75 OVER THE HILL?

Elliot Zwiebach

Looking Back...

What goes around comes around.

When the modern American supermarket was in its infancy 75 years ago, the more established chain operators -- who hand-picked orders for customers and often delivered them as well -- dismissed the format as a passing fancy.

"Chain store executives, [who] had devoted many years to reducing their pattern of cash-and-carry almost to a science, could not understand how the super[market] -- particularly the barren structures located in the outlying community areas, with price as their only appeal -- should receive such consumer acceptance," according to a history of the industry.

"To the high-powered chain executives, this crude operation was the very antithesis of their scientific retailing, which had prevailed for over two decades. [They] found it hard to believe ... people would drive 25 miles or more to shop for foods and sacrifice the personal service chains had perfected..."

Those words, written in 1955 about the rise of the modern supermarket in the early 1930s, could just as easily have been written in the 1970s, as conventional retailers watched the rise of membership warehouse clubs, or the 1990s, as they watched supercenters whittle away their market shares.

The development of the modern supermarket -- stores featuring separate departments for different categories of products, discount pricing, volume dealing and, above all, self-service -- was evolutionary, culminating in the phenomenon that was King Kullen Grocery Co. in 1930.

But its roots can be traced back much further.

In a 1955 book on the history of the industry, Max M. Zimmerman -- founder of Super Market Institute, the predecessor to Food Marketing Institute -- quotes Stanton W. Davis, president at the time of Brockton Public Market, Brockton, Mass., remembering a story his father had told him about a departmentalized food store under a single ownership in Lowell, Mass., that predated the Civil War. Among that store's claims to fame was its precut meat -- a practice picked up by three other New England chains during the 19th century, according to Zimmerman.

Zimmerman also mentions a general store in 1848 whose ads proclaimed, "I buy and sell for cash, and I am determined not to be undersold by any establishment in town."

In 1896, Frank Munsey, publisher of the New York Sun, opened stores under the Mohican banner in Connecticut that featured separate departments that offered a broad variety of food and nonfood under one roof, with some self-service, Zimmerman pointed out. However, "housewives of that leisurely era just didn't appreciate one-stop shopping," he wrote.

That began to change in the early 20th century, with Southern California leading the way.

In 1914, the Gerrard brothers of California introduced self-service, almost by accident, at one of their Triangle Markets, predecessor company to Alpha Beta.

The most time-consuming task for grocery clerks in those days was cutting meat to fill a customer's order, according to a 1973 history of Alpha Beta by Esther Cramer. While the clerks were busy cutting meat, customers often wandered behind the counter to select their own grocery items -- a practice Albert Gerrard recognized as a way to save time and money, prompting him to place cases of canned and packaged goods on the sales floor to enable customers to help themselves.

Taking a page from a self-service grocer in Santa Monica, Calif., Gerrard opened a store in 1915 that featured a turnstile to admit customers into the grocery department, with packaged goods displayed on shelves accessible to customers and an area for checkout before they exited into a service section to purchase meat and produce. Because some customers were unsure where to find specific products, Gerrard arranged merchandise alphabetically -- a system that eventually led to the company changing its name to Alpha Beta.

Other operators across the country were moving to self-service during World War I, Zimmerman wrote, "when the public demanded that high prices be reduced." Also, with a manpower shortage due to the war, "self-service offered a partial solution to these problems and won considerable support," he noted.

However, because some retailers were reluctant to move away from a service format, "duplex stores" arose, with one side devoted to self-service on a cash-only basis and the other featuring clerks waiting on customers.

In 1915, Clarence Saunders established a wholesale company that sold goods for cash only and encouraged its retail customers to do the same. A year later, Saunders put his advice into practice when he opened the first Piggly Wiggly store in Memphis, Tenn. -- "a self-service grocery store in which the customer would select his own merchandise from display counters and pay cash," Zimmerman wrote.

