Learning from early setbacks, mainstream retailers adapt their wellness strategies to smaller formats
THE STAND-ALONE WELLNESS FORMAT HAS CAUSED MAINSTREAM retailers to take some shaky steps.
Two months ago, Chandler, Ariz.-based Bashas' Supermarkets pulled the plug on Ike's Farmers Market, its plucky 35,000-square-foot store built to resemble a roadside stand. Last year, Supervalu shuttered Sunflower Markets, a minimalist-fresh concept that had three locations in Chicago and Columbus, Ohio. Even Publix's GreenWise format, which debuted in fall of 2007 to much industry buzz, has been slow to grow.
The stumbling and shuffling reveal the conventional supermarket industry's difficulty in trying to specialize in an area already dominated by operators like Whole Foods Market, Trader Joe's and a host of independent natural food retailers. Overall, wellness lifestyle categories — including organic, gluten-free and eco-friendly, among others — continue to grow at double-digit rates, and most of the increases are coming from the mainstream channel. Yet the inability of big chains to tap the “essence” of the wellness shopping experience has proven frustrating. Neither focus groups, studies nor consumer polls seem capable of capturing the qualities that make shopping at a Sprouts Farmers Market or at PCC Natural Markets so appealing.
“There are those out there, like Trader Joe's, that do an exceptional job,” said Neil Stern, senior partner with retail consulting firm McMillan Doolittle, Chicago, and author of the book “Greentailing and Other Revolutions in Retail.” “But from the mainstream standpoint,” he added, “I don't think anyone has figured it out.”
Some industry observers would argue that mainstream retailers don't need specialty-format stores to show off their wellness offerings. Most large stores already do that nicely — some integrate products completely within conventional sets, while others segregate them in boutique sections or set them off within regular aisles with bump-out shelving and call-out signage.
Yet the desire to be a wellness leader persists, and the experimentation continues. Most recently, large retailers have been introducing smaller-footprint stores that highlight fresh foods and high-quality prepared meals. Under the umbrella of freshness, these formats are able to incorporate many aspects of health and wellness, but without placing an all-or-nothing burden on their ability to sell, as was the case in the self-standing units.
Smaller stores hold a lot of promise. According to a recent study from TNS Retail Forward, 64% of consumers say they want to shop a smaller format. Fresh & Easy, Trader Joe's, Aldi and a majority of natural food stores all measure under 30,000 square feet. Indeed, dollar stores are notorious within the industry for siting themselves within the shadow of mass merchandisers like Wal-Mart or Target, specifically because they offer more convenience, easier parking and competitive prices. Now it appears food retailers are interested in the same qualities.
Giant Eagle believes it's found the right formula. Late last month the Pittsburgh-based retailer announced it had remodeled its Giant Eagle Express store — a 13,500-square-foot convenience concept that opened in May 2007 in Pittsburgh's Harmar Township neighborhood — with a renewed emphasis on fresh meals and meal solutions. Today the store offers more than 50 grab-and-go menu items to choose from for breakfast, lunch and dinner, including such epicurean eye-catchers as sushi and coconut-crusted tilapia.
To accommodate consumers with time on their hands, the company inserted a 40-seat cafe. There are also plenty of convenience features for on-the-go shoppers, including a large selection of heat-and-serve meals, plus separate checkout areas for the gourmet coffee and fuel customers.
“After examining the first 22 months of Giant Eagle Express, we looked at stocking the store with grocery items that customers look for most often, especially between their larger, more traditional shopping trips,” said Rob Borella, senior director of marketing for Giant Eagle.
Offering fresh, affordable meals is also the game plan for Marketside, the new line of small stores from Wal-Mart that debuted in Arizona last September.
“Everyone is looking for the answer to the question of ‘What's for dinner?’” said Mike Thomas, manager of the Marketside store in Chandler, in an interview with Reuters. “We're providing a meal solution for people on the go, people who want something that's convenient, fresh and affordable.”
With Safeway's new format, The Market, company officials decided on an uncluttered store layout that emphasized fresh offerings. Allison Westrick, creative director with WD Partners in Columbus, Ohio, which spearheaded the prototype's design, said this meant bringing graphics down to eye level, leaving out excess signage and making produce the focal point of the store. The Market also includes plenty of convenience touches, including a single-line checkout format, and high-demand items placed at the front of the store.
“It was really about making sure there was a continuous fresh impression in the store,” said Westrick. “If you go into a large store, you maybe get fresh at the entry and a couple other places, but you get to Center Store and the theme is gone.”
Industry experts say it's important for small stores to differentiate themselves from their larger counterparts, and that offering fresh, health-oriented meals is a great way to go about it.
Tough economic times have only enhanced the opportunity. According to Mintel, 54% of consumers say they're pulling back on restaurant spending. Instead, they're cooking at home and purchasing low-priced ready-to-eat meals.
“It's not only these days about convenience, which is what the small grocery store provides, but it's about things like, are there opportunities to cater to shoppers who may be cutting back on trips to the restaurant and focusing on fresh prepared meals that may save a buck or two?” asked Jennifer Halterman, senior consultant at TNS Retail Forward.
