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CHRISTINA VEIDERS Additional reporting: CHAPIN CLARK JOEL ELSON

The statistics alone serve as a powerful motivator for supermarkets committed to big volume, high-profit general merchandise categories.

Of the $148 billion in nonfood sales last year, both in general merchandise and health and beauty care, grocery continued to lose seven share points at the rate of an estimated $500 million in gross profit per point, according to a study on consumer purchasing habits presented by the American Greetings Research Council, Cleveland, during this year's FMI convention.

Last year, mass merchandisers surpassed grocery as the preferred shopping channel for nonfood purchases, the study noted.

While there is little indication that the tide of nonfood sales to mass merchandisers will cease, the grocery industry is making attempts to plug the overflowing dam.

Among some of the tactics supermarkets are pursuing to retain their sales volume in the six categories analyzed in this report are:

To capitalize on the seasonal opportunities that many big power categories like batteries, photo/film and greeting cards, afford throughout the year;

To make a category statement by creating a destination department; * To take advantage of cross-merchandising opportunities in the food aisles and stimulate greater impulse and incremental sales.

Last year, the General Merchandise Distributors Council released its "Seasonal Best Practices" study that the industry heartily embraced as a way to standout from the offerings found at mass merchandisers and create additional excitement in the store.

"Seasonal general merchandise is a broad product offering that has become a more important area of activity for supermarkets. It allows retailers to compete with the mass merchandisers and retailers," said Jerry Barnes, vice president for member affairs and education at GMDC, Colorado Springs, Colo.

The study estimated the potential for general merchandise seasonal sales at 0.5% of total supermarket sales, or $1.5 billion, based on 1995 data. General merchandise seasonal gross profit dollars was conservatively put at 27.5%.

"Seasonal general merchandise offers retailers a tremendous opportunity to cross merchandise in other areas for added exposure. This creates excitement, and the one-up the supermarket class of trade has over the mass merchandisers, which normally aren't doing this as much or with food," stressed Barnes.

At this year's GM Marketing Conference, Sept. 12 to 17, in Monterey, Calif., the results of the second phase of the study will be presented, focusing on back-to-school, Halloween and Valentine's Day.

Chains such as Wegmans Food Markets, Big Y Supermarkets, A&P and Fred Meyer Inc. also are going head to head with category killers in the $1.5 billion pet supplies industry by creating either self-contained or stand-alone destination department.

In other categories, such as greeting cards, housewares, photo/film and the seasonal aisle, retailers have become adept in making big statements in nonfood by devoting the space, signage, merchandising and promotional support needed to be competitive in these nonfood segments.

Except for seasonal, the five power categories examined here produce about $2.6 billion in annual sales for supermarkets. Sales volume of the five categories totals $16 billion among all mass channels of trade, giving supermarkets a 15% share of the business.

The following is a brief review of six power categories and trends affecting sales at supermarkets.

Charging Up

In the supermarket channel, the battery category is beset by confusion, according to retailers, industry experts and the results of a recent market study.

Even though sales are up -- 7.3% in the $1.9 billion category -- consumers remain oblivious to efforts by manufacturers to woo them with technological innovation, say retailers, efforts that have cost market leaders Duracell and Eveready millions of dollars.

Brand identity and value-added features are on the minds of manufacturers, while consumers are thinking price. Retailers, in turn, are stuck in the middle.

Supermarkets' growth in battery sales at 2.4% was greatly outpaced by both drug stores (7.7%), and mass merchants (9.8%) for the 52 weeks ended Dec. 28, 1996, according to ACNielsen, Schaumburg, Ill. Grocery garnered a 25.7% share of the battery market or $502 million in sales

"Other than at Christmas, I don't think supermarkets are doing the off-shelf displays needed to make consumers trip over the product wherever they go in the store," said John Massaua, senior vice president of purchasing and merchandising for Leicester, Mass.-based Millbrook Distribution Services.

As SN reported in February of this year, in response to expensive introductions of on-battery testing mechanisms by both Duracell and Eveready, consumers were not just unmoved, they were unaware.