According to the Piggly Wiggly Web site, the store was also the first to provide checkout stands; to price mark every item; to offer high-volume,low-profit retailing; to feature a full line of nationally advertised brands; to put employees in uniforms for more sanitary food handling; to design and use patented fixtures and equipment throughout the store; and to franchise its self-service concept to other operators.

Saunders threatened to sue Albert Gerrard at Alpha Beta for infringement of his patent, but Gerrard was able to prove his self-service operation had started two years before Saunders' operation.

Joe Weingarten, founder of J. Weingarten, a onetime chain based in Houston, told Zimmerman about a supermarket opened in 1916 by crosstown competitor Henke & Pilot -- a conventional grocery store that offered customers baskets as they entered and also provided the opportunity to buy fresh meat out of a walk-in cooler by talking by phone to butchers inside the cooler's preparation area, who cut the meat and moved it through a slot, with the price on it, for checkout.

When Piggly Wiggly opened its second store, in Houston in 1918, Weingarten said he decided to convert his stores to self-service, prompting another threat from Saunders. "The Piggly Wiggly Co. claimed to have a patent on this self-service operation, but actually we found the only patent [it had] was the way the store was laid out," Weingarten told Zimmerman. "[At Piggly Wiggly] the customer entered through a turnstile and had to walk by every shelf and gondola before she could check out, as the cross aisles were blocked. This feature was eliminated [by Weingarten], and although Mr. Saunders threatened us with a lawsuit, he ... never carried out his threat."

In Denver, Morris Miller opened a cash-and-carry store in 1921, Zimmerman wrote, and in Detroit, National Grocery Co. opened a "groceteria" in 1928, based on Clarence Saunders' Piggly Wiggly model.

When the groceteria failed, the store's owners hired Scott Black, an advertising man, to help them liquidate the remaining inventory. Black set up merchandise in huge stacks on the floor of a warehouse, with prices offered on any quantity a customer wanted to buy -- a venture that was successful enough to prompt Black to open his own business, Canners Warehouse, based on selling large quantities of goods at low prices.

Back in Los Angeles, Ralphs Grocery Co., which was founded in 1872, had a flourishing business featuring clerk service and delivery when it opted to convert to self-service in 1926.

By the time the Depression hit in 1929, "most stores were still operating on a service basis, and the cost of doing business was high," Ben Schwartz, retired owner of the onetime Foods Co. chain in Southern California, told SN. "With self-service, people were able to select their own groceries, and that lowered the cost of doing business and brought prices down, with gross margins dropping 10% to the range of 19% to 20%."

It was at this point in the evolution of the modern supermarket that Michael Cullen made his move. Cullen, who was working for Kroger Grocery & Baking Co. at the time, had an idea for a new approach to selling food, and he wrote his proposals in a letter to his employer, suggesting it open five trial stores anywhere in the U.S. When Kroger did not respond, Cullen moved back to New York and formed a partnership with Harry Socoloff, vice president of Sweet Life Foods Corp. in Brooklyn to open the first King Kullen Grocery Co. store in the Jamaica section of Queens in August 1930.

Cullen's initial ads proclaimed, "King Kullen, The Price Wrecker. How Does He Do It?"

How he and others did it, according to Allen I. Bildner, retired chairman of Kings Super Markets, Parsippany, N.J., was through the realization they could stabilize rent and payroll below the chain average of the time by renting concessions to other operators, which reduced the grocery department's rental overhead to zero, or made an actual profit, and by moving to self-service, which reduced payroll expenses to 30% to 50% below that of chain stores.

In a college thesis written in 1947 and shared with SN, Bildner wrote, "Wherever a supermarket appeared, the sales of other merchants in the same lines were directly and adversely affected.

"Since the super[market] was born of depression, it is quite natural that its foremost appeal was price. Items were put on sale at figures far below existing competition and ballyhooed to the utmost in full-page ads. The Price Wreckers and Price Smashers drew the public to the outlying sections of the cities in numbers that seemed impossible. The size of the purchases rose because items on sale were sold in groups of three or four at a stated price. So many offers were outright bargains ... that the shopper reasoned all items must be bargains."

