and Caldor are expected to liquidate. Meanwhile, other discounters restructured or changed strategic direction during the year.
The bottom line is that a composite index for regional players compiled for the newsletter shows comparable-store sales for the regional discounters ranging from - 1.1% to +0.4%, April being the sole month during which comps rose to positive levels. What's going on? The newsletter says regional players are in hot water because of pressure from Wal-Mart Stores. Many of the regionals do business in or near the Northeast, an area of major expansion for industry leader Wal-Mart. In 1990, Wal-Mart had just three stores in the Northeast. As of November, Wal-Mart had 168 discount stores and seven supercenters in the region. As for financial results from the Big Three discounters, Wal-Mart, Kmart and Target saw their composite comps ranging from +2.7% to +9.8% for the year to November.
Obviously, business is gravitating toward the biggest operators, and is fleeing the smaller players. And, although Tom didn't mention it in the interview, the fact of discount-sector concentration also bodes well for supermarkets. That's because vendors, if given a choice, are reluctant to plow huge proportions of their production capacity onto the shelves of a small number of chains. Many vendors, for the sake of safety and stability, many be inspired to look more and more toward non-mass stores as sales venues.
In sum, there's no need for supermarkets to be in an unrestrained celebratory mood about prospects for 1996 nonfood sales, but there's certainly ample reason to focus new attention on nonfood aisles.
