SHOPPERS' ROLE IN THE WAR FOR GROCERY

David Merrefield

Even the food-distribution industry has its myths. This week I'll refer to one of the industry's most enduring myths, using the classical definition of the word: A myth is a traditional story that's told repeatedly, accepted as history, and which explains a group's world view. A myth may be true or false.

This myth concerns how -- over a period of years -- supermarkets lost the battle for consumer packaged goods sales, and how sales drained to other channels. This is a frequently told tale. Indeed, it arose in various ways no fewer than three times in the space of two days during presentations at a trade show I attended last month.

But the story is one that often leaves out consumers' role in the drama. I was gratified to notice that during those presentations it did come up. So this week, let's review the myth and acknow-ledge the consumer dimension.

Much of the decline in Center Store sales at conventional supermarkets -- the story goes -- has to do with discount stores, and the different way CPG behaves in that channel. More specifically: Supermarkets long used perishables department features to build traffic, often by offering strong promotions of the meat department. But when discounters started selling CPG product, they had no perishables department to promote. Instead, they offered strong price-point reductions on CPG product.

So each class of trade started treating CPG differently: Discounters offered low CPG prices, while supermarkets focused promotional efforts elsewhere. More than that, discounters' price reductions became the driving force in making logistical improvements. As discounters found methods to make it less and less costly to land CPG goods on their shelves, they offered better and better price points.

During this process, many supermarket operators failed to recognize discounters' prices. To the extent they considered price competition at all, they made sure they were priced right against competing supermarkets.

At the same time, CPG manufacturers weren't blind to what was going on. Many decided that if supermarkets weren't going to take their goods seriously, they would throw assistance to the trade class that would, namely discounters.

Now, as if all this wasn't bad enough, other classes of trade started to see what was going on and cut in CPG selections, too. Soon, discounters were joined in the CPG-selling business by drug, membership off-price and so on. About then, discounters noticed that their CPG business was facing a more direct assault, and so moved to supercenter retailing. In so doing, they posed an even more severe competitive threat to conventional supermarkets since they added perishables too.

So that's what we've come to now: Center Store product is in decline at the rate of some 2% per year in conventional supermarkets, and that's been the case for about 10 years now. Shoppers have learned that CPG product generally is priced so much more inexpensively at mass that it's well worth the trouble to make a separate stop on shopping day to load up on CPG product there.

One of the presenters I mentioned previously who cited parts of this tale suggested that a new generation of shoppers exists that's only dimly aware that supermarkets offer core CPG products, such as laundry and paper, at all.

That's the upshot of "insult pricing," he asserted. And that's no false myth.