THE MEAL TICKET

DAVID MERREFIELD

WASHINGTON -- The battleground for the home meal replacement segment of the food business is where the future of the supermarket industry will be decided to a large degree, according to Tim Hammonds, the Food Marketing Institute's president and chief executive officer. "Learning how to fight in the HMR market is key to the survival of the supermarket industry," Hammonds said. "It is very difficult for me to look ahead and see stores not in this game, to one degree or another, within five years."

Hammonds' opinions on the HMR business -- and on several other factors he said are poised to change the supermarket business in upcoming years -- were expressed in an interview here with SN conducted prior to FMI Midwinter Executive Conference. That conference started in Boca Raton, Fla., yesterday and continues through Wednesday. The agenda at Midwinter includes a look at industry trends by means of a report from McKinsey & Co., under the sponsorship of Frito-Lay. Another session will focus on how to improve retailer out-of-stocks with a study by Andersen Consulting sponsored by Coca-Cola Retailing Research Council. In the pre-Midwinter interview, Hammonds said supermarkets must act fast to accommodate the challenges posed by HMR operators, a business style exemplified by outlets such as Boston Market, Kenny Rogers and others. And, he said, independents are particularly well positioned to fight the HMR battle.

"If supermarkets don't take steps to play in the HMR game, there are lots of competitors in the market now, coming from the fast-food side of the business, that are ready and anxious to take that business. "Also, supermarkets with an HMR department, I think, are in the best place to fight against very large store formats, like the supercenters. "HMR offers a positioning from which operators of any size can benefit. In fact, this is one area where an independent operator perhaps even has an advantage. "That's the case because, from the consumer's point of view, consistency is what counts. When consumers they say they want 'quality,' they don't necessarily mean they are looking for the best product they've ever tasted. What they mean is they want to buy a product they know; they want to be confident what they get will be of the quality today, tomorrow and a month from now. "In the supermarket industry, we have trouble delivering that consistency. And for a large company that has a lot of stores, it may be even more difficult because operating many stores magnifies the problem of how to deliver consistency economically. The answer may be to take production into a central-preparation commissary, then distribute to stores. "Independent operators -- the one-, two- or three-store operator -- can do preparation in-store. They don't have that logistical challenge. Their ability to deliver from the stores consistent, day-after-day quality may be an area where they have an advantage over bigger companies. "So this HMR issue is key to the survival of independent operators in particular and supermarkets in general, beyond that."

Hammonds also said the explosion of rapidly developing and increasingly inexpensive technology is destined to vie with the HMR phenomenon in upcoming years as being the largest change drivers in the industry.

In keeping with the new importance attached to HMR, FMI plans to inaugurate MealSolutions, a convention intended to point out to supermarket operators how to play the HMR game, Hammonds said. The initial MealSolutions convention is slated for Sept. 8 to 10 at the Phoenix Convention Center.

The new convention came about, Hammonds said, because "[FMI's] board members said many retailers have tried taking the deli manager and making that person the guru of HMR, but it hasn't worked. "Now maybe we need to go outside the industry and get some food-service experience; maybe bring in people from restaurants or catering or hotels and teach them the supermarket business."

Those are some of the ideas the new convention will address, he said. Hammonds also said the new MealSolutions convention will fold in educational components of FMI's Food Protection Conference, its Food Service Conference and its Seafood Merchandising Conference, ending the three as freestanding events. Integration of the events shows the direction FMI will move in meeting development, Hammonds said: "We want to concentrate our efforts to where we can lend something unique and areas where, without us, nothing would happen; that's where we'll focus our efforts." That outlook also explains why FMI has scrubbed its six-year-old annual General Merchandise and Health and Beauty Care Conference, last held in November 1995, as reported earlier. Hammonds said that although attendance for the nonfood event seemed to be heading up, that wasn't enough to keep it afloat. "Victory was not achieved, although we made great progress in 1995," he said. "It was a much better show than the year before but still a real uphill fight for us. A lot of members with smaller stores told us the nonfood business is outplaced to rack jobbers and others. Those with larger companies said they deal with regional and local suppliers, so there is a diminished need for a national show. "Also, there are other groups out there, such as the General Merchandise Distributors Council, doing a good job, and we weren't bringing much unique value to the industry."

