LOCALIZED MARKETING WILL BE THE FUTURE OF FOOD RETAILING

David Merrefield

Numerous indications are now surfacing that the future is poised to reward a far more "granular," or extremely localized, form of food marketing.

Many of those indications were voiced by speakers at last week's Reinventing CPG Retail Summit sponsored by Information Resources Inc. (IRI) in Miami Beach, Fla. Let's take a look at some of that to see how the phenomenon is manifesting itself in various ways, including in Wal-Mart Stores' Neighborhood Market program. (A major news feature about the latter is in this week's SN.)

Change seems to be in the air since, with the exception of Wal-Mart, the growth rate of large-scale retailing -- food, drug and mass -- is fading. As Scott W. Klein, IRI's chief executive officer, told the meeting, those forms of retailing chalked up sales increases of about 2.5% last year, but if Wal-Mart were factored out, the increase would be a slim 0.5%. Slow growth is happening because shoppers are deploying a greater share of their income into necessities such as fuel and health care. Intangibles such as fear of terrorism and the uncertainty of the presidential election also depressed spending last year. All the while, consumers' choice grows. There are now about 1 million stockkeeping units of goods available in retail channels, but the average household uses only about 600 of them regularly, he said.

Romesh Wadhwani, IRI's chairman, told the group that sales and profits can be recaptured by means of localized food retailing that identifies narrow consumer needs through an appreciation of shoppers' trip mission. Retailers can specialize in disparate consumer needs, such as to stock up, to select a few items, to source a meal and so on. Understanding trip purpose can inculcate loyalty, despite the "black hole" effect of Wal-Mart, he asserted.

Meanwhile, speaker David Perdue, Dollar General's CEO, pointed out the need to not just customize assortment, but to do so in the context of providing high value. He predicted that the need for value shopping will increase because the economic viability of the Western world will start to decline in the next 10 years or so as Asian nations come into ascendency. For instance, he said, China is now attracting more foreign investment than is the United States. Indicators such as those presage a decline in consumer-spending ability in this country.

Against that backdrop, then, let's take a look at SN's news feature on Neighborhood Markets, Wal-Mart's own version of smaller-scale marketing. The feature is referenced on Page 1.

Neighborhood Markets, combination food-and-drug units of 40,000 square feet or so, may be a little more evolved and standardized than what true neighborhood marketing contemplates, but in Wal-Mart's context, they are tiny. Efforts are being made to aim then at convenience-oriented shoppers. That's one of several strategies useful to localized marketing. Most likely, Wal-Mart is rolling out Neighborhood Markets at a slow rate as it tinkers with the format to find out how much customizing to local conditions and how much product complexity is required to make the format a success. There are now 85 of them, with as many as 30 more in the works for this year.