THE NEW ERA 2005

CHRISTINA VEIDERS

Suddenly, it's no longer cool to run with the pack and be all things to all people in food retailing.

Almost overnight, traditional supermarkets appear to be changing position and experimenting with new concepts, both big and small, with new formats and names.

A few examples are:

GreenWise Market (Publix Super Markets): Positioned for health-conscious consumers, this is Publix's answer to Whole Foods Market. The format is scheduled to open later this year.

Sunflower Market (Supervalu): A low-price, natural/organic products store, it was launched earlier this year to also counter the impact of Whole Foods and Wild Oats Markets.

Publix Sabor: A Hispanic-themed store the Lakeland, Fla.-based chain opened in 2005.

Bloom (Food Lion): Designed for time-pressed shoppers who can easily grab a prepared meal or convenience items and quickly check out, the concept, launched in 2004, represents a rethinking of how consumers shop.

Sweetbay (Delhaize America): A new brand that is replacing the Kash n' Karry chain, the format, launched in 2004, highlights specialty foods sold at competitive prices. The stores feature the Harvest Market signature produce department.

Marsh's "Lifestyle" stores: The stores, which debuted in 2004, also are designed for convenience with an emphasis on perishables.

While the above retail brands are targeted to specific consumer needs, traditional supermarkets have also countered the discounters and low-price alternatives with their version of price-impact stores. Supervalu, Minneapolis, has been successful in growing its Save-A-Lot chain. A&P, Montvale, N.J., has tinkered with its limited-assortment Food Basics concept since it was introduced in the U.S. five years ago. Albertsons in 2002 introduced its low-price Super Saver concept, targeted to Hispanics.

The recent flurry of new concepts from leading grocery chains is nothing less than a survival response to the unparalleled competition from different retail sectors, including drug and convenience stores.

Richard J. George, professor, Department of Food Marketing, Saint Joseph's University, Philadelphia, noted that supermarkets' share of stomach continues to drop.

"For too long, supermarkets have focused on the back door and made money on manufacturers' trade allowances," he said. "Now they have to focus on the front door."

John Catsimatidis, chief executive officer, Red Apple Group, which owns the 45-store Gristede's chain in New York, said average shoppers don't seem as interested in buying mainstream national brands as they used to. "Does the traditional supermarket have a place to exist in the business?" he asked.

With A&P ready to launch a new gourmet prototype with Food Emporium, and faced with stiff competition from Whole Foods and online grocer FreshDirect, Catsimatidis said he has to decide what Gristede's wants to be in two years. "Before we go forward, I think we have to become convinced which road is forward because for a traditional supermarket there seems to be no reason to live, especially when you're paying $100 a square foot on rent." He is facing what many grocers are facing: an identity crisis.

Migrating Away From the Middle

The "lifestyle" store concept being rolled out by Safeway, Pleasanton, Calif., is probably the most notable effort of a food chain to change its identity and rebrand itself.

Eric Ashworth, chief strategy officer, Anthem Worldwide, San Francisco, a branding company currently working with Safeway on its private label, said what is beginning to take place among some food retailers is a "migration from [being] retailers to marketers. Everyone is slowly catching on, but Safeway is so far ahead of the curve."

Safeway's branding direction is less about raw materials and more about prepared foods, Ashworth said. This means moving meal replacements to the front of the store. "You'll see Signature [a Safeway store brand] sandwiches, soups, sides or entrees and salads so you can get in and out real quick."

The goal is to create a proprietary experience that no one else can provide, Ashworth said. "It is destination vs. interception. It is driving past a competitive market in order to get to a Safeway."

It was in the latter part of the last century that alternative price formats such as warehouse, superwarehouses and club stores emerged to lure grocery shoppers with low-priced items sold within a bare-bones box. The French hypermarkets came next, inspiring Sam Walton to launch the first Wal-Mart Supercenter in 1988, and the rest is history.

With the rise of the alternative formats, consumer loyalty began to shift away from allegiance to a brand to value, observers said. It was during this period that supermarkets may have started to lose their identity, they noted, as low-price formats began to draw consumers and channel blurring began.

Add to all this, shoppers' lifestyles and needs are more complex and varied than ever. In comparison to other retailers, supermarkets have been slow to either recognize or satisfy consumers' needs, observers said.

St. Joseph's George puts supermarkets on the bottom rung when it comes to doing a good job branding themselves. "Look at branding of stores in a mall, or in food service. You know what chili and fries at Bennigan's means. Lowe's has targeted women with lower shelving, made stores brighter, added decoration and design aspects. Home Depot is the guy place," he explained.

"You are going to have an increasing amount of differentiation in terms of different strokes for different folks, and different ways on different days," said John Lord, professor and chairman, Food Marketing, St. Joseph's University,

Brian Sharoff, president of the Private Label Manufacturers Association, New York, said supermarkets are in transition away from their basic premise for existence - selling food and nonfood to the largest number of people in the most efficient and profitable way. That premise is being challenged, he said.

At the top of the retail food tier, Whole Foods and Trader Joe's are taking profitable dollars away from supermarkets on "self-indulgent and delicious impulse purchases," Sharoff said. At the bottom end, Wal-Mart and Costco are taking sales away from supermarkets when it comes to the necessities of life. This leaves supermarkets in the vulnerable middle ground.

Supermarkets, therefore, are being forced to ask themselves some fundamental questions about who they are and who their customers are. Such questions involve real estate, investing in profitable categories, and logistical issues. Not easy questions or decisions, Sharoff said.

"These fundamental questions supermarkets didn't have to answer over a 50-year period because television told consumers what to buy. If television said 'buy it,' retailers had to carry it," he added. "There is nothing on television anymore in terms of those signals."

