CHANGING ROOM 2004-04-19 (1)

JON SPRINGER

Though it's been more than 10 years since supermarkets first began experimenting with baby clubs, the concept is still in the toddler stage.

"Developing a strong relationship with the customer through the baby aisle is an opportunity we still haven't fully realized yet," said Kimberly Coiner-Moyle, executive director of Catalina Marketing, St. Petersburg, Fla., whose company partnered with retailers in developing the first such programs a decade ago.

However, she said, retailers who can operate more sophisticated loyalty programs and take a "consumer-centric" approach to the baby aisle can keep -- even gain -- sales among a coveted supermarket demographic.

"The way the baby aisle is being approached is changing and, quite frankly, has to change," Coiner-Moyle told SN. "Grocery retailers are finding their baby aisles are being shopped on a convenience basis. They are not the core outlet for a lot of baby products. Their customers are going to Wal-Mart, Costco and Sam's Club because it's price-driven."

At stake isn't merely sales in the baby aisle, but the customer who makes those purchases. Shoppers who hit the discount store for diapers are likely to be picking up other grocery staples there as well, retailers said.

"Competition for the baby customer is aggressive due to the fact that they typically shop only one or two outlets a week. They are super-primary shoppers," said a spokesman for Food Lion, Salisbury, N.C.

"It's a doorway into customer decline and defection," added Coiner-Moyle. "That is why it needs to be addressed."

Like many supermarket chains, Fresh Brands, Sheboygan, Wis., recognizes the power of the baby aisle to attract and retain its best shoppers. Also like many, it's concerned about losing this shopper to mass merchandisers offering diapers, wipes and formula at low prices.

The owner/franchiser is determined to fight fire with fire. About five years ago, Fresh Brands switched to an everyday-low-price strategy in the baby aisles of its Piggly Wiggly stores in Wisconsin. According to Mary McLaughlin, vice president of grocery category planning, the move was made not only to counter competition from mass merchandisers, but also because its prior promotion strategy simply wasn't working. Baby is the only category in which Fresh Brands runs an EDLP program.

"It's been a phenomenal strategy for us, and one we continue to embrace," McLaughlin said.

The results seem to bear it out: According to McLaughlin, Fresh Brands grew its baby food dollar sales by 18.2% over the last year compared to 10.2% growth in other supermarkets in its trade area. In diapers, Fresh Brands grew by 6.8%, while competitors saw their diaper sales fall by 3.8%.

"In our channel of trade, we saw diapers were in double-digit decline. When we looked at our consumers, we realized that price was the driving force behind it," McLaughlin explained of the company's strategic switch. "We realized we had to be priced right all the time. It's just not something [shoppers are] looking for a promotion on. There's not a parent out there who has a child in diapers and doesn't know exactly what they paid for them."

The EDLP approach has challenged Fresh Brands to crank profits out of other categories because keeping at or near discounter prices, especially on low-margin items like diapers, is an especially difficult way to make a return.

"We have to look at the total market basket from a profitability standpoint," McLaughlin explained. "But the baby aisle is important because it attracts the consumer we most want in our store every day."

Grocery retailers identified this shopper years ago, and served as the genesis of incentive-based baby clubs, arising in such chains as Abco Foods, Phoenix; Price Chopper, Schenectady, N.Y.; and Raley's, West Sacramento, Calif., back in 1994. Those chains were part of a test program run under the auspices of the Cleveland-based American Greetings Research Council.

The baby club has become a staple of consumer offerings in many supermarket chains since then, said Catalina's Coiner-Moyle, though the programs have not always been successful. Some chains encountered difficulty recovering the cost of getting shoppers into the program, while others were done in by problems outside the club concept.

"A lot of the stores just didn't have all the pieces in place -- selection, quality, price, convenience or service -- to provide customer value," she said.

Rather than using a baby club, Fresh Brands supplements its EDLP pricing strategy with direct mail to expectant moms and young families in its trade area. The mailers focus on attracting shoppers with deals on baby products, but also include information on high-margin perimeter categories such as meal solutions and floral, said David Dickelman, Fresh Brands' director of store brands.

"It's real important to build the loyalty of new and expanding families. Their basket totals are always going to be higher," said David Dickelman, Fresh Brands' director of store brands. "You'll find this group to include your top shoppers."

Within the category, Fresh Brands focuses on large-size diaper packages in an attempt to train its customers to shop Piggly Wiggly as its primary outlet for those items. Its move to EDLP accompanied a stockkeeping unit rationalization in which the company removed many convenience-size diaper packages.

"We were probably the first in our market to go to the super-mega size. We're constantly looking to move customers up. We feel there's a nice return on the investment of space," McLaughlin said.

Well-run baby club programs are not without a future, however. Coiner-Moyle said those retailers who forge an "emotional trigger" with the new parent, and optimize use of their loyalty data, can find such programs work. The former can be accomplished by becoming a provider of information about parenting and nutrition, and offering rewards such as a free birthday cake for children enrolled in the baby club.

The latter is a matter of managing consumer data with an eye on keeping the family in the franchise as the child ages.

At Food Lion, the Baby Steps club offers coupons and discounts to parents, who are automatically enrolled after making a baby aisle purchase with their MVP loyalty card. The chain also provides information and links on its Web site. Shaw's, West Bridgewater, Mass., more recently launched a program, Ducklings, offering a magazine, parenting advice and discounts on products targeting expectant mothers and parents of children through age 5 [see "'Ducklings' Program Hatches at Shaw's," SN, Dec. 15, 2003].

"If your baby program is just a mathematical equation -- $10 off $250 -- then there's not much in it for the consumer," Coiner-Moyle said. "What retailers need to do is send out newsletters to new moms, and talk about stages, resources and recipes if they want to make their own baby food. Give them the intangibles."

Open-ended incentives has remained a key club problem. Consumers who earned "baby points" redeemable for discounts had no time limits in which to spend them, which undermined the program's frequency goals.

"Consumers felt they could just do what they do, and if they happen to get a reward, great," Coiner-Moyle said. "A retailer has to put restraints on their offers, and show the customer that they're participating in it, and there's a value to it. As a retailer, you want a chance to get back the goodwill you invested."

As a result of these issues, not to mention the further sales erosion of baby items to mass merchants and price clubs, "baby clubs got a bad rap," said Coiner-Moyle. Some chains, such as Ukrop's Super Markets, Richmond, Va., have quietly discontinued their baby club programs.

Catalina recently completed a study comparing baby aisle sales at four supermarket chains: two with baby clubs, and two without. The two chains with baby clubs had a greater percentage of shoppers who spent more than $750 annually on baby products -- close to 5% -- as opposed to around 2% for the non-baby club chains.

"That's still not great," Coiner-Moyle noted, "but it's a marked difference. The good news is baby clubs appear to be doing something. But are they fully and completely meeting the challenge of the mass channel? No."

DIAPER DANDIES

SHEBOYGAN, Wis. -- The baby category is a lot more than just diapers. The introduction a few years ago of organic baby foods has been a boon to Fresh Brands, based here. The retailer has a companywide initiative to attract natural/organic shoppers in all categories.

"What we're seeing is that people are looking for the absolute best-quality food they can buy for their children," said Mary McLaughin, vice president of grocery category planning, adding that company data shows shoppers who buy organic products are likely to spend 30% more overall than consumers who do not shop for those products.

"I think a lot of retailers have just given up and walked away from the baby category," McLaughlin said. "That's the impression I get. They feel that diapers have become more of a convenience item for consumers: If they happen to be in the store, they buy them. From an aggressive standpoint, they don't seem to want diapers to be a destination category. We just felt it was too valuable a customer to give up on."