Retailers Eye Opportunities

The economic and competitive environment is brutal, but, as the old saw goes, there may be some opportunities to make those lemons into lemonade.

While Wal-Mart's “Win-Play-Show” strategy could result in even sharper pricing on many of the most popular items it sells, retailers who compete against the Bentonville, Ark.-based giant might find ways to capitalize by seeking deals on local favorites that have been cut as part of Wal-Mart's strategy.

“I think it's clear that Wal-Mart is overdoing it. They've gone too far in some places,” said David S. Rogers, president of DSR Marketing, Deerfield, Ill.

Similarly, Ahold's Giant of Landover and Stop & Shop chains, which went through a similar culling process as part of their Value Improvement Program, later went back and added certain items in some markets to appease customers with strong preferences for products that were no longer available.

It may be counter-intuitive to add selection when the common wisdom is to reduce inventories, but retailers who are closely in tune with their customers should be able to make the right decisions about which products and categories present the right opportunities. (See story below.)

Another idea that at first may seem counter-intuitive is to expand the perception of private label beyond price. Supermarkets can take advantage of the surge in private-label sales they have enjoyed by marketing more expensive, up-market store brands, some experts say.

Canadian supermarket giant Sobeys, for example, this year ramped up its Sensations line from 150 items to 1,000.

The weak economy also has created opportunities for supermarkets to do some shopping themselves for two things that have become increasingly abundant: real estate and labor. Market-leading operators with access to capital can pick and choose among the best sites available, and likewise supermarket operators can afford to take their time in making the right personnel hires as qualified talent is lined up at the door.

Retailers also increasingly need to keep their attention focused on the opportunities presented by online social media such as Facebook and Twitter. These communication mechanisms not only represent a highly affordable marketing medium, they also help build relationships with the customers of tomorrow.

Initiative 1:
Capitalize on Others' SKU Reductions

IF SKU REDUCTION is the new fad diet of food retailers, it may be time to dig in.

From Ahold's VIP program to Wal-Mart Stores' Win Play Show, chain retailers have been trimming product selection in the name of price renegotiation, simpler selection and reduced labor, plus increased bang for the marketing buck. But, observers say, the slimmer selections and de-emphasized categories can present opportunities for alert retailers willing to offer brands and products their competitors do not.

“There certainly is opportunity for retailers to talk to manufacturers who might have been cut off as a result of SKU reduction programs,” Dave Marcotte, director of retail insights for Management Ventures, Cambridge, Mass., told SN. “I haven't seen this as much in the U.S. as I have in Europe, but the opportunity is there to go to some manufacturers and say, ‘We know you're an orphan. Why don't you come in and talk?’”

Wal-Mart's nascent “Win Play Show” strategy — which focuses breadth of selection and lethal pricing efforts on categories it feels it can dominate and grow, with corresponding reductions in marketing and selections of other categories — can provide retailers who want to differentiate from Wal-Mart a chance to cash in on some offerings, Marcotte said.

“The question a retailer should ask itself is whether they want to compete head-to-head with Wal-Mart or try to differentiate from it, and most are better off trying to differentiate,” Marcotte noted.

While that does not mean a supermarket retreat from competing on a Wal-Mart “win” category such as pet food, it does suggest that there may be more opportunity to wrestle away sales in specialty categories by offering deeper selections, and more local choices than chains, in addition to advantages in fresh merchandising, to further differentiate themselves, observers said.

“I was in a Wal-Mart store in Bloomington, Minn., recently and I could not buy coffee,” David S. Rogers, president of DSR Marketing, Deerfield, Ill., told SN. “They had only three brands, and none of them were special. I think it's clear that Wal-Mart is overdoing it. They've gone too far in some places.”

According to Rogers, small chains and independent retailers with a good sense of local-brand preferences may in fact be long-term beneficiaries of the move among large retailers to cull SKUs. While those attributes are traditional strengths of the independent, he explained, they have been somewhat obscured by shifts in consumer shopping patterns due to economic stress.

“Wal-Mart is seeing some benefits as the result of the economy, but they may pay for this in a few years when the economy recovers,” Rogers said. “I think it will be a slow recovery, but there will be opportunity when it comes, and the small chain and independent are in the best position to take advantage of them.”