Keeping BAV Score

Landor Associates, San Francisco, a strategic brand consultancy and strategic design firm, utilizes parent company Young & Rubicam's Brand Asset Valuator database, which contains 2,000 global brands and 400,000 consumer interviews on those brands. In analyzing the supermarket category, two branding drivers - differentiation and relevance - emerged over 12 years of work, said Ed Keller, client director for Landor in Chicago. He said retailers should ask: Are you different from other alternatives? How relevant is your offering to your customers?

"What the database tells us," Keller said, "as retailers like Trader Joe's, Costco, Wal-Mart and Target moved further into groceries and produce, all traditional grocery stores are clustering. Consumers don't perceive any difference between Ralphs, Vons, Safeway, Kroger or Jewel. They see Trader Joe's being innovative and different, and Costco different with its mix. Traditional grocery stores are coagulating in one undifferentiated mass because they've been outflanked."

Keller said the recent efforts among retailers to innovate with new formats is the right direction, but he wonders if enough is being done on a large scale and quick enough.

He defines branding innovators like Trader Joe's and Starbucks as retailers who have "gotten beyond trying to sell stuff to selling an image and lifestyle."

Todd Maute, vice president of marketing, Daymon Worldwide, private-label specialists in Stamford, Conn., looks at value as part of the branding proposition.

"Today's complex consumer is trading up in many categories and down in others," he said. "This has created diverse shopping patterns and less store loyalty. Therefore, retailers are trying to keep consumer dollars in certain categories with price, and in others with special products. With that you are seeing many retailers develop stronger value tiers, aggressive promotional programs and exploring different pricing models."

Retailers are also looking to differentiate with premium, super-premium, imported, specialty, natural-organics and even proprietary-developed products and programs, he added. "This effort will keep consumers coming back to stores because many of these items and most definitely the [store] brands are exclusive to the retailers, which forces the consumer to come back more often."

Private-Label Reinforcement

Maute looks at private label as a marketing tool to reinforce the brand image as much as an alternative sale. As he explained, retailer X sells 500 million units of private label a year. Each unit has the opportunity to deliver three impressions to the consumer - image on the shelf, the reason the consumer purchases it and performance of product. "Take the three impressions, multiply by units sold and you get 1.5 billion impressions. This is a huge opportunity to build an image, probably more than retailers' corporate advertising budgets. It is very important for a retailer to properly align its go-to-market strategy with its private-label strategy," Maute said.

Jim Walz, senior director of branding and business development, IGA, Chicago, said IGA private label adds significant value to IGA's brand position. "As independent retailers advertise their private label, they are reinforcing their banner and the banner reinforces the product. That is uncommon in the world of independents."

Kelly said private label is a great differentiator for food retailers and it allows them to expand their margins. He sees private-label development needing to move to perimeter categories - prepared foods, bakery, deli, meat - rather than a center store focus.

"Private label is the perfect mate for fresh, frozen and refrigerated, ready meals, single portion servings," Sharoff said. "That's exactly what the consumer wants today."

In designing private-label lines like Safeway's O Organics line, the retailer has to make the package look different within the store, Sharoff said. "The retailer has to fight for their own brand across categories, not a single category, and make the packaging look unique within the store. There is no brand leader. The retailer is the brand leader if he so chooses. The retailer has got to think storewide and not category by category," Sharoff said.

Getting the Message Across

Once retailers figure out their "reason d'Otre," they have to tell it to consumers, no easy task in today's world of splintered media.

Lord of St. Joseph's says more will be spent on nontraditional media, whether it's by Procter & Gamble or by Safeway. He noted that consumers' media habits have changed, particularly among younger people.

"Younger people don't read newspapers, and they watch TV differently, " he said. The Internet, product placement and street-level marketing are examples of nontraditional media that marketers will use to get their brand messages across.

In terms of marketing the brand, Keller said grocery retailers should think about "customer touch points." For the grocery retailer, the single biggest touch point is the store, where the retailer has the opportunity to make the strongest branding statement.

"In their first 27 years of business, Starbucks did not spend a single dollar on TV advertising," he said. "Grocery stores need to pay more attention to their store experience both inside and outside the store as a marketing media-advertising vehicle. If they get that right, the TV advertising becomes almost irrelevant. I think grocery stores undervalue their real estate from an advertising perspective."

IGA's Staying Power

The IGA Red Oval has heritage.

Rob Wallace, managing partner of New York-based brand identity strategists Wallace Church, calls such brands "icons."

"We immediately recognize their familiar identities and emotionally tie them to a comfortable no-risk, well-anticipated experience," he said.

According to consumer studies, IGA is recognized by the following brand attributes: locally owned, friendly, fresh quality, preferred place to work and has a stake in the community. The IGA Hometown Proud tag line supports the brand.

The challenge for such brands like IGA, which is celebrating its 80th anniversary, is to stay relevant with today's consumers, and continue to build upon the equity it has earned over the years for its independents, said Jim Walz, who joined IGA a year ago as senior director of branding and business development.

The red oval has been modified over the years, but Walz said the symbol is strong and serviceable. The IGA symbol is recognized globally as a place to purchase food, he noted. There are no plans to change it.

IGA members are challenged to use the resources of the brand width to stay on message and deliver on the promise, Walz said. Keeping the brand strong and relevant is best achieved through IGA's operational guidelines and recommendations, he said. IGA's operational assessment program rewards members for their retail excellence by scoring on retail performance and recognizing five-star retailers.

"When retailers become IGA members and adopt the IGA banner, they are immediately empowered by its attributes," said Walz, noting that thousands of excellent retailers have the operational know-how, great locations and passion for the business, but they lack an established identity. Through the IGA brand, combined with its business development programs and marketing support, "we see an opportunity to really grow our alliance," Walz said.

CHRISTINA VEIDERS