By 1932, Cullen had eight stores doing $6 million annually. According to Zimmerman, he sold groceries at the lowest possible markup, with his profits coming from high turnover and from the concessionaires who leased space in his stores. By 1935, he had 15 stores, with plans to expand nationally on his own and through franchises. However, he died in April 1936 at the age of 52 -- having worked himself to death, according to his associates at the time, Zimmerman wrote.

One of Cullen's early supermarket competitors was Big Ben Markets, operated by the Bildner family, which began opening stores throughout Long Island, N.Y., in the early 1930s. Big Ben used the slogan, "Never Undersold," across the front of its stores, and a 1933 photo shows an awning across a Big Ben storefront proclaiming, "My everyday prices are lower than other store specials."

While King Kullen and Big Ben were slugging it out in New York, two veteran retailers were opening supermarkets in New Jersey. In December 1932, Robert M. Otis and Roy O. Dawson converted a vacant 50,000-square-foot automobile plant in Elizabeth to a store they called Big Bear Supermarket, which billed itself as "The World's Champion Price Fighter." Only 30% of the store was devoted to packaged foods, with the rest devoted to leased departments selling service meat and produce, dairy, baked goods, tobacco products, drugs and cosmetics, electrical supplies and radios, auto accessories, paint and a lunch counter.

Big Bear's success prompted some traditional grocers of the day to condemn supermarkets for selling below cost, saying below-cost selling threatened the future of the retail business and asking wholesalers not to sell to them. In 1933, the Associated Grocery Manufacturers of America (now Grocery Manufacturers Association) passed a resolution condemning the distribution practices of Big Bear as uneconomic and unfair, and asking its members to act individually to prevent below-cost selling.

But by that time consumers were eager and willing to shop at supermarkets, and it wasn't long before the more traditional grocers of the day began converting to self-service operations.

According to remarks by John Hartford, president of A&P at the time, as quoted by Zimmerman: "We did not take [supermarkets] very seriously at first, but the competition was pretty aggressive. ... We had a competitor [in Brooklyn] by the name of King Kullen. ... We had a very profitable operation in Brooklyn. In a very short space of time, they forced the Brooklyn unit into deep red figures.

"I was very much concerned because we had a conflict at headquarters whether we should adopt that kind of operation. ... I realized if it could happen there, it could happen in any unit we had. We finally tried out a store to see whether we could run this type of operation without selling under cost. It was confirmed that we could, and we went in very aggressively to supermarket operations."

There was another reason the chains began converting. According to Bildner, with a rise in feelings against the chains -- particularly industry giant A&P -- as monopolies that forced smaller companies out of business, Congress passed legislation that required chains to pay a tax for each unit they operated. By reducing the number of small stores they operated in favor of larger but fewer supermarkets, the chains reasoned, they would have fewer units to be taxed.

The conversion of the industry to the supermarket format was rapid. From approximately 300 supermarkets doing annual volumes of $100 million to $150 million in 1932, over 1,200 supermarkets were in operation in 32 states by 1936 doing an annual business of about $500 million, and just three years later there were 4,500 supermarkets in the U.S.

Of the early supermarket pioneers, most are no longer in business: Big Bear lasted just two years, disappearing in 1934; Canners Warehouse in Detroit folded at about the same time; Henke & Pilot, Houston, was acquired by Kroger Co. in 1956, although the name survived on the stores until 1973; Big Ben, King Kullen's competitor in Long Island, was sold in 1961 to Dilbert Supermarkets, which went out of business later in the 1960s; J. Weingarten, Houston, was sold to Grand Union in 1980; and Alpha Beta remained a major player in Southern California through its acquisition by American Stores Co. in 1961 and its sale to Yucaipa Cos. in 1991 until the name disappeared when it was merged into Ralphs Grocery Co. in 1997.

