FRESH IDEAS FOR NONFOOD

Dan Alaimo

CHICAGO -- Stop the bleeding.

That is the challenge the supermarket industry is facing when it comes to general merchandise and health and beauty care. Industry reports show sales in these areas are continuing to drift to other retail channels.

The latest data from Information Resources Inc. here show the total GM and HBC categories covered by company have declined 2.8% in dollar sales and 3.8% in units for supermarkets for the 52 weeks ending April 17.

HBC fared better than GM, dropping 2% in dollar sales and 3.2% in units, while GM declined 5.6% in dollar sales and 5.7% in units. These numbers are similar to past years and are reflected across the spectrum of categories covered by IRI, with some exceptions.

Where these sales are going is clear to anyone with even a passing knowledge of retail trends. IRI's Consumer Shopper Panel Database has reported double-digit nonfood increases for supercenters, including Wal-Mart Stores', for the two years ending Oct. 3, 2004. Overall, nonfood increased 10.9% in supercenters, with health care rising 25% and pet care going up 27.9%.

"It's shifting to other classes of trade dramatically, especially the supercenters," said Jeff Manning, president, F&M Merchant Group, Lewisville, Texas.

What to do about it is the big question.

IRI's Valerie Skala Walker, vice president of analytic product management, said supermarkets should look to demographics, to the few categories that did show growth, and to some innovative competitors.

For years, grocery stores have focused their marketing and merchandising efforts on the family, the traditional big spenders with kids, she said. It is that same group that finds the pricing and convenience of supercenters so attractive. Walker said supermarkets need to focus instead on the "empty nest" baby boom generation, which although it is aging, still has money to spend and an aversion to the big-box stores.

"As this cohort moves into the 55 to 65 age bracket, it is the first generation of Americans whose spending power is not going to be substantially lower as they get older," she said. "They are a perfect target for supermarkets because they don't want to hike through a giant parking lot and deal with the giant size of the supercenter. They like the convenience of not driving as far and having everything they need in the supermarket.

"Supermarkets have an opportunity right now -- quickly -- to reinvent themselves and take advantage of that boomer age cohort," she said.

Some of the nonfood categories they spend on are the same as those where supermarkets are still seeing growth. These include facial anti-aging products, baby products that are bought by grandparents, and home care products like the new air fresheners and cleaning products, such as Swiffer.

"The boomers were raised in an era where keeping a clean house was very important, and they still hold that value." Meanwhile, household products have seen much innovation.

This generation also wants retailers and products that are "trusted friends," she said. Two retailers to emulate are Trader Joe's and Costco. Both test products before offering them for sale, she said. "A trusted friend does not just carry everything, but stocks products they really believe in and recommend," Walker said.

Art Turock proposed the same concept, but with different terminology. Retailers need to be "editors" of the assortment in their stores, said the sales growth strategist with Art Turock & Associates, Kirkland, Wash.

"Be an editor for something so your target customer will have explicit trust that what you stock is right for them. There are only a few retailers who have that relationship." He credited Trader Joe's and Costco as perfecting this approach, as well as Sav-A-Lot.

"It's about trust. It's about careful selection of what categories you can really stand as the expert in, and really go out of your way to have the right assortment," Turock said.

Supermarkets were once content with the "disproportionate contribution" GM and HBC categories made to profits, noted Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill. Some in the industry, such as those participating in the roundtable that follows this article, characterized this as "harvesting" profits.

"Some supermarkets have been slow to read that such a position on profit could not be maintained," Bishop said. As Wal-Mart and other discounters established themselves, the food stores did not change. "That is probably one of the major factors that has caused the general decline" in GM and HBC, he said.

Categories where supermarkets continue to be strong include housewares and baby products, he said. Digital image processing remains a large opportunity: "What person involved in photography doesn't think digital is the next deal?" he asked. Cross merchandising remains a key strategy to maximize the potential of nonfood products, Bishop said.

The loss in nonfood sales is not inevitable, but countering it will require "a concentrated battle," said Neil Stern, partner, McMillan/ Doolittle, Chicago.

"The key categories to focus on are core HBC, which is still very credible and can be further strengthened through pharmacies. GM needs to be more selective. Pick those categories that are important to core customers -- such as baby supplies, pet supplies and toys -- and improve selection and pricing," Stern said.

A study conducted during this month's Food Marketing Institute show by Capgemini, New York, revealed that retailers continue to regard Wal-Mart as the greatest market challenge over the next five to 10 years.

In regard to market trends of nonfood categories, "retailers in traditional channels have to think specifically about their consumer value proposition, recognizing that price is not the game," said Dave Holloman, vice president and North American consumer products leader, Capgemini. He cited Trader Joe's and Whole Foods as retailers that have succeeded in doing this.

Total GM/HBC Sales

Dollar Sales; % CHG YAGO; Unit Sales; % Chg YAgo

TOTAL GM /HBC CATEGORIES: $17,938,040,000; -2.8%; 4,829,422,000; -3.8%

Health & Beauty Care Categories: $14,175,340,000; -2.0%; 3,646,685,000; -3.2%

General Merchandise Categories: $3,762,704,000; -5.6%; 1,182,737,000; -5.7%

Source: Information Resources Inc.

Latest 52 Weeks Ending April 17, 2005