CHICAGO -- Results of the third American Greetings Research Council project, titled "Winning the Battle of Consumer Perceptions," indicate that supermarkets can regain the nonfood ground being lost to mass merchandisers and other alternative formats.
Results of the two-year study were released here May 5 during the Food Marketing Institute's Annual Convention. Its goal, as was the case with the previous two studies executed by the research council for the FMI, is to develop effective strategies that supermarkets can implement to stem the flow of nonfood sales to alternative trade channels.
This study, which was facilitated by Allen Levis Organization here and conducted by Willard Bishop Consulting, Barrington, Ill., explored ways to change consumer preferences and shopping habits by targeting nonfood categories. In doing so, the study examined why shoppers are buying nonfood in various retail formats.
Not surprisingly, the council found that supermarkets are losing share points in the $148 billion nonfood industry. This is in spite of important strengths supermarkets possess, such as high shopper frequency and a reputation for good customer service.
Each lost share point takes $500 million of gross profit from supermarkets, according to the research.
"Our research confirms that supermarkets can revitalize their share of the $148 billion general merchandise/health and beauty care retail market by leveraging their strengths of convenience, service and being a leader in offering new products," said Randy Mason, senior vice president and general sales manager at American Greetings, Cleveland. "Supermarkets must also understand and combat their weaknesses -- consumer perception that their prices are high and selection is low," he added.
Nonfood reached a watershed point nearly a year ago when mass merchandisers surpassed supermarkets as the preferred shopping channel by 46% of consumers, according to the study. Supermarkets held a share of 39%, down from 46% reported in 1995. The drug store share of nonfood purchases slipped slightly from 16% to 15% last year.
Motivated by these statistics, the council set out to see if it could reverse the share-erosion trend by changing consumer perceptions and shopping habits for nonfood.
"Altering consumer perceptions is a difficult assignment because mass merchandisers have been effective in communicating their price and variety message," said Bill Haraldson, executive vice president and chief operating officer of Rosauers Supermarkets, Spokane, Wash.
Four nonfood categories were selected to test in the eight council members' stores -- batteries, vitamins, hair coloring and lightbulbs. These categories were chosen because they are either under siege by mass merchandisers or present untapped growth opportunities for supermarkets.
Chains participating as test sites for the project included: Martin's Super Markets, South Bend, Ind.; Randall Stores, Mitchell, S.D.; Rosauers Supermarkets, Spokane, Wash.; Overwaitea Food Group, Vancouver, British Columbia; Hannaford Bros., Scarborough, Maine; Minyard Food Stores, Coppell, Texas; Save Mart Supermarkets, Modesto, Calif.; and Copps Corp., Stevens Point, Wis. Tests were run in a total of 144 stores. Each category was tested in three chains at six stores each and six control stores each. In addition to the test stores, the research included pretest and follow-up interviews with nearly 4,000 consumers. Historically, nonfood categories sold at supermarkets have consisted of high-volume/high-margin products, Haraldson pointed out. Supermarkets have relied mostly on the convenience factor to drive nonfood consumer purchases.
However, today convenience is no longer enough to stem the ebb of shoppers away from supermarkets to mass merchandisers for their nonfood needs. Price and to a lesser extent variety are more powerful factors in the consumers' buying decisions, the study revealed.
"I don't think that I truly realized until we got into the study how strong that variety issue really was for the consumer," said Cecil Russell, vice president of marketing and merchandising at Save Mart.
Test results varied widely. Sales and profits increased in all but the vitamin category, which remained flat while profits tumbled 13.2%.
"This proved to be a tough category," said Bill Bell, vice president and chief operating officer at Randall. "Overall, price, variety and merchandising changes in test stores had little effect on [vitamin] sales and actually reduced category profits."
Yet, a strong communications program helped one retailer increase vitamin sales by 31.5% and profits by 30.3%, which proved that under the right circumstances supermarkets can develop even difficult nonfood categories.
The following are highlights of the in-store tests:
Batteries. Customers didn't notice the changes made to the battery offerings in test stores -- yet, average sales increased 21%. One retailer, who dropped prices by 15%, added stockkeeping units and conducted a very aggressive in-store communication and marketing campaign, saw a 65% sales jump.
Lightbulbs. Retailers discovered that deep price cuts are not required to boost lightbulb sales. Merchandising and customer education proved equally effective in driving sales.
Hair Coloring. This category could be a sleeping giant for supermarkets, according to council members. One retailer achieved 65.8% sales increases with a program of doubling both variety and space, slight price reductions and strong in-store communications.
"There is no question, the results of our research demonstrate that we can recapture sales through the process documented in our report," said Mike Henry, general manager of nonfood merchandising at Overwaitea Food Group.