NEIGHBORHOOD SUPERMARKETS TAP GROWING 'MIDDLE' NICHE

DAVID ORGEL

WASHINGTON - It's an often-repeated declaration from academics and other "experts" who follow the food retailing industry. Supermarkets, they say, are increasingly being squeezed because they are caught in the middle between upscale and downscale retailers.

Tim Hammonds, president and chief executive officer of the Food Marketing Institute here, begs to disagree.

"All of the business school articles aside, the death of the middle has been greatly exaggerated," Hammonds said, with a nod to Mark Twain.

In fact, he added, many of the most successful companies are now intentionally positioning themselves for the middle niche. This is particularly true with the independent retailer community.

"The middle is where a lot of growth is happening right now," he said. "That's pretty exciting for a lot of wholesalers and their independent operator customers."

Hammonds was interviewed by SN in advance of the FMI Show, May 7-9 at McCormick Place in Chicago. He discussed the upcoming show and industry outlook, including the current positioning of retailers.

Asked to define this middle positioning, Hammonds described a type of store that hasn't pushed its format to one of the extremes.

"It's probably what we used to define as just an average supermarket," he said. "Not one that's gone all gourmet, all natural or all carry-out food. Not one that's extremely price-oriented without service. It's something more in between: the local neighborhood supermarket. There are families that don't want to go to a huge store and like the more neighborhood-friendly size."

Being in the middle doesn't mean these stores are standing still. They are updating themselves for consumers, he said.

"These stores have seen some reinvestment with things like the appearance of the stores and fixtures. The refrigeration is state of the art."

Moreover, these stores in the middle have adopted some elements of retailers on the extremes. "If you were caught in the middle with nothing special to offer, then you'd have a problem," he said. "But you can serve the middle market while also having some upscale and ready-to-eat foods, carry-out, dollar aisles. Part of your store can serve the budget conscious. So, in serving the middle market you can bring some elements of whichever you choose: either the price-oriented or the upscale end. In some markets, retailers will be mixing the traditional shopper with the new ethnic shoppers."

Hammonds observed that independent operators have done a good job of creating market niches to boost their competitive positions. However, that's also true of the industry as a whole, he said.

"That may be because some of the companies that haven't been able or willing to do that have been pushed out of the industry and the ones left are naturally selecting for being able to find a unique kind of niche."

The imperative to find niches has led companies to shed non-core parts of their businesses, creating acquisition opportunities for operators in local markets, he said. "I think consolidation and spinoffs will continue as companies decide what their focus and niche are going to be."

Associations are also identifying new niches. Hammonds said that for a long time, the activity at the Chicago convention revolved around major suppliers meeting with large retailers. "But today large manufacturers have salespeople stationed full time at the large retailers," he said. "So the convention has evolved more into a forum in which large manufacturers are becoming more focused on the medium-sized regionals and the independent operators, particularly in partnership with the wholesalers that serve them."

The same is true in reverse: Large retailers at the show are seeking out "more innovative, smaller suppliers who they don't see every day. It's an exciting new level of dialogue that we haven't seen before."

This dynamic is boosted by the presence of the trade shows co-located with the FMI Show, including the Fancy Food Show, All Things Organic, the United Produce Expo and Conference, and the U.S. Food Export Showcase, he said.

At this year's show, FMI will focus on how the industry can benefit overall through working closely together. One of those chief areas is the battle over bank-card interchange fees, which will be covered in educational sessions, Hammonds said. The industry has complained about the soaring costs of those fees and has brought other sectors of retail into the battle, including the convenience store industry and some drug store and general retail companies. The goal is to involve others as a full battle plan is formulated. That strategy will focus on a three-tiered approach with legal, regulatory and legislative options, Hammonds added.

Another topic that falls under the "working together" theme is reacting to the fear of avian influenza, which will be addressed at the convention, Hammonds said. Expectations are that migratory birds with avian flu will arrive in the U.S. in the next six months, he said.

"At that point, whether or not it has spread to commercial flocks, we're going to see consumers asking a lot of questions about poultry: 'Is it safe to eat?'"

Hammonds said the industry needs to start now by educating consumers, the media and retail employees. Otherwise, the result could be severe drops in poultry consumption along the lines of what happened in Europe, he said.

"So, we need to prevent that panic as a total industry. And the answer, of course, is that you cannot get avian influenza from properly handled and cooked poultry. Period. End of story. We must say it early and often."

He added that companies should develop contingency plans for the possibility that the avian flu develops into a human transmissible form.

Also on the industry partnership theme, FMI will promote a campaign that relays the value of eating meals at home with family. The campaign is in partnership with CASA - the National Center on Addiction and Substance Abuse at Columbia University, New York - which sponsored independent research showing that family meals at home can help reduce the likelihood of substance abuse in kids. The industry will try to get this message out to consumers and the media, with much of the focus centering on September, which is food safety month and includes a family-meals-at-home day.

This year, the FMI Show will switch its Speaks educational session from Sunday to Monday morning, turning over the Sunday slot to a keynote presentation by Ted Koppel, the former anchor of Nightline and an ABC veteran.

This will be the first FMI Show since the association decided last October to continue running the event itself rather than taking on a partner. FMI also announced that its Marketechnics retail technology show will be co-located with the main FMI Show beginning next year.

Asked about the future of Chicago as the continued location for the FMI Show, Hammonds conceded that the association is still considering other options. However, he said the challenge is to find a location that has adequate convention space and hotel rooms and is convenient to air connections.

There is a possibility that this year's convention will coincide with an important legislative moment for the industry in Congress. FMI has been a leader in the battle to permanently eliminate the estate tax.

"We believe that will come to a vote early in May, probably while we're at the convention," Hammonds said. "That will be a possible opportunity for us to mobilize people at the convention to write letters."

FMI is still promoting permanent elimination of the tax, "and we believe it is a fight well worth fighting." However, success on that front is still an uphill battle, so FMI is prepared to shift strategies if a vote for permanency fails, he said.

"There would be a quick move to negotiate a compromise that would put in place much lower rates and more favorable rules," Hammonds said. "We've been working very hard to position FMI as part of those negotiations should we reach that point."