What do you get when you bring nine financial analysts together in one room? You get no-holds-barred descriptions of an industry's outlook.
That proved true at this year's SN Financial Analysts' Roundtable on Food Retailing, held in our New York offices last month (see story that begins on Page 12). We heard descriptions of supermarket retailing that included: zero-sum game, negative-sum game, recession in the middle of the store.
The analysts participating in the roundtable outlined formidable barriers to supermarket growth, particularly in the traditional Center Store, which has been ambushed by retail competitors of all stripes. But this year's roundtable also turned into an urgent call for action. Analysts said supermarkets need to further develop certain niches that hold promise, and they need to move such efforts into the express lane.
One of the niches most heavily emphasized was general merchandise. The point was made that European food retailers are far ahead of their U.S. counterparts in growing share of this category. According to analyst Mark Husson of Merrill Lynch, U.S. supermarkets are addressing general merchandise "screaming and kicking with no particular commitment and with no particular zeal or flair or expertise."
The fact is some U.S. retailers may be scared of general merchandise. What is there to be scared of? One analyst noted that significant growth of this category can force a change in a retailer's style of business. All of a sudden a store accustomed to steady food sales is adding in-and-out general merchandise items based on seasonal appeal, turning a consistent business into a cyclical one that may be more vulnerable to recession.
Supermarkets may also be nervous about competing against the major league retailers of general merchandise. The thought of battling for nonfood business with Wal-Mart and other discounters, who have big head starts, is enough to scare many retailers into closing down serious discussion of general merchandise growth.
But the barriers to entry may not be as high as some retailers think. Perhaps the most interesting general merchandise point made during the analysts' gathering is that it's definitely not too late for supermarkets to make headway in this arena, so long as a unique proposition is developed. Here's how Husson put it:
"It's probably a brand positioning question. It's too late to become a Wal-Mart on general merchandise, but it's not too late to become a distinctive Safeway on general merchandise. But Safeway has to decide who its customer is and how it goes to market and how it's positioned in the customer's mind, and then position the general merchandise offering around that customer and his needs, rather than trying to sell black-and-white TVs cheaper than Wal-Mart.
This type of retailer soul-searching needs to be done for more than just general merchandise. Retailers will need to think through other promising niches in terms of their ability to develop unique propositions. These niches include ethnic retailing, natural foods and pharmacy.
And some retailers will push farther afield, into unique banking arrangements and food-service deals, for example.
Those that will find success in any of these niches will have carefully considered their abilities, their competition and their consumers.