CLUBS AS A HUGE BUT LOW-THREAT COMPETITOR
It has now been 25 years since membership clubs arrived on the retailing scene and, like many innovations, they started quietly but ended up causing a cacophony of competition. As you'll see in the news feature referenced on the front page of this week's SN, the first club -- Price Club -- was established in San Diego in 1976. More important, there's a useful analysis this week of where the membership-club
November 5, 2001
David Merrefield
It has now been 25 years since membership clubs arrived on the retailing scene and, like many innovations, they started quietly but ended up causing a cacophony of competition. As you'll see in the news feature referenced on the front page of this week's SN, the first club -- Price Club -- was established in San Diego in 1976. More important, there's a useful analysis this week of where the membership-club industry stands and what conventional operators can do to mitigate the competitive threat.
As you'll see in the news article about competition, many supermarket executives have become fairly sanguine about clubs, now finding them to be little more than background noise.
In reality, that may not be quite the case. After all, clubs draw maybe $20 billion in consumer spending on supermarket-related products out of the national market. In some regions, supermarkets are simply out of the running when it comes to categories such as laundry supplies and paper goods.
In any event, if relative peace now reigns, such a situation stands in sharp contrast to what was happening a dozen or more years ago. By that time in their history, there were enough clubs dotted around the landscape that they could no longer be ignored. During the period of rapid club growth, they developed several strategies to increase the sales volume they could command: Membership rules were relaxed so they could admit a larger proportion of the public, product lines were enhanced to include food-oriented service and perishables departments, and they moved away from reliance on converted spaces in industrial areas to more visible locations.
Apart from providing direct competition, clubs were among the first alternative formats to school the supermarket industry about the competitive downside posed by traditional ways of doing business. Supermarket operators reacted with a degree of alarm that had not been seen theretofore.
Many industry observers postulated that because of clubs and other competitive phenomena of the time, the days of supermarkets were numbered. The whole situation was not unlike the dustup that ensued in the industry as Internet-based retailing emerged several years later.
Many supermarket operators reacted to the advent of clubs by launching their own club divisions. Many more reacted by pressuring vendors for access to club-pack product so they could open club-like aisles in existing stores. Those demands caused quite an uproar in trade relations.
Meanwhile, clubs continued their inexorable march toward market saturation, perhaps becoming the first style of retailing to fill the market so quickly. Certainly, clubs were the first retailing format to make the leap to offshore operations and the first to use strategic mergers to grow and choke off competition.
As the club industry is now constituted, Costco Wholesale and Sam's Club constitute the chief players, with virtually all other competition -- but for BJ's Wholesale Club -- having been assimilated or driven out of business.
That combination of players may be at the root of why supermarket operators no longer see clubs as such a pointed threat. Specifically, here's why: Clubs now occupy all the ground they are likely to possess, the cost of entry is such that no further players are likely to emerge and the number of operating companies is so small that it's not hard to keep tabs on them.