CIRCULAR LOGIC

LUCIA MOSES

Ten years ago, Lees Market in Westport, Mass., decided to stop putting out a circular, reasoning that publishing weekly specials encouraged cherry-picking.

Managers reluctantly brought it back six months later. Not only had sales faltered, but the one-unit, upscale store's big spenders said they wanted it, too.

"They didn't care about prices per se," owner Albert Lees said. "They were looking at it as a meal planner."

All retailers fantasize about it -- discontinuing their most expensive form of advertising. With today's hot competition for the food dollar, however, it's probably needed more than ever.

"The weekly circular is one area where Wal-Mart does not compete," said Ken Wyker, president of Wyker Marketing, Charlotte, N.C., a loyalty marketing consulting firm, noting the giant chain does not print one. "Within your weekly flier, that's where you can be competitive."

Recognizing that, more and more retailers are using circulars to reinforce their store brand and forge an emotional connection with shoppers.

Pittsburgh-based Giant Eagle uses its ad to convey a price-competitive image in a cutthroat environment. Giant Eagle said customers rely on the insert to plan their shopping, a view that was reinforced by their positive response to the chain's decision to move back the ad's delivery to midweek.

Chains like Bashas' and Price Chopper supplement their price and item information with recipes, health information and nutritional facts.

"It reaches out to define Price Chopper beyond the bottles, boxes, cans and other items we sell," Mona Golub, spokeswoman for Price Chopper in Schenectady, N.Y., said of the ad.

"The circular is even more important now as we differentiate ourselves from the competition," said Diana Bejarano-Medina, director of communications and public affairs for Chandler, Ariz.-based Bashas'. "If we are communicating with shoppers and other channels are not communicating, we should win in the long run."

In strong circular markets like the Twin Cities, the weekly ad takes on even more importance. Cub Foods, Stillwater, Minn., among other things, emphasizes quantity of items to show shoppers they can get all they need there, said Monica Schierbaum, vice president of marketing, advertising and public relations.

At Market Place, a group of 44 independently owned stores in western Washington state, stores use price to distinguish themselves from the Safeway, Albertsons and Kroger stores in its trade areas, particularly since units do not operate strong perishable departments. The group promotes traffic-drivers like cereal and detergent, and occasionally runs coupons and stockup sales.

"Our story is, we're plain, simple and give you value," said Bill Young, Market Place president and general manager.

Because they often serve as the cornerstone of a retailer's differentiation strategy, meat and produce typically dominate the front page. It's trickier promoting Center Store, where items often aren't distinctive.

In the case of Cub, the ad leads with perishables, but also gives substantial space to grocery, often carrying bakery and beverage sections and calling out the quality of its private label.

"We try to push variety in the number of items to get that whole grocery trip," Schierbaum said. "We like to represent all different categories people would buy on a typical day."

Bert Hambleton, a Seattle-area consultant, said that with the rise of stores like Whole Foods Market that use no or few circulars, he's seen more conventional retailers such as Wegmans Food Markets use what he calls "placeholders" -- ads that emphasize editorial content and downplay price and item. He cautioned retailers that this approach cannot substitute for a comprehensive marketing campaign.

"It isn't marketing," he said. "You're not distinguishing yourself with this stuff."

Linda Baker, senior vice president of consumer and retail insights at the J Brown Agency, Plano, Texas, saw such placeholder-style ads as a response to Wal-Mart Stores, which occasionally runs thematic circulars to promote a holiday or sales event, way ahead of traditional supermarkets.

If competition is spurring retailers to rethink the role their circulars can play, it's also causing manufacturers to act more strategically. Baker said that while the typical circular still garners a lot of trade support, packaged goods makers may put their money toward fewer, but larger promotions that will make a bigger impact.

"The stakes have gotten a little higher," she said. "People who pay the money are expecting great volume and lift."

Retailers have little to go on if they want to know what shoppers want in a circular. Studies have shown shoppers like circulars packed with lots of items, hot deals and colorful photos of prepared meals. Hambleton, who has surveyed consumers on their shopping preferences for 25 years, said the answers change based on who the market leader is, though.

"If you come across to the consumer as giving good deals, then people are going to say you have a good ad," he said.

If shoppers are ad-conscious, an item-price circular seems the way to go, though such decisions are less clear-cut today, Hambleton added.

He believes that discount-driven shoppers make up a smaller percent of total shoppers -- 15% vs. 20% 15 years ago, he estimated -- because today's increasingly health-conscious consumers care more about product quality. Research by Baltimore-based targeted marketing firm Vertis indicates an 8% rise over the past four years in the percentage of men who use ad inserts or circulars to decide where to shop for groceries, to 50% in 2004. Retailers may need to rethink their ads' message in light of this shift in audience.

Circulars themselves have also changed, from a long broadsheet to tabloid size, and shifted delivery to earlier in the week. While newspaper-delivered ad inserts still account for more than half of the industry's ad budget, retailers are increasingly using direct mail.

Many retailers also publish their circulars online. Stop & Shop Supermarkets, Quincy, Mass., goes one step further, letting shoppers create an online circular that displays only items they've bought before.

Retailers that change too much risk backlash, however.

When Bashas' tried to narrow its ad's distribution to areas close to the store, customer complaints caused it to reconsider.

Lees once converted from a price-item ad to a newspaper-style flier that was laden with recipes and articles. Customers found it made the already-upscale store seem too exclusive, though, and Lees went back to its traditional ad.

"We weren't hitting a chord with customers," recalled Lees, the owner. "Their frame of reference is item-price."

The item-price weekly ad, for now, seems here to stay.

"I think that change with customers is glacial," Lees said. "I do think that even your most loyal customers need a reminder that you're fair priced."

Is There Life After Circulars?

It sounds impossible, but Dorothy Lane Market in Dayton, Ohio, showed it could drop its weekly ad and still thrive.

The upscale, three-store operation "literally fired" 15% of its customers when it dropped its circular in October 1995, said Tom Winter, vice president of marketing there.

By aggressively targeting frequent shoppers through a now widely admired loyalty program begun four months prior to the circular's elimination, sales actually jumped 10% after the ad ceased, he said. The increases have leveled off, but sales are still growing, he said.

Today, 65% of Dorothy Lane's shoppers are enrolled in the program, and about 88% of sales are card-based, Winter said. Members are courted through mailed coupons that are tailored to their spending history and offer highly competitive deals. Winter said customers redeem those coupons at a rate of 35% or higher.

Dorothy Lane hasn't quit advertising entirely. It sends a monthly newsletter to shoppers. It occasionally runs newspaper, TV and radio ads, to let people know "we're still out there," Winter said.

Dorothy Lane managed to pull off such a bold move because it's not a typical grocery store, and its customers don't expect it to behave like one. Not so for conventional retailers. Bert Hambleton, a Seattle-area consultant, once estimated that Safeway would lose 15% of its sales if it dropped its circular.

There's no guarantee Dorothy Lane will be able to stick to its strategy, though. In addition to Meijer, Kroger and Cub Foods, the market now boasts one Wal-Mart Supercenter, and Winter said seven more are planned. Dorothy Lane may have to run more institutional ads to keep up, he said, adding, "Hopefully we won't have to go back to a circular."