Marcotte said he sees discussion over SKU reductions and category emphasis shifts — and their potential effects — pointing to a new dialogue among retailers around category management. He predicts the real change will be retailers applying their own shopper insight data to bolster and refine category management practices.

“When category management began in the 1980s it was built on customer information that really wasn't available at the time,” Marcotte explained. “But in the last two years I've seen a real resurgence in people talking about category management.”

A recent example is Food Lion, which said it would begin to apply its work in customer segmentation drawn from card data not only to its stores but also to product categories within the four walls. “This will be category management driven by data and pulled by the consumer, rather than being pushed to the consumer,” Rick Anicetti, chief executive officer of Food Lion, recently told analysts.
— Jon Springer

Initiative 2:
Look Beyond Low Price to Retain Private-Brand Gains

WHILE NO food retailer would argue they wouldn't rather see customers arrive at their stores with their pockets full of money and confidence, the sour economy hasn't been entirely bad for supermarkets.

Sobeys rolled out a host of new products under its higher-end Sensations brand this year.

A pullback in eating out at restaurants has sent more shoppers to the grocery channel, and they're buying for dinner — and for lunch. A tendency to watch limited budgets has meant more shopping trips, if smaller baskets. And the economy has helped to lift U.S. retailers toward their counterparts in Europe and Canada in terms of their private-label programs.

Increased private-label penetration helps a retailer build brand loyalty, spark differentiation and tends to provide superior profits. While observers tend to see the surge in private-label sales as part of a long-term trend and not due entirely to the economy, retailers should be prepared to protect their recent gains in private label when conditions improve.

That, they say, will require retailers to associate their brands with something more than just price.

“What they need to do is get private label out of that strict price ghetto,” explained Dave Marcotte, director of retail insights for Management Ventures, Cambridge, Mass. “Private label in fact can be used to get a consumer's mind off of price, and onto other attributes shoppers can associate with the store.”

According to Marcotte, Canada retailers have tended to be ahead of their U.S. counterparts in developing and marketing private-label items.

Sobeys, for example, is growing its private brand not by shooting strictly for the value-conscious shopper, but by expanding the reach of its high-end line, Sensations.

Sobeys this year has grown the Sensations label from 150 to 1,000 products including high-velocity items such as orange juice. Sobeys officials noted this couldn't be done — particularly in a tough economy — without strong equity in the brand itself and demand from shoppers. Sensations is part of a three-tiered private-label offering at Sobeys that also includes the Compliments tier of national-brand equivalent products and a newly launched value offering called Signal. The value line is down from 1,000 products to around 250, officials said.

In the U.S., retailers are catching on. Store brands in U.S. supermarkets reached an unprecedented 23% market share in 2009, according to the Private Label Manufacturers Association, New York. Total sales of store brands increased by between 6% and 10% between supermarkets, drug stores and mass merchandisers, the PLMA added.

“Rather than a temporary effect of uncertain economic times, there are clear indications that retailers are winning new adherents to their brands — even among die-hard national brand loyalists — as more and more shoppers give them a try and find satisfaction with the high quality of the products,” the association said in a statement.

The PLMA cited a recent study by GfK Roper indicating that 91% of shoppers who switched to private brands during the past year intend to continue buying private label when the economy rebounds.

However, some retailers have recently indicated the private-label growth rate is slowing as they cycle a year of operating in difficult times — and branded manufacturers formulate their own plans to win back share through heavy promotion and other strategies.

Their efforts include heavy promotions and coupon deals, as well as the introduction of value tiers within the brand, such as Procter & Gamble's Tide Basic, Marcotte said.
— Jon Springer

Initiative 3:
Hunt for Opportunities While Space is Abundant

FOOD LION'S BID to take over Bi-Lo may be down, but it's not out.

Food Lion, which this fall submitted a bid to purchase its smaller competitor out of bankruptcy, was not included in either of the reorganization plans recently submitted by Bi-Lo or its creditors. But Food Lion will keep an eye on the process, which officials noted was “extremely fluid.”

“We're still excited about Bi-Lo,” Pierre-Olivier Beckers, chief executive officer of Food Lion's parent, Delhaize Group, said in a presentation earlier this month. That's because both potential exit plans put Bi-Lo in the hands of financial buyers, Beckers explained. “That still presents an opportunity for us, since we're still the only strategic buyer to have expressed an interest.”

