Move over organic produce -- make room for healthy chips, beverages and cereals.
A survey of nearly 200 retailers, manufacturers and allied industry representatives predicts Center Store sales will increase by up to 3% over the prior year, in large part through the introduction of food and beverages aimed at health and wellness, as well as additional organic and all-natural choices.
The findings help put a degree of excitement back into the grocery aisles, where the emphasis on selling consumers on innovation has been overshadowed by more immediate, in-house concerns of price and Wal-Mart-like competition.
The field of retailers who responded is almost evenly split between companies earning less than $1 billion and those earning more than $1 billion. Of them, some 53% stated Center Store sales would increase over the next 12 months. Forty-six percent of those operators said sales would increase 1% to 3%, though an equal number believed sales will grow by varying amounts: 26% stated 4% to 6% growth; 11% stated 7% to 9% growth; and 9% stated 10% growth or more.
Another 30% believed sales will decrease (most of them, by the same 1% to 3% margin), while the rest (more than 17%) stated they expect no change in Center Store growth.
Both the entire field of those polled and retailers themselves ranked Wal-Mart the biggest threat to Center Store. However, the fear factor was higher in the retailer camp: While 50% of all respondents believed Wal-Mart casts the darkest shadow on the grocery aisle, the retailer response approached 67%. Interestingly, the total field felt stronger about alternate channels, where 25% felt they were a threat; by comparison, only 16% of retailers saw drug, mass merchandisers and club stores as the primary danger to supermarket grocery sales. Both groups listed the economy as the No. 3 choice.
Everyone expressed a desire for more space in Center Store. All respondents and the retailer subgroup both cited space limitations as the biggest challenge to managing shelf-stable categories, 45% and 56%, respectively. Here, however, the camps diverged. Retailers considered out-of-stocks as the next most-serious challenge (35%).
On the other hand, all respondents (which includes the retailers) stated that slotting fees were the No. 2 concern (24%). This choice is understandable, given the presence of manufacturers in the overall response group.
Comments on the challenges facing Center Store blamed the retailer in some instances. In one example, a respondent lamented that retailers are interested in only a handful of categories, and that such a narrow focus comes at the expense of a total-store commitment.
Another expressed the opinion that Center Store is comprised of boring aisles that make grocery shopping an absolute "drudgery."
Retailers clearly pointed to the avalanche of new products they must stock, with one respondent wistfully noting, "So many new items, so little space." Others were more direct by pointing out that the sheer volume of new-item introductions is a constant challenge when many stores are faced with a limited merchandising footprint.
Still another retailer observed that the crush of new products, line extensions and relaunches requires constant re-evaluation of stockkeeping units. Such re-evaluation is more than a full-time job in and of itself.
Both the overall group and retailer respondents were in agreement, within a few percentage points, that the natural/organic and diet/health and wellness categories are the best sources for new innovations and excitement. Twenty-six percent of all respondents (including retailers) said natural and organics will bring about the greatest product innovations, followed closely by diet/health and wellness (24%).
More specifically, 32% of retailers believed health and wellness to be the bigger factor in spurring the grocery category, followed closely by natural and organics (28%).
Interestingly, the two groups did not agree on what the top trend will be over the next year. While 42% of all respondents voted for health and wellness, 40% of the retailer subgroup placed slightly more importance on convenience. However, health and wellness was a close No. 2 choice of the retailer subgroup, at 39%.
There was also a telling difference to the question, "How can supermarkets best fight competitors for Center Store sales?" A plurality of the total-respondent group (34%) chose assortment, followed by price (24%).
The retailers, however, were evenly split between assortment and price; both received 26%. Value-added offerings and private label rounded out the main choices in both the umbrella group and retailer subgroup.
The question invited a rather extended list of individual responses. Most of these responses stressed the need to add some sort of service component to the grocery aisles. In addition, one respondent wanted to see a greater number of special packs, while another recommended that retailers to completely tear down Center Store and rebuild it with new levels of entertainment and interaction, and larger seasonal selections similar to those found in mass merchandiser locations.