"While a new technological innovation may be a nice novelty for consumers, I don't know if they're going to make a difference in terms of sales," said Nelson Rodenmayer, a marketing director for Jacksonville, Fla.-based Winn-Dixie Stores' Midwest division. "In my experience it's been a nonissue."

"Winning the Battle of Consumer Perceptions," an American Greetings Research Council research project, and the results of which were announced in May, found that customers didn't notice the changes made to battery offerings in 36 test stores, even though average sales increased 21% during the test period.

"Everybody wants to play the brand conquest game," said Michael Shinall, partner, Meridian Consulting Group. "There are so many stockkeeping units now, and retailers feel obliged to stock everything. It doesn't smack of good category management.

"The battery companies need to take stock of what kinds of batteries consumers are looking for in a certain place," he continued. "What have they done uniquely for the food class of trade? I'm not seeing anything."

Shinall cited wild retail price swings not tied to any kind of coherent event strategy as another negative in the category.

"I don't think supermarkets have gotten it as far as price," agreed Massaua.

One retailer, Ray's Food Place, Brookings, Ore., has achieved success with low-price lesser-brand batteries in its destination-stop bargain departments, offering two-count packs of alkaline C or D batteries for 98 cents, compared with the same pack by Duracell or Eveready for $2.99.

And at the beginning of the year, Winn-Dixie Stores, Jacksonville, Fla., introduced its own private-label battery, Power Charge, which is priced below both Duracell and Eveready.

Turn of the Card

While greeting cards yield high profits for supermarkets, unit sales continued to be flat due to consumer resistance to higher card prices.

Last year, total category sales volume reached $7.04 billion. Grocery took a 15.3% share at $1.08 billion. Drug stores' share was 20.3% of the market with $1.43 billion in sales and mass merchandisers captured 22.2% of the market with $1.56 billion in sales. The remainder of sales was generated by the specialty card shops and department stores, according to figures supplied by Hallmark Research, Kansas City, Mo.

While dollar sales were ahead by 3.8%, units were slightly off by 0.9% to 6.6 billion units.

As a result of sluggish unit volume, the three major suppliers all initiated new marketing initiatives to help spur greater greeting card usage. They have responded to shoppers' need for lower prices by offering value-priced cards.

Hallmark, Kansas City, Mo., is betting on the brand equity it has built with the Hallmark name with its Expressions From Hallmark brand. Giant Food, Landover, Md., was the first supermarket chain to convert to the Expressions line this year. Other major chains like American Stores Co., Hy-Vee Food Stores, Kroger Co., Safeway and Wegmans are following.

Gibson Greetings, Cincinnati, Ohio, touting itself as the relationship company, has tried to break out of the traditional marketing and merchandising of the social expressions industry by coming up with a new product offerings hat targeted to different consumer age segments.

It launched Ripple Effects earlier this year, an alternative line designed for a younger demographic. The company also has invested heavily in licensed theatrical film products to enhance its entertainment merchandising concept and add excitement in stores. In addition, Gibson is introducing new licensed toys that have "play" value targeted to children.

American Greeting, Cleveland, is in the process of revamping its card line based on nine trends it identifies as shaping consumers' communications needs. Under the theme "The All American Way," American Greetings will redesign 80% of its card line over the next year.

"It is probably the most significant repositioning of greeting card content in memory," said Ed Fruchtenbaum, president and chief operating officer of American Greetings.

These initiatives have been positively received by grocery retailers, who when questioned, endorsed the efforts of their individual suppliers.

Building Housewares

Although competition from mass merchandisers and specialty stores is stiff, supermarkets are finding ways to take a bigger piece of the housewares pie.

According to ACNielsen, Schaumburg, Ill., of $4.1 billion in multi-outlet sales of housewares and appliances in 1996, supermarkets accounted for only a 4.6% share, compared with 11.9% for drug stores and 83.5% for mass merchants. Supermarkets generated a total of $189 million sales.

The good news for retailers in the food channel is that growth in housewares and appliance sales, at 12.2%, outpaced that of drug stores (8.3%), mass merchants (11.1%) and even the category as a whole (10.8%).