The pursuit of Bi-Lo reflects an aggressive new posture from Delhaize, sparked in large part by the company's realization that the economic downturn, as painful as it has been for retailers, is at the same time the kind of opportunity that doesn't come around often.

“This is the right time for companies that are strong to accelerate their growth,” Beckers said. The effort will not come without compromise, he noted — Food Lion's growth plans will rely heavily on internal cost reductions — but will be rooted in the notion that its weaker competitors are even more vulnerable to the extra pressure the economy is bringing, and that in itself presents opportunities.

For companies with strong cash positions or the ability to borrow, real estate opportunities are evermore abundant, sources said. These opportunities are springing not only from supermarkets in distress like Bashas', Bi-Lo and Penn Traffic, but from bankruptcies of other big-box users like appliance stores, apparel retailers and restaurants. And the real estate opportunities are available almost exclusively to stronger players since lenders, even as markets thaw, are particularly sensitive to the quality of their borrowers.

“Clearly, in this environment, the good operators are going to grow and gain market share and the weak are going to continue to deteriorate. That's a near certainty, because financing is still difficult,” according to a supermarket real estate consultant who asked to remain anonymous. “Capital is in such short supply that developers can't take chances with anyone other than solid operators.”

And because the economic environment has slowed new construction, landlords and developers are working hard to upgrade the quality of tenants in their existing projects, the source added. This also favors market-leading retailers, which are being sought out to take over space as leases expire. “Owners of existing centers are very aggressively looking to improve their tenant mix, and that generally involves a new or better supermarket operator.”

Retailers are looking not only at weaker competitors to find deals but also to developers and owners of their own real estate hit hard by the downturn. Earlier this year, Kroger noted it had spent more than $115 million to buy several stores and a distribution center from its landlords over the first two quarters. “We expect additional real estate opportunities to come our way and we have the financial strength to be able to take advantage of them,” Mike Schlotman, Kroger's chief financial officer, said at the time.

This strategy takes advantage of the fact that some supermarket companies are finding financing more easily than their landlords, sources said.
— Jon Springer

Initiative 4:
With Talent Available, Take Time to Make Good Hires

SUPERMARKET retailers have rarely had this much luxury in their ability to find attractive candidates to fill vacant positions.

With double-digit unemployment and the economy in what appears to be a long, slow recovery phase, food retailers face an embarrassment of riches as they look for qualified people to run their companies.

“The industry has always lamented that it has not been able to attract top talent, but that's not the case now,” said Mark Batenic, president of IGA USA, Chicago, in an interview with SN last month. “We're not having trouble getting qualified people.”

Earlier this year, some retailers even told SN they were hiring qualified individuals despite a lack of immediate vacancies for those people to fill. For example, Associate Foods Stores, Salt Lake City, hired a store manager from Target because of the person's strong qualifications, and began training him to be a store manager in AFS' system while waiting for a store manager position to become available.

For the most part, however, supermarket companies are only hiring new workers as it becomes absolutely necessary, according to Jose Tamez, managing partner in the Denver office of executive search firm Austin-Michael.

“Adding to personnel is the last thing most companies are doing,” he said. “You would think that with all these people available, companies would be out there hiring at a reasonable rate, but they are not — hiring is going to be down, unless a position has to be filled.”

He pointed out, however, that the current environment presents an opportunity for retailers to evaluate their hiring initiatives to ensure that they are making the right decisions.

“I see a lot of holes in the talent-acquisition and training processes that companies use today,” he said. “The vetting process is not as thorough as it should be. When companies make the right hire, it is evident after a period of time. When companies make a bad hire, it is extremely painful.”

With competition for the few available jobs so intense and so few companies hiring, retailers who find good candidates can sometimes afford to take a little extra time in screening them, Tamez suggested.

“Because there are so many people out there, you have access to quality talent, and those people are not necessarily being pulled in every direction, so it may not be necessary to make a quick decision,” he said.

And while it might be tempting to look outside the industry for candidates to bring fresh ideas into the organization, Tamez noted that such hires have yielded mixed results in the industry. Some companies that have tended to promote from within and have had success doing so include Cincinnati-based Kroger Co. and Lakeland, Fla.-based Publix Super Markets, he pointed out.

