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Pressure on Middle-Ground Stores Seen Continuing

BARRINGTON, Ill. — Traditional supermarkets in the middle — those operating between the high- and low-end of the spectrum — must come up with a differentiated value equation or face obsolescence in the next few years, a pair of industry consults warned here Wednesday.

Jim Hertel“To survive, traditional supermarkets that cater to the middle will need to be really sharp on price, with a really good private-label program and fresh offerings that are significantly better than supercenters,” Jim Hertel (left), managing partner at Willard Bishop here, said during a webinar sponsored by The Food Institute, Upper Saddle River, N.J.

“Some retailers will make it, but a lot will not. Among traditional supermarkets who will, Kroger fills that bill to the largest degree.

“But medium-sized traditional supermarkets — who don’t have the scale to win on price — have got to find a niche, a way to be different and better, to win.

“A third group that will win will be those working the upper and lower quintile, utilizing a combination of price, freshness and service to operate at the cracks of the income scale and who are able to provide what those sub-sets of the population need.”

According to Craig Rosenblum, a partner at Willard Bishop, “Regardless of where a company falls in the spectrum, it must differentiate itself — it must know all the elements of how to serve its niche to avoid dragging itself down.”

He also said small-format stores are a way for conventional operators to grow volume. “Price alone is a zero-sum game,” he noted. “But convenience and store size are ways retailers can use a value equation to reach a larger customer segment.”

According to Hertel, “The industry has been talking about small formats for four or five years at least, since Tesco brought the Fresh & Easy concept to the U.S. [in late 2007]. But small is not as meaningful to shoppers as are convenience, low prices and fresh.

“Most supermarkets larger than 55,000 square feet probably have 15% to 20% more space than they need, whereas small formats allow retailers to drive greater productivity in terms of dollars per square foot — to find the cracks between the larger stores they operate without taking sales from that store base.”

Added Rosenblum, “These stores of 28,000 square feet to 30,000 square feet can generate sales of $400,000 a week or more without affecting volume at existing stores.”

Other topics discussed included the following:

• The threat posed by Amazon.com. Hertel said Amazon has a unique niche in supplying packaged products with a long shelf life. However, according to Rosenblum, “I wouldn’t be surprised if it enhances the perishables side on its own or by using its deep pockets to acquire someone else to provide that service.”

• The importance of prepared foods. “Foodservice remains a strategic element for traditional supermarkets,” Hertel said.

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