And, as for show changes, Hammonds also acknowledged that FMI had a European show on the drawing board, but has decided now against such an event since no unique value could be brought.

But, he said, value was added with the FMI AsiaMart convention, held for the first time in October 1995 in Hong Kong. "The exciting new development for 1996 is that we had some officials of the Chinese government who traveled to Hong Kong and met with me at the close of our 1995 show, and we have opened up some very nice communications with them," he said. "We expect that there will be an official Chinese delegation to our annual convention in Chicago [May 5 to 8]. "We also expect that there will be a delegation of ours -- of retailers and manufacturers -- going to China in 1996 to talk with them about export and joint investment opportunities, so we think we've opened the door to some very real progress officially sanctioned by the Chinese government. "We would eventually like to rotate AsiaMart into China when the time is right. We don't know when that will be, but we want to be ready." AsiaMart is next set for Oct. 30 to Nov. 1, 1996, in Hong Kong.

As for other significant industry trends addressed by Hammonds during the wide-ranging interview with SN, here's a sampler of what he said:

On the evolution of dry-grocery departments: "One of the challenges to our industry is to look at what some of our European cousins have done. A look at supermarkets in Europe, particularly in the United Kingdom, shows that there has been a much more rapid adjustment in the dry-grocery department than has been the case here in America. "A lot of American operators are still saying -- and saying in the corporate boardroom -- 'How can we keep the sales volume and the footprint of our dry-grocery departments up?' "In Europe they are asking a different question. They are saying, 'If our consumers are telling us those departments should be a third or a half smaller, what do we do with the additional space?' Their answer has been to fill it with ready-to-eat product and value-added fresh. They have let the dry-grocery department go where the consumers have wanted to take it, and I think we in America are headed in that direction."

On industry concentration: "It will continue, but there is a misconception about this that I find manufacturers in particular have. "The misconception is that concentration -- and supercenters -- will put independent operators out of business. We don't think that's true at all. "But there is a group of independent operators that now is so small that they aren't supermarkets. They will go away. And lots of independent operators aren't committed to what the best of modern stores can offer; many of them perhaps not even scanning. Many of them will be displaced.

"However, I worry when I think of manufacturers who believe the whole world will look like Wal-Mart, and they will be dealing with just 10 or 12 companies 10 years from now. It's not going to happen and manufacturers need to

realize that the group of sophisticated retailers out there will find lots of niches to exploit as competitors around them get bigger and bigger."

On supercenters: "I don't think the perception of threat is overblown. The major developers are devoted to them as part of the core business, and they will be in it for the long haul. For that reason, they have to be taken seriously, regardless of how people think they are doing right now. They will keep tinkering with the format and keep improving it, and it is part of our marketplace today."

On public affairs and government: "The challenge for the industry now is how to use the opportunity we now have, at least until elections next fall, to identify some priorities to go after as opposed to the more traditional posture of reacting to what Congress does to us."

On electronic retailing: "Let's remind ourselves the supermarket was invented in large part to put home delivery out of business. There was a lot of home delivery 60 or 70 years ago. "Modern home delivery presents very difficult problems and growth will be slow rather than fast. "But it is part of the market today and it will continue to grow. My guess is it will end up representing 8% to 12% of the business, not the 28% to 32% range some predict."

On food safety: "In the next six to 12 months we will move more aggressively to remind consumers what their responsibility is. The ultimate line of defense is to cook the food properly and store it properly and don't cross-contaminate it. So there is a consumer responsibility and we have to keep reminding them of the basics of it."