There were clear splits between all respondents and the retailer subgroup when asked what strategy is most effective in drawing customers to the Center Store aisles. While the majority of the umbrella group chose cross merchandising, retailers themselves endorsed buy-one, get-one/volume sales as the best single method to attract shoppers. This difference of opinion was reflected in the comments some of the respondents added. One urged the industry to watch club stores as a means to gather insights into how customers will purchase in volume when they perceive a good value. Another pointed out that customers tend to buy in a routine manner. As a result, the respondent said, supermarkets need to take advantage of that habit by becoming creative and encouraging the purchase of "one more item" on every shopping excursion.
Notably, those who selected sampling as the best strategy were especially vocal in their opinions, with one noting club stores' use of sampling increases sales of items, while another commented that using an interactive demo station introduces the "service" aspect to the grocery aisle and supports sales of the products that are sampled.
In the retailer-specific line of questions, respondents were evenly divided in stating the key strategies that they considered necessary for a food retailing company to differentiate itself from the competition: Improved layout, updated assortment, private label and customer outreach all received approximately the same number of votes -- though outreach was technically the top vote-getter by a slender margin. Responses were somewhat more diverse when the question of critical back-office strategies was raised. Here, 18% of retailers said category management remained the primary component of successful operations, followed by technology (17%), supply chain management (14%), activity-based management (11%) and trade promotion activity (10%).
When asked which was most important, however, the retailer field gathered strongly behind category management. One respondent argued that "true" category management incorporates all the other choices. Two operators observed that effective category management can help retailers draw the fine line between having great variety and having too many commodities. Yet another respondent urged management to do a better job of explaining goals, so that associates find it easier "to buy in" to category goals.
Given the emphasis on category management, perhaps it is little surprising that the plurality of retailers polled, 9%, believed that category management is the most important area requiring more development. This was followed by technology (7%), supply chain management and activity-based management (both at 6% each), and trade promotions (4%).
In answering their own flight of questions, most non-retailers stated new products are a principle method of attracting retail customers (38%), while 27% said providing consumer insights was most important. Trade promotions and supply chain management garnered the fewest votes (22% and 18%, respectively).
In an interesting revelation, however, a lack of new products was cited by 17% of non-retail respondents when asked what aspects are "lacking or still need development" in their company. Indeed, new products were second only to consumer insights, chosen by 19% of non-retail respondents. One respondent stated that retailers still spend too much time and energy on the "buy" and less on what their shoppers really want or need.
Many respondents wrote comments pertaining to the power of the customer and the continuing lack of customer insights. One manufacturer chastised retailers for remaining on the sidelines in driving efforts to develop a comprehensive database of customer activity. The respondent noted that "unless you understand where the consumer is going, how are you going to be able to adapt? Retailers spend far less money on consumer research than most other businesses. It's time they started."
Type of company (all that apply)
Food retailer 29.5%; Food wholesaler 11.4%; Manufacturer 33.2%; Sales agency 14%; Other 15%
Size of company/division in dollar sales?
TOTAL
Over $5 billion: 15%
Under $500 million: 57.5%
$500 million to $1 billion: 11.9%
$1 billion to $2 billion: 7.8%
$2 billion to $5 billion: 7.8%
RETAILERS ONLY
Over $5 billion: 21%
Under $500 million: 42.2%
$500 million to $1 billion: 10.5%
$1 billion to $2 billion: 8.8%
$2 billion to $5 billion: 17.5%
How do you expect Center Store sales in supermarkets to change this year compared to 2003?
TOTAL
Increase: 45.6%
Decrease: 36.2%
Remain the same: 18.2%
RETAILERS ONLY
Increase: 52.6%
Decrease: 29.8%
Remain the same: 17.6%
By what amount do you expect the increase/decrease this year compared to 2003?
TOTAL
10% or more: 9.8%
7% to 9%: 11.5%
4% to 6%: 25.4%
1% to 3%: 39.3%
Remain the same: 14%
RETAILERS ONLY
10% or more: 8.8%
7% to 9%: 10.5%
4% to 6%: 26.3%
1% to 3%: 45.6%
Remain the same: 8.8%
What is the biggest challenge in managing shelf-stable categories?
