WESTPORT, CONN. -- Looking at Information Resources Inc. figures for nonfood categories prompts one to ask, "Where is the growth?" Nonfood sales volume has fallen across food, drug and mass 4.9%, from $51.9 billion in 2002 to $49.4 billion for the 52 weeks ending May 15, 2005, for health and beauty care and general merchandise combined. Unit movement is flat or declining among the three channels. The GMDC Educational Foundation, Colorado Springs, Colo., decided to look into what is happening in nonfood sales, and what can be done to reinvigorate growth in nonfood at supermarkets. The foundation will soon release a new study by the Meridian Consulting Group entitled "Jump Starting Top-Line Growth." Michael Shinall, president and chief executive officer of Meridian here, recently discussed the study with SN.
SN: What is the purpose of the soon-to-be released GMDC study?
SHINALL: Historically, our industry has focused on how to squeeze margins by being more efficient. We are now at a place where we've reduced costs and have got great supply-chain efficiency. What else can we do? There is a need to refocus on the top line.
If you go back 15 or 20 years ago, even before the early Efficient Consumer Response efforts, it was all about top-line growth because we didn't understand how to squeeze efficiencies out of supply chain then. This report looks at how we can grow top-line sales, and what is keeping the supermarket industry from doing that.
SN: What challenges do supermarkets face in growing their top line in nonfood?
SHINALL: The number of outlets where shoppers go on a monthly basis is significantly higher than it was even two years ago. What are consumers looking for? They are looking for some element of specialty. They want to be taken care of, and there is this aspiration toward more luxurious items, especially in HBA.
Drug is even losing growth because of the total fragmentation of where shoppers go to find HBA. Skin care lotions or toothpaste and some of the other HBA staples can now be found everywhere. Even home center stores are thinking of creating home shopping for [nonfood] staples. They could become just another place that will eat away from the supermarkets and to some degree from the drug stores. That channel fragmentation is clearly happening in HBA, because supermarkets have pretty much given that up as a primary domain [for HBA] in my opinion.
Look at the variety being offered and the way it is presented on the shelf. It is too often placed there as an incidental section. Supermarkets as an industry in general have resigned themselves to the basic stuff. You generally don't find the specialty, "pampering" type items in supermarkets.
SN: What about general merchandise?
SHINALL: The blurring in general merchandise has become even more blurred than HBA, so it is not surprising to see these sales trends in supermarkets. I don't think about the fact that I need a new mop, therefore I am going to go to Albertsons to buy that mop. If I need a high-end mop, I may go to Bed Bath & Beyond or Linens-N-Things or Home Depot or Lowe's or maybe Albertsons where I did see a mop. It's an incidental purchase, not a destination.
SN: What retailers are doing a noteworthy job with HBA?
SHINALL: Target has done a wonderful job of enhancing HBA. It doesn't feel like a Nordstrom's or a Wal-Mart or a supermarket. You see more variety. It's presented in a better fashion. You feel like you are being pampered more.
The experience makes you feel better. The U.K. Boots store in Target is a store-within-a-store branding effort that seems to have real promise. But there is capital investment on the part of the retailer to bring it to life. CVS defined itself as a destination for HBA with its Beauty at the Door concept [introduced in 2001].
They targeted the female shopper of a certain age group. The first thing the shoppers saw when they walked in the door was beauty. They offered them a sense of pampering and created a luxurious setting, with pastel colors and lighted shelves. Regardless of the fact the product portfolio was basically the same as everywhere else, it didn't matter. It was an enhanced shopping experience.
SN: Can such a branding effort work in a supermarket?
SHINALL: It's possible. Could there be an environment created in a supermarket that would have a branded presence that would give you the sense of being pampered -- an atmosphere that goes beyond metal gondolas where I find vegetable soup? That is the notion, and it gets us all the way back to, "Would that attract consumers in store? Would that create a positioning for that retailer that helps define that retailer beyond meat and produce?"
SN: How should supermarkets be positioned?
SHINALL: Supermarkets can't be all things to all people. You have to decide what business you are really in. If I am going to stay in the mop and broom business, then I can't have a couple of mops and brooms incidentally stored on shelf in case people happen to see them. I am either going to be in that business or not. I believe a clearer definition of business is going to emerge in next several years.
If I am in the business, I need the right items in the store and merchandised such that consumers know I am in the business and entice them to purchase. Look what has happened to the meat department. All supermarkets at one point in time had a sea of meat out there, and you looked hard to find chicken vs. beef vs. pork. Supermarkets have now invested capital, used signage and ready-prepared sections to make it easy to shop. They've brought meal ideas into the meat case. They've built loyalty not only because of the quality of meats but because they've made it easy for shoppers to find things and prepare meals.
Produce is the same. Harris Teeter has done a wonderful job in laying out the produce sections in such a way that I want to buy. Publix has also made a statement in produce. Who is willing to do that in HBA and GM sections? And what are the right retail elements to get there?
SN: What is the message to take away from the study?
SHINALL: It reinforces the need for nonfood executives to introspectively re-examine the business they are in. They can't be in all businesses and do everything well. In short, what business am I in and how do I bring that to life in the store.
Reinvention requires careful assessment of what you are, what you want to be and, perhaps most importantly, how you are going to achieve the result. Complacency, or business as usual, will simply contribute to the decline and surely not grow the top line.
