THE WASTED HALF

David Merrefield

There's an old adage concerning supermarket promotions that goes something to this effect: Half of all promotional dollars are wasted, but no one knows which half.

To the extent the observation is true, or thought to be true, it's bad news because it makes everyone conservative and reluctant to change for fear of opening a crack through which competitors might drive a wedge.

But no one could accuse Gregerson's Food, the 10-unit retailer operating out of Gadsden, Ala., of being too fearful of change, since Gregerson's not only opened a bit of a crack concerning conventional promotions, it all but tore down the walls.

What the company did was drop precipitously a number of its main promotional activities last November in a bid to liberate some cash to finance the startup of an electronic marketing program. Stripping away so many promotions all at once was quite a plunge to take, because if shoppers missed the promotions too much for too long a time, there's no telling how Gregerson's sales might have gone in the long run.

So what happens when all that promotional activity is suddenly cut off, and does it tell much about which half of the spending might be blowing up the chimney?

To find out -- and to follow a news article written about the situation by reporter Denise Zimmerman for the Sept. 5 issue of SN -- I talked to Peter J. "Greg" Gregerson, Gregerson's president, last week to learn the story on promotions.

To illustrate how important the discontinued promotions had been traditionally to Gregerson's, Greg mentioned they had been costing the company about 1.5% of sales, or more than $500,000 a year. The now-moribund promotions included doubling coupons, a "Golden Age" senior-citizens program consisting of 5% off prices on Tuesdays and Wednesdays, a Fall Sweepstakes featuring a $1,000-per-week giveaway for a period and a program called "No Need To Go Anywhere Else" pinned on a pledge to match competitors' advertised prices in 24 categories. At what price did the forsaking of these often-used promotions come? Sales immediately plunged 5%, but Greg told me that didn't sponsor much dismay because a longer view was being taken: "This did cost us some sales at first, but when we took a look at the savings we could realize, as opposed to looking only at lost sales, we knew our promotions weren't really paying off."

More important, the program made it possible to finance the implementation of the customer-specific "Club Greg" frequent shopper program.

I asked Greg why such a program made more sense to him than did the use of the broader promotions he discarded. He explained that Gregerson's operates in something of a closed market with stable competition and population. That suggested to him there would be a better payoff connected with rewarding current shoppers than there had been in casting a broad net intended to land new ones.

"We are in a stable market in terms of both competitors and of population, and that means it's better to reward our current shoppers," he told me. "We think of ourselves as being in an aquarium, so we need to do something to make sure the filter remains clean. Otherwise, we'll stagnate. We think the best way to do that is to strengthen our bonds with our current shoppers. We think it's better to try to win by not losing, so we're satisfied to build new customers in a slow way, by word-of-mouth advertising."

How is it all working out? Not too badly, it seems. Greg said that for the first six weeks of the current quarter, sales at comparable stores are up 4% to 12%, depending on location. In that light, the immediate sales hit Gregerson's took about nine months ago doesn't look like such a poor investment. I'm not sure this really offers a universal solution to the conundrum about which half of supermarket promotional spending might be wasted -- even assuming the adage contains some truth -- but it sheds a little light, doesn't it?