FIVE LEADER RETAILERS GROWING IN A DECLINING MARKET

David Merrefield

Now that we're all returned from tramping around McCormick Place to see the Food Marketing Institute show, and the four other co-located shows there, our thoughts can center on sourcing some new shoe leather and reflecting on what we might have learned about the food distribution industry.

As is often the case at such trade events, more than a little workshop activity centered on how supermarket retailers are faring against other channels of trade that also offer food. Two workshop sessions can be viewed together in that regard, with one defining current reality and the other proposing a solution.

One presentation, from McKinsey & Co., showed the market share possessed by value retailers has increased from 21% in 2002 to 25% currently. The increases were attributed to a drain to value retailing "across most consumer segments, including those which have historically favored traditional grocers," according to the presenter. The prediction was that in a decade, the value share could increase to 30% to 35%. (Page 18.) Those findings square with the substance of a workshop that was presented earlier this year at the FMI Midwinter Executive Conference. At that meeting, ACNielsen presented data to the effect that consumer shopping trips to supermarkets declined from 75 in 2001 to 69 more recently.

Moreover, the McKinsey study presented last week makes it plain that even in areas where supermarkets excel, that form of retailing isn't being given proper credit by consumers. For instance, 31% of customers in a certain market surveyed thought value retailers have superior produce to supermarkets. Clearly, then, minor tweaks in price and freshness may not be the answer.

Now let's take a look at another workshop conducted by Management Ventures, which underscored that, notwithstanding the shrinkage of the traditional market, there are conventional operators -- large and small -- that have grown. The organization identified 32 "leader retailers," which together account for 88% of the growth in retailing during the past five years. Included on that roster are supermarket retailers Kroger, Publix, Wegmans, H-E-B and Ukrops. Speciality retailers Aldi and Whole Foods are also on the list. Conversely, it was anticipated that Wal-Mart supercenter growth would moderate from more than 18% from 1999 to 2004, to 14% over the next couple of years. (Page 20.)

In any event, the question remains: How did those retailers that chalked up growth during the past five years manage to do so? Well, the five growth supermarkets have in common several core competencies. They all execute well at the store level, offering, at minimum, the basics of service, selection, freshness and convenience. Several excel at some or all of those attributes. Moreover, those attributes are far from the realm of temporary image tweaks. They are central to the retailers' images, and have been for a long time. The other two retailers cited, Whole Foods and Aldi, occupy the ends of the market farthest from the conventional center. Aldi is a price-only proposition, while Whole Foods is a high-end operator that has managed to make price irrelevant.