Among the other supermarket pioneers, Ralphs has operated since 1999 as a division of Kroger Co.; Piggly Wiggly, based in Dallas and now an affiliate of C&S Wholesale Grocers, Keene, N.H., continues to operate more than 600 licensed and franchised stores in 16 states across the mid-South, Illinois and Wisconsin, with combined volume exceeding $3 billion; and King Kullen, based in Bethpage, N.Y., is celebrating its 75th year this year, with 48 stores across Long Island and one on Staten Island, with sales estimated at $800 million -- the ultimate supermarket survivor.

Key Events in Supermarket History

1930: Michael Cullen opens first King Kullen supermarket in the New York City borough of Queens.

1932: Robert Otis and Roy Dawson lease a vacant automobile plant in Elizabeth, N.J., to open Big Bear Super Market.

1933: New Jersey Assembly introduces legislation to outlaw below-cost selling at supermarkets. Associated Grocery Manufacturers of America passes resolution condemning Big Bear distribution practices as uneconomic and unfair. The National Association of Food Chains is founded.

1936: Congress enacts Robinson-Patman Act that requires proportionally equal product costs and promotional terms and treatment for all retailers, regardless of size.

1937: Clarence Saunders, founder of Piggly Wiggly Stores, opens automated prototype store, called Keedoozle (Key Does All). The shopping cart is invented by Sylvan Goldman of Oklahoma City. Super Market Institute is formed.

1938: Congress passes the Food, Drug and Cosmetic Act.

1939: The government introduces a food stamp program to help feed poor families and reduce product surpluses.

1946: A&P introduces in-store bakery shops served from central bakeries.

1954: Safeway conducts test of palletized shipments from a supplier directly to its Landover, Md., warehouse.

1958: Kroger introduces a service deli, bakery and barbecue shop at a store in Detroit under the name, The Continental Counter.

1960: Safeway converts from rack jobbers to direct buying of nonfood items.

1962: Wal-Mart opens first discount store in Rogers, Ark. Giant Food opens first in-store pharmacy.

1964: Congress approves a permanent food stamp program.

1965: Grand Union Co. agrees to comply with an order from the Federal Trade Commission to sell 10 stores -- the first time a supermarket chain agrees to divest stores under FTC order.

1968: Albertsons and Skaggs Drug Centers establish a joint venture to operate combination stores in Texas.

1970: Jewel Food Stores becomes the first major U.S. chain to inaugurate storewide code dating; it also converts all stores to dual pricing, listing both price per package and per unit.

1971: Giant Food becomes the first U.S. retailer to test nutritional labeling on 10 private-label items.

1973: The industry selects an omni-directional linear bar code as its Universal Product Code.

1974: A Marsh Supermarket in Troy, Ohio, installs the industry's first checkstand scanner.

1975: Super Market Institute and the National Association of Food Chains agree to merge to create Food Marketing Institute.

1976: Price Co. opens first membership warehouse club in San Diego, Calif.

1978: Jewel Food Stores introduces generics.

1982: Cooperative Food Distributors of America merges with the National Association of Retail Grocers of the U.S. to form the National Grocers Association.

1983: Wal-Mart opens first Sam's Club in Moore, Okla.

1984: Kroger introduces slotting fees, called "placement allowances."

1987: Ukrop's Super Markets introduces first loyalty card.

1988: Wal-Mart and Cullum Cos. open first joint-venture hypermarket in Garland, Texas.

1989: Haggen introduces first in-store Starbucks shop.

1990: Peapod launches home-delivery service.

1991: Kmart opens its first Super Kmart Center in Medina, Ohio.

1993: Price Co. merges into Costco Wholesale Corp. 1995: Target opens first SuperTarget in Omaha, Neb.

1998: Wal-Mart opens first Neighborhood Market in Bentonville, Ark.

1999: Albertsons opens first click-and mortar-store in Bellevue, Wash.

2004: Wal-Mart launches first test of radio-frequency-identification tags at Dallas distribution center.

