It's a strange position for supermarkets to be in.
Grocers have spent years trying to upgrade by eschewing a bargain-basement atmosphere. They have built stores around upscale branding programs, created premium private labels and unveiled customized loyalty programs to meet shopper needs.
Suddenly the playbook needs updating. In the summer of 2008, loyalty seems to have little to do with these factors.
Comments from conventional food retailers in this week's Page 1 story relay a new sense of urgency that goes something like this. The economy will get worse before it gets better. Winning loyalty now means offering discounts and value, including programs tied to fuel rewards. The important thing is to keep customers shopping your store, and it is hoped they will stick around when times get better. It's necessary to control expenses and be satisfied with reduced expectations for financial performance.
We haven't heard about enhanced couponing, family packs and dollar-store-type sales in a while. These are coming more into play even at stores that hadn't seen signs of shoppers trading down until now.
But the rising cost of goods means it will be harder for supermarkets to convince customers they are getting a good value. One retailer points out that his sharp price reduction on chicken doesn't seem like such a good deal to shoppers who still recall the old price from a year and a half ago.
Discount retailers, meanwhile, are singing a different tune than their conventional brethren. Their goal is to gain as much market share as possible with consumers seeking to trade down. That's why discount chain Grocery Outlet hopes to increase traffic and sales in what it expects will be “a second-half boom,” said its co-CEO, Eric Lindberg. That retailer is even increasing capital spending for new stores and remodels so that first-time customers will be impressed with what they see. Grocery Outlet is thinking beyond this downturn, hoping it will keep shoppers that initially come because of hardship.
If the economy is the biggest event of the year, then the biggest non-event is the economic stimulus checks from the federal government. Not that supermarkets are complaining about them — every little bit helps. But few retailers have succeeded in measuring any noticeable sales impact.
It's important to put today's economy in perspective. Food retailers will still fare better than restaurants, general merchandise stores and most other outlets, as we all understand by now. However, as the downturn lengthens without expectations of a near-term reversal, food retailers are more willing to re-embrace proven merchandising strategies around price and value, even if it seems to conflict with the upscale store-branding concepts developed in the not-to-distant past. Perhaps those will take a back seat for a while. You can't position yourself for the future unless you have customers to sell to.