WEIGHING THE OPTIONS

MINA WILLIAMS

Whether spurred by consumers seeking lower prices in a stalling economy or simply a shift in consumer shopping habits, these membership-only outlets are making specific gains in Center Store items.

According to the recently released Food Marketing Institute's "Trends in the United States: Consumer Attitudes and the Supermarket, 2002" report, warehouse-club stores have posted gains, following a year of stagnant growth. Consumers who shop for groceries at warehouse clubs on a regular basis lifted two percentage points from last year to this year. More pointedly, the report identifies younger consumers, women, the college-educated and consumers living in the South and East as being leading contributors to these gains.

Regular use of warehouse clubs among consumers under the age of 25 has also increased steadily since 1998, rising eight percentage points since last year to 24%.

With food shopping being so habit-driven, supermarket operators are taking measures to protect their turf. Survival is being measured by the success of those who emphasize what supermarket operators do best -- offer variety, quality and service -- using tools already in hand.

"Warehouses may have appeal to certain people, but we have quality and service," attested Dan Bailey, senior vice president of retailing for Martin's Super Markets, South Bend, Ind.

While the grocer doesn't have a specific program in place to compete with membership warehouse stores, "we take advantage of what they can't do. They are certainly not a one-stop-shop. We concentrate in areas where we know they can't compete," Bailey added.

The warehouse giants -- Costco Wholesale, Sam's and BJ's -- prevail with a strong price image, offering club packs and other unique packaging.

"Clubs are interested in one thing and one thing only -- price," said Don Stuart, partner, Cannondale Associates, a sales and marketing consulting firm with offices in Wilton, Conn., and Evanston, Ill. "Price is their single-minded focus. Supermarkets are not going to win on price. They can't live with a 10% margin and operate efficiently across a large marketing area. But supermarket retailers can put category management and service to work in their favor."

"We have taken a service-oriented, selection-oriented approach," said Brett Wilson, category management lead of Unified Western Grocers' PNW Vendorlink Team. "We know our customers shop both, but our selection of gourmet and specialty items is not available at the warehouse stores."

Being locally owned and operated is also seen as a marketing tool, Wilson said. "There is a need to give customers a good deal. But our in-store focus is on customer service. Our independent operators also adopt community programs to further build a relationship with shoppers."

"Marketing the variety grocers offer is the best weapon they have," said Stuart. "They can attract customers to the store. How they fill the stores up with products, not just the perimeter products, is key. Variety and a strong service orientation are already available to most supermarket executives.

"Make grocery shopping more of an experience," he suggested. "Bring adventure to the trip. Add fun and excitement through assortment and service."

Despite being located near Costco's home base, Brown & Cole stores in Bellingham, Wash., are "experiencing excellent sales," according to chief operating officer Larry Ziels.

He also attributes this to the extra services supermarkets can offer consumers.

"We add excitement to the experience by using buying procedures which focus on localized merchandising. We know the clubs can't adhere to that.

"For example, we have local boxed strawberries from fields within the same county as the store they are offered in."

According to the experts, another area to exploit is the speed-to-market capability that supermarket retailers have to bring new, hot items to the shelves.

"If you get items into the market fast, customers try it and retailers get retention," said Stuart. "It is another way to create excitement and offer novelty and newness, balanced with tenure and without perpetual turnover of products."

"Supermarket operators have to think beyond being a food retailer as clubs use food to be more than a general merchant," said Chuck Cerankosky, managing director and analyst, McDonald Investments, Cleveland. "Private label allows supermarket operators to establish a high-quality image at a lower price. Private label can also be brought into a club-style pack.

"There is some club-type merchandising in supermarkets. Some operators are using club packs in different ways, using private label as well as branded merchandise," Cerankosky added. "Where the supermarket comes up shining is that it is simply more efficient. Club stores are not known as an efficient shopping trip. Not for necessities."

At Giant Eagle, Pittsburgh, the retailer services its customers by offering a bulk products aisle featuring "paper goods, water, beverages, detergent and the like," Rob Borella, director of corporate communications, told SN.

"This presentation is expanded when store space allows," he added.

Industry observers spot pet care and baby items as holding huge potential in attracting customers and keeping them in supermarkets.

"Retailers want to attract these valuable, young families and develop relationships with them," said Stuart. "They are in their formative stage of buying habits. Traditional shoppers' baskets bring an average $30 ring to the store each visit. Add a baby in the household and the ring escalates to $70."

Experts recommend making the shopping experience easier for these shoppers by integrating the category into a single aisle. Employing signage and merchandising tactics in-store to announce the creation of the baby care center further punctuates the ability of this center to satisfy the customer's needs.

"This boutiquing encourages cross purchases," said Stuart. "Diapers, care items -- not just formula and food -- can help fill up more of that basket."

Paper, laundry and cleaning supply categories have been lost to mass merchants and club stores, Stuart said, primarily because of price.

"Paper is a tough area," agreed Cerankosky. "It is price-sensitive and there is not an appreciable quality nuisance. In both detergents and paper, the quality in private-label offerings needs to be emphasized.

"Price plays a role, but it's not the only role. Convenient locations, one-stop shopping features [and] bigger packaging of merchandise all play a part in keeping supermarket shoppers coming back."