2005: King Kullen turns 75, and industry marks 75th anniversary of modern supermarket.

Looking Ahead...

Imagine a shopping trip where consumers visit a series of small, specialized stores geared to the specific demographics of each neighborhood. They submit their basic grocery lists in advance so someone can pull the order for them, and it might seem like the early part of the 20th century, before the advent of the modern supermarket.

But that scenario could describe the supermarket shopping trip of the future, according to a variety of industry observers talking with SN about what food shopping may look like in 2010.

"In five years, there will be a continuing migration toward a more specialized kind of store that appeals to specific consumer demographics or niches," Jeff Noddle, chairman, president and chief executive officer of Supervalu, Minneapolis, told SN. "Stores like Save-A-Lot on one end and Bristol Farms on the other will continue to exist, but the vast middle will continue to decline," with stores becoming more customized in terms of appealing to ethnic diversity or to such specialized groups as senior citizens, large families or singles, he said.

Neil Golub, president and CEO of Price Chopper Supermarkets, Schenectady, N.Y., said stores may not look much different in five years, but what they carry will probably change. "Retailers will have to do a better job differentiating their product lines to meet the needs of different cultures," he said, "and they'll become more sophisticated about how to service that diverse clientele. They'll have to learn to adapt so they can focus on meeting the different needs of each community, and they'll have to continue to get better at perishables because that will be the best way to differentiate themselves from competition."

Dan Bane, chairman and CEO of Trader Joe's Co., Monrovia, Calif., said he envisions a similar future. "Instead of being homogeneous, with all stores pretty much alike as they are now, you'll see more of them trying to get customers by differentiating their formats. Overall, they will become more savvy retailers as they understand consumers better."

Dick King, vice president of Associated Food Stores, Salt Lake City, also said retailing is going to become more specialized, "with retailers having to look at the type of store they want to operate by area and by type of customer and then designing a store around that. One-stop shopping is not going to work because stores may not be able to carry enough selection to please a mass audience when they're trying to appeal to particular demographics."

King also predicted customers will use technology "to send in a shopping list of basics and have that part of their order ready for pickup when they get to the store, which will slow consumers down a bit and allow them more time to spend shopping perimeter departments."

Steve Smith, president and CEO of K-VA-T Food Stores, Abingdon, Va., also said he believes consumers will be able to submit orders in advance "as people continue to be time-stressed," though supermarkets will have to add more service departments "because consumers want that special attention."

Bill Bishop, principal at Willard Bishop Consulting, Barrington, Ill., said shoppers of the future will have access to portable scan devices, "programmed with personalized recommendations tailored from their frequent shopping information, which could be pulled down from their Web sites at home or from a kiosk at the store."

He also said he anticipates grocery stores will be much different from one another in five years, "not necessarily to reflect differences in demographics but to differentiate their market strategies and business models," he explained.

Most others contacted by SN also said they see supermarkets differentiating their marketing approaches.

"I don't think the supermarket concept as we know it will disappear," said Rob Johnson, customer relations manager for Bashas', Chandler, Ariz. "But before the modern supermarket, customers went to specific stores to fill each need, then supermarkets filled those needs under one roof, and now we're going to see them separate again, to differentiate their offerings," with different stores stressing upscale merchandising, natural and organic products, convenience or some other specific type of product lines.

Ray Smaltz, senior vice president, grocery buying and merchandising, for Giant Eagle Supermarkets, Pittsburgh, said he expects more companies will seek ways "to find multiple answers to a challenge rather than one solution, resulting in different formats for different groups [of customers]. [Since] it will be harder to differ much on price, what will differentiate stores from each other will be quality, selection and service."

Jonathan Ziegler, a Santa Barbara, Calif.-based analyst with J.M. Dutton & Associates, El Dorado, Calif., said supermarkets will be tailored to appeal to consumers "within a two-mile radius of each store to accommodate whatever meets the needs of the neighborhood." Gary Giblen, senior vice president and director of research for Brean Murray & Co., New York, said supermarkets will move "to one end of the spectrum or the other, with more [upscale] lifestyle stores at one end and more bare-bones, price-impact stores at the other."

