How Longtime Rivals to Supermarkets Pose New Threats

Some retail formats are becoming the Hillary Clintons of the food industry. They were counted out as major threats to supermarkets, but they are bouncing back as re-energized competitors.

That’s the case with SuperTarget, which hasn’t represented a big challenge to supermarkets because, unlike Wal-Mart, it never made a significant commitment to roll out its food-heavy format.

At present, the company operates only 210 SuperTargets, compared with 1,600 stores overall. But, as a story on Page 12 this week points out, Target, which unveiled its first supercenter in 1995, is committed to accelerating unit growth and increasing the role of food in all of its stores. Target won’t become a national supercenter operator anytime soon, but it will become a more powerful regional competitor.

Target’s plans raise concerns for supermarkets because, compared to Wal-Mart, Target’s customer base and merchandising approach are much closer to those of grocery stores. All of this means that “supermarkets would have to raise their game” to differentiate themselves, noted one observer quoted in the story.

Limited-assortment stores are also posing a bigger challenge to supermarkets as they try to capitalize on the troubled economy. These retailers, which include Aldi and Save-A-Lot, typically cater to lower-income consumers with a small range of products. They often fall off the radar of supermarket executives because they are seen as a niche operator. But they should now be tracked more closely as they more aggressively try to grow share of market. Aldi, which operates close to 900 U.S. stores, recently unveiled a program in the St. Louis area to lower everyday prices on more than 100 top-selling items, an initiative that could be rolled out to other markets. The program is reportedly aimed not only at Aldi’s core lower-income customer base, but also at conventional shoppers that might trade down.

Meanwhile, Save-A-Lot is enacting new marketing initiatives to boost its share among lower-income customers. These initiatives include refurbishing in-store departments, boosting healthy product assortments and expanding local produce programs.

Any list of re-energized competitors to supermarkets has to include the king of supermarket rivals, Wal-Mart, whose clout had seemed to wane recently. Wal-Mart is now trying to reinvent itself by returning to its low-price roots. The company recently said its inflation pass-along to consumers is less than its competition, made possible by increased efficiencies. Its highly competitive pricing stance is leading to increased consumer loyalty, and the company may be on its way to reclaiming its undisputed price-leadership image.

Supermarkets did a great job remaking themselves into more sophisticated and targeted merchandising outlets in the past couple of years. Those changes came after years of struggling. Today many supermarkets are enjoying the fruits of this better positioning and are benefiting from customers buying more food for home consumption in a difficult economy. One of the biggest dangers is that grocers could become too comfortable with the current competitive dynamics. Supermarkets need to regularly re-evaluate retailers such as Target, Aldi, Save-A-Lot and Wal-Mart to avoid engaging in competition with outdated battle plans.