Format Specialization Proliferates Here and Abroad

As has been noted in several recent news articles in SN, and in this space, a quiet but profound change in how food distribution companies present to consumers is well under way.

The change is that retailers are moving away from the mass-market approach. From the inception of the supermarket concept and continuing to recent time, the supermarket was presented as a large shopping venue to which shoppers would go to obtain nationally advertised branded goods, and similar private labels, at low prices. This model was driven largely by expert buying strategies that would produce large quantities of product at low acquisition cost. The model didn't admit to much customization to local conditions. It was understood by supermarket retailers that although their stores might not appeal to every shopper, they would appeal to more than sufficient numbers of them. Moreover, for the most part, shoppers who might have preferred more local marketing didn't have much alternative anyway.

Now, that efficiency- and buying-driven model is changing as many supermarket chains are pursuing niche marketing by individualizing stores in accordance with their location and shopper preferences. This is being done either under a company's core banner, or by rolling out new banners. Examples of companies involved in this include Food Lion, Safeway, Wal-Mart, Publix and a host of others. (For more on the last, see Page 35.)

As it develops, good concepts such as this tend to spread widely and rapidly, even to the point of going back and forth across the Atlantic Ocean. Indeed, as was noted in last week's SN, companies other than those operating in this country are moving toward format differentiation too.

One example of this is Carrefour, the French retailer. That retailer ranks as the second largest in the world, after Wal-Mart. Carrefour, largely known as a hypermarket operator, has developed an “express” format that's much smaller than its sprawling hypermarkets. The format is intended for use in residential areas, but still hews to Carrefour's low-price policies. Carrefour is also pulling out of several countries in order to focus on more promising areas, and to move more toward greater use of its core Carrefour banner.

Auchan, another French hypermarket operator, which is ranked as the world's seventh-largest retailer, has developed the “Self Discount” format featuring nonfood items and random-weight produce sales. The format is intended to compete with hard discounters Aldi and Lidl. Auchan also developed the “Little Extra” format that's similar to a dollar store. Price points are denominated in full-euro units. Little Extra is divided into product areas such as cuisine, office supplies and a children's play area. Both concepts were tested briefly, they rolled out rapidly to good success.

As another news article in last week's SN pointed out, part of the motivation to establish specialized formats has to do with the maturing of markets. One executive of Metro Group, Germany, told attendees at a conference in London, “When it's a ‘greenfield’ [country], you just put the stores down, but when it's a mature market, then you'd better listen to the customer. You have to change from a pure buying company to [one that is] consumer-centric.”

This is good advice whether developments are going into greenfields or brownfields.