"I think every supermarket needs to concentrate on housewares just for the profit-building potential," said Vern Moore, director of general merchandise and health and beauty care for W. Lee Flowers & Co., a Scranton, S.C.-based wholesaler.

He added that housewares typically account for 40% of all general merchandise and HBC sales in supermarkets.

The intelligent cross merchandising of housewares is key for supermarkets, where the category remains impulse-driven, but stores have found that there is more than one path to success.

Some, like Dayton, Ohio-based Dorothy Lane Market, are boosting sales by capitalizing on the healthy-cooking trend, introducing more upscale kitchenware sections with better-quality gadgets, tools, cookware and cutlery.

D'Agostino Supermarkets, Larchmont, N.Y., has discovered the potential of in-store cooking schools, long a staple in gourmet and specialty stores, and is starting one at its Rye Brook, N.Y., unit. The space in front of the school is devoted to such items as wine glasses, espresso machines, casserole pots and mixers.

However, Hannaford Bros., Scarborough, Maine, prefers to keep things simple, with 16- to 20-foot housewares sets focusing on basic items.

"We avoid getting into large kitchen plastics, furniture, electric appliances and other departments sold by the category killer stores," said Mike St. Claire, category manager for housewares. "We make more of a subdued statement in basic items that shoppers buy either planned or on impulse."

Mike McLaughlin, vice president of marketing for kitchen and bakeware manufacturer Bradshaw International, Santa Fe Springs, Calif., said supermarkets have greatly improved the quality and servicing of their housewares displays, offering better-made and more permanent racks and using clip strips to stronger advantage, which has led to more impulse sales.

McLaughlin, who said about 60% of Bradshaw's estimated $45 million in annual sales come through the supermarket channel, cited Hannaford Bros., Price Chopper Supermarkets and Kroger as leaders in merchandising housewares.

Genuardi's Family Markets, Norristown, Pa., which also offers cooking classes, is now rolling out a new housewares merchandising concept that includes new fixturing, better presentation and improved department placement.

"This will be part of a stronger effort to combat the growing housewares competition from the mass merchandisers and discounters," said John Stahl, GM and HBC director. "With a little more imagination, we can present the products with a lot more eye appeal and friendliness."

Paws & Claws

Pet supplies, such as flea and tick spray, collars, rawhide chew products and small animal accessories, are rapidly transforming into a power section for supermarkets.

Retailers are expanding their traditional 4- to 12-foot pet care sections into larger sets with more complete offerings in an abundance of fashion colors and styles, to cash in on an industry that has grown to $20 billion.

Indeed, in the past year or so chains like A&P, Montvale, N.J.; Big Y Foods, Springfield, Mass; Victory Supermarkets, Leominster, Mass.; and Acme Markets, Malvern, Pa., have dedicated additional space to large pet care centers, touting weekly department specials in ads and store flyers.

When it comes to their pets, consumers are buying higher priced items with an eye on fashion, such as brightly colored collars, leashes and other accessories -- some priced up to $100.

According to Information Resources Inc., Chicago, pet supplies make up a growing category that increased 3.3% to $1.5 billion in sales for the 52 weeks ended March 30.

The food channel share, however, dropped 0.2% from year ago to $467 million, while drug stores decreased 8.3% to $69 million. On the other hand, mass merchandisers moved up 5.8% from year ago to $1.04 billion.

The pet care segment has become a crucial part of general merchandise variety for supermarkets, retailers told SN. ShopRite operators in several Mid-Atlantic states, for example, now devote full-aisle or front-perimeter alcoves to pet care, of which about one-third is devoted to expanded pet accessories.

About 80 ShopRite stores now offer these enlarged pet supply assortments, according to Laura McCafferty, a spokeswoman for the Elizabeth, N.J., based Wakefern Food Corp., ShopRite's cooperative wholesaler.

ShopRite stores began allocating additional selling area for pet general merchandise as sales of slower moving grocery categories, like canned food, have slowed, according to George Zallie, chief executive officer of Zallie Supermarkets, Clementon, N.J., which is also supplied by Wakefern.

