EXECUTIVES: GROCERS NEED REFORMULATED HMR RECIPE

PAT NATSCHKE LENIUS

OAK BROOK, Ill. -- Both supermarkets and suppliers will have to change their thinking in order to succeed in the home-meal replacement arena, according to three executives from the food industry.

A case in point: Dominick's Finer Foods, Northlake, Ill., is on the fifth incarnation of its prepared-foods program, and is learning how to sell fresh meat in a different way, according to Robert Mariano, president and chief executive officer of the chain.

Supplier Fresh Express Farms, Salinas, Calif., is learning how to get consumers to view packaged salad as a value-added product vs. a commodity in a bag, according to Steve Taylor, president and CEO.

And Campbell Sales Co., Camden, N.J., has moved away from a geographically oriented, inwardly focused sales approach toward its retail customers in favor of a team approach that aligns people with a comparable focus on each side so they can work together, according to Bill Toller, president.

All three spoke here at a meeting of the Merchandising Executives Club of Chicago, on the theme of a top industry overview for 1997.

Dominick's fresh prepared-foods line, which it calls Chef's Collection, sounds like a great success today, but this is probably the chain's fifth attempt at the concept, Mariano said. "Four times, it failed miserably. Maybe we are starting to understand better how to do it. It takes time, patience and understanding. The person behind the counter is critical to the success of the operation. Don't get too technology oriented. That person talking to customers is very important," he said.

This has also been a key learning in its meat department, where Dominick's is selling Angus beef and has a butcher available to answer questions, Mariano said.

"We have a chef creating additional meat offers, such as center of the plate items. It is working, but it is not a home run. We have a lot more work to do," he said.

Mariano pointed out discrepancies between what consumers are said to want and what they actually do. For example, diet is said to be important, but two-thirds of consumers are overweight. Coffee business is said to be flat, but consumers will pay Starbucks $3.75 for a cup of coffee.

It is said that people don't eat cured meat any more, and they won't eat hot dogs, so some supermarkets have cut back on their hot dog sections, Mariano noted. However, consumers are going to the corner deli for sub sandwiches. It is said that people don't want to buy red meat, but consumers go to a steakhouse and order a 24-ounce porterhouse, he said.

"We gave up breakfast, we gave up lunch. For dinner there is Boston Market. They sell a big roasted chicken for $7.99. We as an industry have been selling roasted chicken for five to 10 years for $3.99.

"These restaurants sprout up in our parking lots. People wait in line for mashed potatoes, corn and roasted chicken. That is dinner. We can't sell them that stuff. This is an area we have to pay attention to," he said.

Dominick's started the first five Starbucks in the Chicago market area. It has continued with a coffee program, now featuring Seattle's Best.

"People like to have a cup. We have outfitted our grocery carts so they can take a cup around with them as they shop. It is a small thing that people appreciate," Mariano said.

Now, he said, there is a threat to one of the few areas where supermarkets felt secure: baked goods

"Bagel shops are sprouting up. There is nothing novel here but it is a whole new business. Food retailers have carried bagels for years, but they say bagels are not that important. Now people are making them a big deal. We made pastries a big deal. We will continue to do that to excite customers," Mariano said.

If consumers are so price-sensitive, he asked, why are they going to Starbucks and Boston Market?

"They want something more. If you pay attention to customers and offer them what they want and they are happy with it, they will spend money with you. They want service and they want to be recognized."

Manufacturers and brokers should remember that consumers are doing them a favor by buying their products. They have a lot of other choices, Mariano said.

"Consumers want information. They want to know what is in the product, how long it lasts, how to store it. They want this information to be easy and readable. They don't have time to be confused and they don't want to have to make a lot of decisions. We have to teach customers and explain to them what they want," he said.

In spite of all the industry talk about HMR and shopping on the Internet, at the end of the day, customers still walk through the supermarket, Mariano said.

"We haven't excited them or interested them enough to spend more of their money with us. We as the retailing and manufacturing community had better start paying attention or they will continue voting with their feet [and going] to restaurants and food-service operators. We have to pay attention to what they want. Let's share ideas on how to get that customer excited," he said.

