Industry Voices

How Do You Grow Sales When the Market Is Shrinking?

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The fact that jumped out at me from Part 1 of the Supermarket News 2012 Analysts Roundtable was that the retail grocery “pie is shrinking” and it has been for a while. Anybody who watches the trend in unit sales knew that these numbers were going down, but the growth in dollar sales distracted attention away from that negative trend.

One of the things that make it difficult to think clearly about how to grow our businesses in this environment is that we haven’t accepted that the U.S. grocery industry is shrinking. Could this really be happening?

A column in last Thursday’s Wall Street Journal, “Easy Money Is Punishing the Middle Class,” provides data that explains, at least in part, of why this is probably true; i.e. Americans have less money in real terms to spend than they used to. In fact, the average American household has 7% less real income to spend today than they did in 2008.

Now 7% is a big drop, but it didn’t affect everyone in the same way; i.e. some households saw their incomes increase, while others saw their income shrink a lot more than 7%. This makes it easier to understand why the roundtable analysts highlighted the pressure on middle-class households, who no doubt have found ways to “get along with less.”

So there are hard economic facts that support the unthinkable; i.e. that the grocery market is shrinking. But that’s not the only thing that’s holding back growth.

The analysts’ roundtable also pointed out that there are approximately 2 billion square feet of retail space devoted to selling consumables. How much of this space was built since 2008 and how much sales did the new space attract?

It’s hard enough to grow when real income is declining and there’s more competition in the market, but profits are also dropping. There is downward pressure on margins that will continue until some of the space leaves the market and this makes it harder to borrow for growth.

The headline for Part 1 was “Grim Prognosis” and it is grim if you’re trying to grow the whole grocery business. The good news is that retailers aren’t trying to do that. They’re only trying to grow their own business. Think of it like the story of the two campers trying to outrun the bear. Just one camper has to outrun the other to avoid being caught.

Read more:
Part 1 of SN's 2012 Financial Analysts Roundtable

Part 2: Is Kroger All It Can Be?

It seems to me that the best way to grow, and it’s certainly an option today, is to step ahead of the slower moving competition and develop aggressive growth plans to succeed in this new, more challenging environment. Here are six insights from the roundtable discussion that provide a base for action.

• Middle class customers are feeling income pressure and looking for help.

• Some upscale retailers still generate strong comp sales; copy how they do it.

• Shoppers are buying more fresh; take a different approach to giving it to them.

• Winning retailers have a strong value proposition; build your own.

• Millennials are still “on the bench”; get them into the game.

• The time is right for big “game changing” moves; make your own.

There’s a lot more to say and we hope that this blog starts that dialogue.

If you’re looking for growth opportunities drawn from roundtable insights, check out the Brick Meets Click blog “Going for Growth in Grocery” at http://www.brickmeetsclick.com/going-for-growth-in-grocery.

So what do you think are the best ways to grow the business? Please comment here and I’ll make every effort to respond.

Discuss this Blog Entry 1

on Oct 16, 2012

Bill, Thanks for some great insight. From a fresh produce perspective, there is ample evidence that consumers are more than willing to pay for high quality items that deliver exceptional flavor. During the down economy, we have seen tremendous success stories in apples, citrus, sweet corn and even potatoes where customers are moving to better tasting items. For several years, we have focused on offering more convenient produce through processing. Consumers are telling us quite emphatically, that taste is what really matters and they are willing to pay for it. Focusing on quality and taste will drive top line sales!

Thanks,

Don Goodwin

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Sean McBride

Sean McBride, founder of DSM Strategic Communications, LLC, is former EVP of communications and member services at the Grocery Manufacturers Association.
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