Small stores, with their limited assortment, can be easier to shop than more traditional formats. Their innate intimacy promotes a high-touch environment that can help convey information about the foods sold, whether through signs or via interaction with store associates.
With this in mind, retailers need to think creatively about how to utilize design elements and not just rely on size alone to entice shoppers. In addition to offering high-quality fresh foods, analysts say best-selling lifestyle-related categories such as locally grown or gluten-free can sell especially well. Jarrett Paschel, vice president of strategy and innovation with the Hartman Group, Bellevue, Wash., pointed to H-E-B Central Market as a good example. Here, the retailer has taken a large format and broken it down into individual boutique departments by using unique aisle configurations and merchandising techniques. The lead-off section is produce.
“They try to get every single produce item as local and seasonal as possible,” Paschel said. “And when they do have something in season, they'll oftentimes have the farmer there cutting up the tomatoes for people to sample. I think that really resonates with people. Just throwing some tomatoes in a produce bin and saying it's local is not going to fly.”
St. Louis-based Schnuck Markets, which operates 105 supermarkets in the Midwest and the South, is hoping to be the first in its market area to delve into the small-format trend. This winter the company broke ground on Culinaria — A Schnucks Market. The epicurean name reflects an emphasis not on just prepared meals, but on all the tools and tips that their customers need to cook at home as well.
Located in a 21,000-square-foot space on the ground level of a new parking garage development, Culinaria will offer premium prepared foods, a pharmacy, as well as a variety of culinary education services. A company official declined to offer more detail on these services prior to the store's opening this summer, though he did discuss the store's positioning in an urban, affluent market.
“We feel that this is the ideal size to serve downtown commuters, as well as the ever-growing loft population,” said Paul Simon, spokesman for Schnucks.
The blending of quality and service is a hallmark of health and wellness merchandising, and promises to be at the forefront as conventional retailers move deeper into the small-store segment. Michelle Barry, senior vice president at the Hartman Group, recommended highlighting produce, meat and dairy on the perimeter of the store, and using the Center Store section as the place to find spices, sauces and other small items needed to fill out a recipe.
“One of the things we're seeing is that consumers are using the perimeter of the store a lot more these days,” said Barry. “Center Store really becomes not about meal solutions and replacements, but about helpers and condiments, things that you would use with fresh.”
Small formats are also ideal locations to use premium private-label products, since these help “brand” the store. Safeway has made significant strides with its “O Organics” brand, and currently stocks the SKUs in The Market small-format stores. Supervalu has also come out with its Wild Harvest line of premium products, which appeared in its Sunflower Market stores and are currently available in Urban Fresh, the new 16,000-square-foot concept run by the company's Jewel-Osco division in downtown Chicago.
“I think in order for these stores to be successful, they need to have a very strong private-label offering,” said Natalie Berg, grocery analyst with Planet Retail, London. “It's a limited assortment, and so you only have a couple brands at most in any category.”
A recent study by J.D. Power and Associates points to the evolution of private-label products as sophisticated, yet reasonable, alternatives. The global information services company spent a year mining the blogosphere, analyzing 50,000 “spontaneous conversations” that mentioned private-label brands by retailers, and noted that quality and healthfulness aspects of the products were driving positive sentiment. These were stronger motivators even than price.
“Private label hits the sweet spot between the high prices of regular organic brands and conventional foods,” said Janet Eden-Harris, vice president of J.D. Power and Associates' Web Intelligence Division.
Besides private label, knowledgeable and accessible employees, and quality fresh foods, smaller stores can also benefit from piquing the interest of consumers.
“People still shop regular grocery stores, and they'll continue to do so, but they don't get excited about it,” said Paschel, of the Hartman Group. “I think that excitement is what you need to generate for a small format to be successful.”
It's the kind of excitement that inspires a video tribute. That's just what one fan of Trader Joe's recently made and posted on youtube.com, garnering nearly 350,000 views in less than three months. Shot using a camera phone, the catchy two-minute ode extols the retailer's imperfect yet endearing product mix, including sunflower seed butter, goat's milk yogurt, and the well-known $2 bottles of Charles Shaw — “Two Buck Chuck” — wine.
Ultimately, there is no one-size-fits-all formula for retailers building small stores, noted Chuck Cerankosky, retail analyst with FTN Midwest, Cleveland. Success, especially in a down economy, depends on good location and knowing the consumer base.
“I think location is everything right now, because clearly people are being much more careful about how they spend their discretionary dollar, as we've see in recent Whole Foods results,” said Cerankosky. “That very clearly demonstrated that the customer is backing off on a lot of discretionary spending.”
If the strategy doesn't work from the get-go, many retailers say they're willing to adjust. That is, in many ways, the beauty of the small format.
“Right now we don't have all the answers for a small format,” Rojon Hasker, president and general manager of corporate lifestyle stores for Safeway, told SN in an interview last year. “But we're willing to make changes in the mix and the concept.”