The economic indicators can't officially tell us if we're in a recession and the economists can't predict when business will turn up. But there's one fact you can count on: Consumers are now shopping for price.
No less an authority than Steve Burd, chairman, president and chief executive officer of Safeway, said recently [SN, Oct. 8, Page 1] that consumers are switching to less expensive items. As an example, he said they are buying peanut butter and jelly instead of luncheon and deli meats, and chicken instead of red meat. That's not exactly the kind of news that elates supermarket operators.
But this is a period when the trends were supposed to be working in favor of supermarkets. Predictions were that the poor economy and concerns about terrorism would lead to more at-home eating, prompting more supermarket shopping trips and higher sales. Now it seems that while supermarkets may get more traffic, the benefit at the cash registers will be tempered by consumer determination to spend less per item. But as with any trend, the impact won't be uniform for all types of stores. SN explored some of this in a Page 1 article quoting financial analysts on Oct. 8. Here's a rundown on how various parts of the market might be affected:
Conventional Supermarkets: Some supermarkets will seek to add less expensive items to suit shoppers. Safeway said it has already started doing that, although it didn't say which products are involved. Some retailers will see the consumer's desire for savings as an invitation to further grow and promote private labels. But the current climate could also lead to a price war among big retail players, which is usually financially detrimental in the long run.
Price-Impact Supermarkets: Price-impact supermarkets could get a boost from shoppers looking for more savings. Food wholesalers in particular, such as Fleming and Supervalu, have been pursuing these store formats.
Independent Supermarkets: This group has perhaps the most to lose in a price battle. Already challenged by the unrelenting growth of retail square footage by Wal-Mart, independents are in the weakest position to sustain ongoing price reductions. It will be more important than ever for them to stress service and convenience and at least stay in the ballpark on price.
Other Store Formats: The proliferation of consumables at drug stores and discount stores presents a special challenge to supermarkets. At a time when shoppers are willing to trade down, they recognize that many food items can be obtained at lower prices outside the traditional supermarket. And the addition of new supercenters and warehouse clubs further increases the competition. There's already been a market share drain to these other formats. It's important that supermarkets avoid more lost share as a result of the poor economy.
The supermarket industry has at least one important edge as it tackles the new price dynamics. The supermarket is the retail format with the widest assortment of food products at a time when consumers seem to be intent on eating more at home. If supermarkets can help these shoppers with meal planning and keep prices in the competitive range, they have the opportunity to add new business and possibly compensate for lower item rings at the register.