Asked why Dominick's hasn't brought Boston Market into its stores, Mariano said that such a move changes the economic model.

"Look at their labor component. It is vastly different from ours. If they came into our store they would increase their labor cost. If they increase their labor cost but continue to have the same gross margin and we ask them for a fee for being there, is not much left. That is one reason why," he said.

Toller of Campbell spoke of how supermarkets are only now beginning to realize that restaurants have been the enemy all along when it comes to HMR, even though over the last 15 years supermarkets have been fighting each other and other classes of the retail trade for remnants of that business.

In 1990 the share of total food spending was divided 51% in food stores and 49% in food service. In 1996 this was nearly reversed, to 48% of total food spending in food stores and 52% food service, he said.

"Not many supermarkets are doing a good job of convincing customers they are a good alternative to Boston Market. There will have to be a very different definition of home-meal replacement. It will have to be advertised and provide convenient usage for consumers. Make it a simple choice: either home-meal replacement or Boston Market. Both have to be equal in times and dollars to be invested and in the quality of return," Toller said.

"Convenience and quality are no longer mutually exclusive. Consumers want to buy back some of their time, and they will pay for convenience. The key challenge for us is in how we provide solutions. We are giving them quick simple ideas and recipes. Campbell focuses a lot on recipes for soup and frozen soup," Toller said.

There is an explosion of people working at home, which translates into the re-emergence of lunch time as an opportunity for HMR business for retailers and manufacturers, he said. That is leading Campbell to realign its sales staff, Toller said. "One person with one skill talking to another won't get us the alignment we need to understand consumer dynamics."

Instead, different people on both sides need to communicate: suppliers' logistics with warehouse operations, systems with finance, manufacturers' customer marketing and category management with retailers' promotion manager and category manager, Toller said.

Taylor of Fresh Express Farms said only 40% of consumers who use food service regularly think the supermarket is a good place to get a convenience meal.

Today people want convenience and reasonable quality, which is defined as a higher standard of taste and texture than in the past, he said. Pricing should not be out of line with what consumers can get outside the store. Fresh food is the hallmark of HMR, he said.

The future is in fresh foods, but supermarkets are not yet ready to execute this properly, said Taylor.

Even though the deli is really set up for food service, there is room for a separate or new retail department designed for HMR, he said.

"Look at the deli department. It is a relatively low traffic area today. About 23% of consumers use the deli once a month or more, while 95% of consumers go through produce on every shopping trip.

"There is a high degree of dissatisfaction with products in the deli. There are outdated products that haven't changed in 25 years. They are high in fat and don't use contemporary ingredients. Consumers don't view the deli as a viable place for home-meal replacement," Taylor said.

The produce department is changing, but it is still viewed as a commodity department, he said.

"We are still learning as a category in packaged salad how to be viewed as value-added rather than a commodity in a bag. I believe the way to address this is through partnerships between companies that make fresh products for supermarkets. Manufacturers must create the right products that meet contemporary consumer needs at a reasonable price point. The work is just beginning," Taylor said.

Meanwhile, retailers need a new vision for how to merchandise fresh food to consumers, he said.

"Retailers have to become more like fast-food operators, using a more sophisticated approach, creating new sections and committing to fast service.

The catch is, all of this must be done with the appropriate price/value relationship. Supermarkets will not succeed with extremely high priced offerings. Fresh food must appeal widely to a broad base of consumers. The onus is on manufacturers and retailers to offer quality products that provide appropriate value," Taylor said.

The change in consumer attitude toward food and HMR should ultimately mean good news for supermarkets. They should be able to offer products with higher margins. Even though consumers want reasonable prices, they will pay for convenience, he said.

"Fresh Express produces salads, both fruit and vegetable, that will be integral to home-meal replacement in supermarket. We have been doing quite a bit of cross merchandising," Taylor said.

For example, the company has paired its packaged salads with fresh poultry products, wine and both in-store prepared and frozen pizza, in an attempt to create some kind of meal solution, he said.

"We find these cross-merchandising efforts are generally very successful and attract new customers into the salad category. There are a host of opportunities for that type of merchandising," Taylor said.