Thomas K. Zaucha, president and CEO of the National Grocers Association, said only community-based stores will be able to succeed in the competitive environment in five years as "consumers yearn for the convenience of something that plays directly to their needs as ethnic shoppers, senior citizens, young professionals or singles."

Among other predictions: Bobby Ukrop, president and chief operating officer of Ukrop's Super Markets, Richmond, Va., said he expects supermarkets to become more deliberately competitive with restaurants within five years; Jack Brown, chairman, president and CEO of Stater Bros. Markets, Colton, Calif., said the trend toward healthier eating will prompt supermarkets to "provide more health and nutritional information than we ever thought possible because that's what customers will expect from us"; and David Livingston, managing partner of DJL Research, Pewaukee, Wis., said regional operators will be a bigger factor in the marketplace because they "can make decisions quickly."

The participants' complete comments follow:

Thomas K. Zaucha

President and CEO

National Grocers Association

In five years, more and more grocery companies will think of their stores as lifestyle centers and will design their stores, service them and provide products and services that reflect that concept. Cookie-cutter stores will no longer be the answer -- only community-based stores will have the ability to succeed. Big-box stores will continue to attract customers -- and even some of those are beginning to adjust their mix to local demographics -- but many consumers will yearn for the convenience of something near and dear that plays directly to their needs as ethnic shoppers, senior citizens, young professionals or the new generation of singles.

Ultimately, understanding consumers' wants and interests will be the key, and retailers will look to manufacturers as an untapped source of consumer-related research to implement that knowledge at store level.

Bobby Ukrop

President and COO

Ukrop's Super Markets, Richmond, Va.

In five years, I believe supermarkets will still be fighting for business because of so many diversified competitors. But I believe supermarkets will evolve into putting more emphasis on feeding people in the stores, in competition with restaurants. I think we'll find that, as people continue to eat meals away from home, we can appeal to them with more than simply ingredients by offering more opportunities for them to come into the stores. Supermarkets will figure out how to do a better job with full meals, whether for takeout or eating in, with a wider array -- not of fast foods but family meals. It goes beyond chicken or pizza. To compete with restaurants, we've got to have good stuff -- hot buffets with an attractive array of meals. We have to figure out how to offer what consumers want and then how to promote it.

Dan Bane

Chairman and CEO

Trader Joe's Co., Monrovia, Calif.

My hunch is that food retailers will be forced to become more specialized to meet consumer needs. Instead of being homogeneous, with all stores pretty much alike, as they are now, I think in five years you'll see more of them trying to get customers by differentiating their formats, as Albertsons has done with Bristol Farms. Overall, they will become more savvy retailers as they understand customers better.

Bill Bishop

Principal

Willard Bishop Consulting, Barrington, Ill.

In five years, grocery stores will be much different, one from the other -- not necessarily to reflect differences in demographics but to differentiate their market strategies and business models. The Aldis, Save-A-Lots, dollar stores and supercenters are going to continue to look for ways to offer the lowest prices, rather than for ways to add core values, so other retailers who can't be the cheapest have to find ways to be different. Within food stores we'll see a significant increase in style sets within which products are presented, with reorganized planograms to make the sections easier for people to shop based on use occasions or needs. I anticipate more information available on individual products to help consumers choose among them, and that information will be delivered on signage that is easier to read and more graphically eye-catching and visually pleasant. Shoppers will probably be guided in their search through the store with portable scan devices, programmed with personalized recommendations tailored from their frequent shopper information, which could be pulled down from their Web sites at home or from a kiosk at the store.

