There's little doubt that one of the greatest competitive threats to conventional supermarket companies today comes from mass merchants, especially the biggest one, Wal-Mart. Already a major force in food retailing, Wal-Mart plans to open around 150 additional dual-format Supercenters this year.
Besides its size, what makes Wal-Mart formidable, of course, is its world-class technology and logistics prowess, which it has honed over many years. Especially on supply chain matters, Wal-Mart knows its stuff, and that has gone a long way toward helping it keep its costs and prices low.
As IT professionals from supermarkets and other classes of trade gather this week at the Retail Systems 2002 conference and exposition at McCormick Place in Chicago, they will be seeking strategic insights to help them compete. And, if SN's eighth annual State of the Industry Report on Supermarket Technology is any indication, many supermarket operators have come up with a strategy for competing with Wal-Mart: using consumer-focused technology applications like loyalty programs to hold on to shoppers so that they aren't lured away by Wal-Mart's low prices.
Our report, which begins on Page 17, revealed that 37% of survey respondents consider customer loyalty programs to be among the areas commanding the highest priorities this year, putting it second on the priorities list. Tied with loyalty programs were point-of-sale systems, the underpinning of any consumer-oriented application.
Unlike Albertson's and Winn-Dixie, two famously everyday-low-price operators who finally decided to adopt card-based loyalty programs in the past year, Wal-Mart, for now, is sticking to its EDLP guns: no discount cards, no frequent-shopper offers. This gives supermarkets an opportunity, which our survey respondents have recognized, to excel at something that Wal-Mart lacks: programs that collect purchase data on shoppers and develop targeted offers and make shoppers feel appreciated and keep them coming.
My local supermarket, Stop & Shop, based in Quincy, Mass., is beginning to sharpen its loyalty program in this way. The chain has launched a "Top Banana" program that targets its best customers for special offers.
For example, I recently received an offer in the mail for a free rose from the floral department. That was followed by a slew of coupons, some for free items that I haven't tried before, like Prince Healthy Harvest Pasta, as well as several offering $1 discounts on products I buy regularly, like blueberries, strawberries and Dove soap.
While holding on to the consumer is a smart strategy, supermarkets also need to keep pace with Wal-Mart in the area where it is dominant: supply chain efficiencies. Our report indicates less interest this year in business-to-business e-commerce systems, and CPFR is way at the bottom of the list.
But rather than cede these areas to Wal-Mart, food retailers should follow its lead. In initiatives like CPFR, UCCnet, EDI over the Internet, scan-based trading, Global Location Numbers and RFID, supermarkets need to gather the kind of momentum and commitment they demonstrated in the 1990s for Efficient Consumer Response. Otherwise, even with strong consumer programs, they will still find it hard to compete with the Bentonville behemoth.