Devoting up to 36 feet of selling space to accessories has boosted pet supply sales by about 15% to 20% at five retailers sourced by Associated Wholesalers nonfood depot in York, Pa., according to Charles Yahn, Associated's vice president of general merchandise. "Pet supplies is a major category. In the six months that these larger sets with their wider variety have been up, pet supplies has become more of a destination department at these retailers," said Yahn.

Pet supplies also have become a more important part of supermarket nonfood overall, added Yahn. "Especially so after mass merchandisers like Kmart and Wal-Mart and some drug chains began going after that category with new or expanded pet care sections."

With margins in the 35% range, pet accessories can offset the lower profit returns and hot pricing that many supermarkets use in attracting dog and cat food customers, added the wholesaler. "Shelf pricing is higher than a few years ago. You're now seeing some accessories, such as fish tanks, priced at $19.99 compared with a few years ago, when if we went over $4.99 on some of these supplies, we thought shoppers would think they're too high."

Photo Snapshot

Much like the battery suppliers, the photo/film companies have invested heavily in new technology that is slow to take off at retail.

For the 52 weeks ended June 22, film sales are off at all three channels of trade, down a total of 2.6% to $1.7 billion, according to Information Resources Inc., Chicago. Supermarket and drug store sales dropped 3.3% to $331.6 million and $590.8 million, respectively. Mass merchandisers were off slightly, 1.7% to $730.1 million.

The advanced photo system, launched more than a year ago, is getting additional advertising support from the leading manufacturers this year in an attempt to stimulate sales. According to Ted Fox, operations officer at Photo Marketing Association, Jackson, Mich., APS film sales have captured a 2.5% share of the market tracked through May 31.

Fox also mentioned that the cold, wet weather that dampened most of the eastern and midwestern regions this spring may have had an effect on consumers' picture-taking activities. The association expects an "up tick" in film sales in the fourth quarter.

Meanwhile, retailers like Rick Channel, director of general merchandise and health and beauty care at Riser Foods, Bedford Heights, Ohio, remained confident that technological advances, such as higher speed films, will eventually pay off at retail.

"The aggressive marketing support that manufacturers are putting behind these products should motivate consumers into taking more pictures," he said.

'Tis the Season

Seasonal general merchandise has become a more pronounced cutting-edge strategy for supermarkets to compete against mass merchandisers and drug chains.

The excitement created in stores through seasonal promotions offer retailers new impulse sales opportunities and the opportunity to become a focal point for general merchandise, agreed nonfood executives.

"Promoting seasonal nonfood is one reason for customers to remain in the store instead of going to other retail outlets for these items," said Jerry Barnes, vice president for member affairs and education at GMDC.

"[Moreover], grocers in the past kind of threw up their hands and let a lot of this seasonal business get away from them. They felt they couldn't get their normal high point. They now realize general merchandise promoted seasonally is a reason for shoppers to come their stores. And it's still good gross profit in the 20% range," Barnes added.

Supermarkets are now selling out a lot more seasonal promotions faster with fewer leftover items, using markdowns to clear out products and open space for the next scheduled promotion, said Barnes.

"Every season is a little different. Easter markdowns start earlier. At Christmas, you'd mark down wraps earlier, but the process starts later for toys and gifts," he added.

Seasonal general merchandise accounts for 20% to 25% of annual general merchandise and HBC sales at high performance supermarkets, and to a lesser extent at conventional retailers, said Ron Turner, vice president of general merchandise at Richfood Holdings, Mechanicsville, Va.

"In the past few years, seasonal general merchandise has taken off like a sales meteor," Turner said.

According to the Richfood executive, retailers need to sustain this growth."Seasonal nonfood promotions are needed for their margins and for the sales excitement they bring to the store," he emphasized.

"I think everybody is saying, 'How do we do more of this?' because that's where we'll build the business. High performing supermarkets have the format to devote sufficient selling space to their seasonal general merchandise programs." said Turner.

On the other hand, the smaller, conventional supermarkets "still have a bit of a struggle due to limited selling space. But, obviously, that space is there and available if the store wants to commit to seasonal and [the nonfood department] fights harder for [space]," he said.