TOTAL
Slotting fees: 23.8%
Space limitations: 46.1%
Out-of-stocks: 22.3%
Other: 7.8%
RETAILERS ONLY
Slotting fees: 5.3%
Space limitations: 56.1%
Out-of-stocks: 35.1%
Other: 3.5%
In which category do you see the greatest product innovation?
TOTAL
Frozen Foods: 13.4%
Natural and organics: 25.9%
Beverages: 6.7%
Ethnic: 10.9%
Private label: 14%
Diet/health and wellness: 24.4%
Other: 4.7%
RETAILERS ONLY
Frozen Foods: 8.8%
Natural and organics: 28.1%
Beverages: 5.3%
Ethnic: 5.3%
Private label: 15.8%
Diet/health and wellness: 31.4%
Other: 5.3%
How can supermarkets best fight competitors for Center store sales?
TOTAL
Private label: 14%
Price: 24.4%
Assortment: 34.2%
Value-added offerings: 17.6%
Other: 9.8%
RETAILERS ONLY
Private label: 15.8%
Price: 26.4%
Assortment: 26.3%
Value-added offerings: 17.5%
Other: 14%
What do you expect to be the top trend in Center Store over the next 12 months?
TOTAL
Convenience: 30.3%
Low-carb/diets: 12.6%
Health and wellness/"good for you": 42.5%
Ethnic flavors: 10.4%
Other: 4.2%
RETAILERS ONLY
Convenience: 40.4%
Low-carb/diets: 14%
Health and wellness/"good for you": 38.5%
Ethnic flavors: 5.3%
Other: 1.8%
What strategy is most effective in drawing customers to Center Store aisles?
TOTAL
Sampling: 15.7%
Cooking demonstrations/educational events: 8.7%
Cross merchandising: 24.4%
Advertising: 16.4%
In-store signs: 10.4%
BOGO/volume sales: 19.7%
Other: 4.7%
RETAILERS ONLY:
Sampling: 17.5%
Cooking demonstrations/educational events: 8.8%
Cross merchandising: 12.3%
Advertising: 21.1%
In-store signs: 12.3%
BOGO/volume sales: 26.2%
Other: 1.8%
RETAILERS ONLY
What are the key startegies needed for your company to differentiate itself?(all that apply)
Improved shelf/store layouts: 11.9%
Updated assortment: 12.4%
Private-label growth: 12.45
Loyalty marketing/customer outreach: 14.5%
Other: 2.3%
What "black office" startegies are critical to successful operations in your company? (all that apply)
Category management: 17.6%
Technology: 17.1%
Supply chain management: 14%
Trade promotion activity: 9.8%
Activity-based management: 11.4%
Of the above choices, which is most important?
Category management: 14%
Technology: 6.7%
Supply chain management: 5.2%
Trade promotion activity: 1%
Activity-based management: 2.6%
Which choices are still lacking/need development in your company? (all that apply)
Category management: 8.8%
Technology: 7.3%
Supply chain management: 5.7%
Trade promotion activity: 3.6%
Activity-based management: 5.7%
Other: 2.6%
NON-RETAILERS ONLY
What are the key strategies needed for your company to attract retail customers? (all that apply)
New products: 37.3%
Trade promotions: 21.8%
Supply chain management: 18.1%
Consumer insights: 27.5%
Other: 6.7%
Of the above choices in 7a, which is most important?
New products: 23.3%
Trade promotions: 14%
Supply chain management: 7.8%
Consumer insights: 14.5%
Other: 3.1%
Which choices are still lacking/need developement in your company? (all that apply)
New products: 17.1%
Trade promotions: 11.9%
Supply chain management: 14.5%
Consumer insights: 18.7%
Other: 6.2%
SN's Survey of Center Store Performance -- 2004 was conducted via e-mail newsletter and from SN's Web site, www.supermarketnews.com, for two weeks in late August and early September. SN received 192 responses.