“The return on hiring outside is sketchy — you have a lot of success stories, but you also have a lot of companies that haven't had success,” he said.

Supermarket companies in general also need to focus greater attention on succession planning and management development, Tamez suggested.

“They need to build more robust and deeper succession planning programs, and one of the ways to do that is to shift the paradigm they have around training and management development,” he said. “Supermarkets tend to be focused on the here and now, and dealing with the day-to-day issues that arise in a 24-7 operation. But those things are much more controllable if they have a robust and definitive and progressive succession planning and management development program that will yield results.”
— Mark Hamstra

Initiative 5:
Use Online Networks for Instant Communication

NO RETAILER likes bad word of mouth, but in the past there were limits to how far and how fast a disgruntled shopper could spread the news of a negative customer experience.

Those limits have lately all but disappeared.

With the rise in popularity of online social media networks like Facebook, Twitter and LinkedIn, a customer with a gripe can broadcast her message to millions of people around the planet almost instantly.

Retailers need to be part of those online conversations, and be prepared to mitigate the damage that those types of comments can cause, experts said.

Indianapolis-based Marsh Supermarkets, for example, has a system in place to respond quickly to online comments posted on Twitter and Facebook.

“When something happens that we feel is our fault, we have a pretty solid structure to make sure that someone that's responsible for that area is in some kind of communication with that customer as quickly as possible,” said Mark Heckman, vice president of marketing, in a recent webinar available at supermarketnews.com.

Such instant communication provides “a real opportunity to make a customer for life,” he said.

Bill Bishop, chairman of Willard Bishop, Barrington, Ill., said he sees retailers using online social media for two distinct purposes: business building and enhancing the value proposition.

As an example of the former, he cited Dorothy Lane Market's use of Twitter to send out meal suggestions to its 900 Twitter followers daily at about 4 p.m. or so.

“We know for sure that the younger generation is using this, and this holds the promise of reaching out to those who may not be watching TV or reading the newspaper as much as the previous generation,” he said.

Social media can also add value for consumers seeking detailed information about promotions and other events, he explained.

“I am amazed at the number of people who want more information in a dynamic way,” he said.

Mike Gatti, executive director of the Retail Advertising and Marketing Association, a division of the National Retail Federation, Washington, said retailers are using social networks as marketing vehicles, feedback mechanisms and for customer service, among other functions.

“You build a relationship with your consumers,” he told SN. “If you put a product out there and there's something not right about it, you can find out right away, and you have the opportunity to make a change.

“Even if you are just going onto the strands of discussions about it, you have the opportunity to see what people are saying about it and what the discussions are.”

If someone does have a bad experience with a product or in a store, and they begin to spread the word online (search for “United Breaks Guitars” on YouTube), a retailer with a strong social media presence can mitigate the situation.

“Someone can do a lot of damage in 24 hours on Facebook,” Gatti said. “But if you are there with them, you can react immediately and publicly, and say, ‘Here's what we are going to do for you.’ It may not even get to the point where they become an unhappy customer.”

He cautioned, however, that once retailers open a Facebook or other social media account, they have to commit to monitoring it and staffing it so customer comments do not go unanswered.

Retailers are also using Facebook and Twitter to disseminate marketing information, collect feedback and spread positive buzz.

Safeway, for example, has begun offering coupons exclusively to its Facebook fans, who number more than 30,000.

“The response was incredible; we're already planning lots of other great savings events,” Safeway wrote on its Facebook page after the first coupon offer in October. “We hope you'll participate!”

Many supermarkets have also been active in their use of Facebook and Twitter to monitor customer discussions about their stores, and often “re-tweet” positive messages that customers post.

Last week, for example, after a customer of Hannaford Bros. tweeted that the chain's boil-less lasagna was “great” and that they “really dig” Hannaford's products, Hannaford Bros. immediately re-tweeted the message to its 1,155 Twitter followers.

Endorsements from fellow customers who belong to online communities often carry more weight than messages in traditional advertising, Gatti said RAMA found in a recent study of so-called “mommy bloggers.”

“It's a two-way street compared with TV and radio,” he said. “It's not to the point where it will take over whatever else retailers are doing, but it enables retailers to expand their coordinated effort to communicate with the customer.”
— Mark Hamstra