With the economy in recession and consumer confidence low, Center Store managers are going to have to be even more focused on pricing, selection and offering convenient solutions to help consumers plan and prepare meals at home this year.
Because the grocery aisles house ingredients for cooking from scratch, this section of the supermarket has great potential in 2002 as more Americans decide to stay home. With savvy marketing and pricing, traditional grocery stores can beat the supercenters that have proliferated in the past 20 years, say some close observers of the scene.
"Most of us can be competitive if we do strategic planning," said Bill Lancaster, vice president, corporate sales, for Associated Wholesale Grocers, Kansas City, Kan.
Food retailing today is a much different industry from what it was during the last two recessions, those of the early 1990s and 1980s. "We've had channel blurring, with all different kinds of merchants carrying Center Store goods -- more choice for the consumer," said Michael Sansolo, senior vice president with the Food Marketing Institute, Washington.
However, convenience is still king. Focus groups conducted by A&P's Atlantic Division, Paterson, N.J., found that its shoppers, as well as its competitors' shoppers, "want convenience, service, and to be able to put meals together quickly," said Tony Gasparro, vice president of advertising for the division, which stretches from New York to Baltimore, encompassing 300 Waldbaum's, Super Fresh and A&P stores.
Waldbaum's commonly features "Quick Meal Ideas" in different parts of its weekly advertising circular, and is trying to set up the store so shoppers can find the items easily. "We are gearing toward it; this is a work in progress," Gasparro told SN. The circular for the period of Dec. 8 to 14, for example, had two cereals, Polaner All Fruit, a honey, a tea and a coffee, and a corn muffin mix listed under "Breakfast Savings." On the opposite page, six products that could make an Italian meal were listed: Real Torino dry pasta, a private-label sauce, Ronzoni bread crumbs, Rienzi peeled tomatoes, Hunt's canned pasta sauce and Bertolli olive oil. Elsewhere in the circular were "Quick Meal Ideas" again -- a Maruchan Lunch Cup, Shake-n-Bake, America's Choice macaroni and cheese, and Chef Boyardee canned meals.
Paul Kelly, principal in Silvermine Consulting, Westport, Conn., said this sort of communication is good, especially if shoppers reading the ad can easily find the items together or near each other in the store.
The items listed also reflect the trend toward comfort foods, which is believed to have been sparked by the terrorist attacks on Sept. 11, 2001, noted Lisa Allen, spokeswoman for Grocery Manufacturers of America, Washington. "We are also seeing more foods geared to specific demographics, like, for women, soy, calcium and the 'hot button' health buzzword," she said.
And, as they continue to find their way through the remains of mergers and acquisitions, food suppliers will also focus on making shopping easier for consumers.
For example, in the coming year Kraft Foods, Northfield, Ill., will be looking to drive more synergy to jointly promote its brands, spokeswoman Claire Regan told SN.
Meanwhile, along the same lines as meal solutions, Don Stuart, partner in Cannondale Associates, Wilton, Conn., predicted the appearance of more integrated marketing, such as is being done by Kraft's Nabisco, displaying cookies, nuts and confections in one location.
Shelf-stable meals will also help spark Center Store sales, said Chuck Cerankosky, an analyst with McDonald Investments, Cleveland, Ohio. Still, he said the emphasis is on growing the perimeter of the store and he expects growth in the center will be in line with population growth in the United States as a whole.
Center Store's physical presence has shrunk overall in favor of the higher-margin fresh foods of the perimeter. "A lot of retailers are rationalizing the product mix so that Center Store will have fewer sizes, maybe even fewer brands, so they can add specialty products and other complementary products that have better margins," said Richard Kochersperger, a director of The Food Marketing Group, a consultancy in Wallingford, Pa.
National brands provide comfort in turbulent times, said Brett Stover, manager of The P&G Shopper Institute, an arm of Procter & Gamble, Cincinnati, which studies consumer behavior. Others, however, predict private label will be seen and promoted more as a value alternative.
Private label continues to grow, said Cindy Breslin, a spokeswoman for Price Chopper, Schenectady, N.Y. "The natural and organic offering will continue to expand throughout our chain," she predicted. "More and more products are being integrated into existing space."
Retailers are going to have to examine the relationship between national brand and private label to see where the potential for gain will be this year, said Sansolo.
"The really interesting wild card is that in past recessions, people returned to the supermarkets. But people's behavior is different now, making it more important now than ever to figure out how to create differentiation, meet their needs and get them back into Center Store," Sansolo said.
With the economy slowed, consumers' spending habits have become conservative, said Jay Campbell, president and CEO of Associated Wholesale Grocers, Baton Rouge, La. Soaps, cleansers and detergents will become price-sensitive, Campbell predicted.
"Grocers haven't done a good job at taking care of Center Store," said Associated's Lancaster, who travels and speaks often at grocery gatherings, and will speak next month at the National Grocers Association annual meeting in Las Vegas.
Wal-Mart, a frequent topic for Lancaster, "sells smarter than most of us do. They take the KVI [known value items], commodities, and communicate it well. They put those key items out at the right price so the public can see them."
Associated Wholesale's stores compete with 266 supercenters of various operators in 10 states, as well as about 20 of Wal-Mart's Neighborhood Markets. Lancaster said retailers must define themselves and must stay within 5% to 8% of Wal-Mart prices or else they face sales erosion when a Wal-Mart comes to town.
Category management will also take on greater importance in the coming year, he said. Losing out to alternative channels always comes back to the retailer's failure to own the category. Rolling back prices and changing displays and shelf sets is key. "Shelf management is coming into its own," he said. "Even with store brands, people are recognizing that some of the duplication has to go."
Giving store brand areas proper space will help promote these products as "great values" to the consumer, he added. Comparing the endcap displays of a mass merchant to those in traditional grocery stores shows an overuse of DSD displays, such as soda pop and snacks, in the conventional supermarkets, Lancaster said. This is not true in the mass channel. "Better to have a big paper pack, or a big soap pack -- but, you've got to have it at the right price," he suggested.
Displays of paper and cleaning items occur on an average of 11 times a year for the conventional supermarket, compared with 41 or 42 times by the mass merchants, Lancaster said.
"If you don't define yourself, your competition is going to redefine you," he warned.
"Our advice to our stores is to visit these people; be in their stores every day. Wal-Mart is in these other category stores, categories they want to take. They study them and they are more zealous about going after their markets. I don't know if food stores recognize how severe the problem could be, if they didn't determine to own the categories. At the point when they determine to do that, they can keep the categories from eroding."
Focus group results show that if supermarket prices were better, the consumers in the groups would like to shop at them, according to Lancaster.
"Wal-Mart has branded their stores so that the customer has confidence in the pricing," he said. "What happens when customers have confidence -- they shop freely, they buy their full order, and the gross profit improves because they are not just picking the best price items."
For 2002, Lancaster looks for more EDLP pricing, "and you may see a number of the chains doing some price rollbacks." In his opinion, Kroger's announcement last month that it will cut prices was an example of discussions that have been going on for a long time. "If the supermarket industry is losing the price image, they have to do something about that. If you see in consumer research that image is declining, whether it's in a category or overall, you have to take some sort of action to get the consumer back."
Not everyone agrees. Jonathan Ziegler, San Francisco-based managing director, Deutsche Banc Alex. Brown, New York, for one, said that if Kroger drops prices, it would provoke a downward spiral in the industry.