Where you'll see a 180-degree spin is in the store's relationship with suppliers. Whereas most suppliers today determine what they think a section should look like and try to sell that to different stores, in five years there will be an increased number of suppliers who will try to align what they offer to support and drive the retailer's specific marketing strategy -- more of a willingness to tailor a particular category to satisfy a retailer's objectives. In soft drinks, for example, rather than selling all brands and all packages as most retailers offer today, you will see more aggressively edited offerings, with a different mix of product among upscale retailers from those who discount aggressively.

In terms of formats, the market will continue to segment, with the pieces of the pie getting smaller for all retailers, and ordering online from home will continue growing.

Looking ahead 10 years, I think we'll see smaller stores that try to serve a broader set of needs from the same footprint -- stores that attempt to serve different day-parts through meal solutions by rolling up or moving certain sections to cater to different needs for different meals as the day progresses.

David Livingston

Managing partner

DJL Research, Pewaukee, Wis.

I see Wal-Mart supercenters moving into rural areas that have been considered too small for them in the past -- towns with one or two supermarkets and a small discount store that Wal-Mart could come in and replace. I also see a continued expansion of fresh stores, with supermarkets moving to more perishables to accommodate the way Europeans shop.

In five years, I also see a narrowing of the conventional vanilla supermarkets that chains like Kroger, Safeway, Albertsons and A&P operate -- middle-ground supermarkets with few differences. I think we'll see big reductions in the numbers of these stores because they are too large and too bureaucratic to make changes, and a strengthening of the smaller regional companies that can make decisions quickly. Regional wholesalers will also give independents a lot of opportunities to grow and to buy up former chain properties, and as the chains get smaller, I think more of them will begin to rely on wholesalers.

Gary Giblen

Senior VP, director of research

Brean Murray & Co., New York

I believe we'll see supermarkets moving to one end of the spectrum or the other -- with more lifestyle stores at one end and more bare-bones, price-impact stores at the other, to allow them to stay price-competitive with unionized workforces -- with very little in between. I also think more branded suppliers will pick winners and losers among the retail formats and help the winners brand themselves while ignoring the ones they feel are losers.

In terms of online retailing, I think we'll see significant market-share growth in densely populated cities but not much traction in the suburbs.

Rob Johnson

Customer relations manager

Bashas', Chandler, Ariz.

In five years, I see an increase in niche marketing, with more retailers seeking opportunities to carve out new niches for themselves. But it will be the customers that determine what those niches will be, and retailers will have to be flexible enough to meet those needs and adapt to any changes in customer demand. It will not be a case of, 'If we build it, they will come' but more a case of, 'If they want it, we will build it.' As conventional stores encounter the need to be more flexible, they must branch off the parts that are bulging out and let them become entities of their own.

I don't think the supermarket concept as we know it will disappear. But before the modern supermarket, customers went to specific stores to fill each need, then supermarkets filled those needs under one roof, and now we're going to see them separate again, to differentiate their offerings. Those differences may not only depend on ethnicities but also on other factors. For example, shopping for different occasions may dictate how stores operate -- to fill special needs or to fill needs of customers in a hurry, for example. If you're planning a backyard wedding, you'd go to an upscale store. If someone has food allergies, you'd go to a natural or organics food store. If you're in a hurry and want a quick in-and-out, you'd go to a smaller, more convenient store. The occasion will dictate the needs that will differentiate the market.

In this future scenario, direct-store-delivery suppliers could play a huge role because they'd be able to fill the needs of a handful of stores more easily than a retailer having to inventory large quantities of goods that only a few stores need. DSD would be an efficient way to deal with all the different needs retailers might have.

Jeff Noddle

Chairman, president and CEO

Supervalu, Minneapolis

In five years. there will be a continuing migration toward a more specialized kind of store that appeals to specific consumer demographics or niches, including ethnic diversity, senior citizens, large families, singles or some other grouping customized to different areas, based on all the information we have today. Even large boxes, including supercenters, will do some customized business. Stores like Save-A-Lot on one end and Bristol Farms on the other will continue to exist, but the vast middle -- traditional stores of 65,000 square feet that appeal to a broad, mass audience -- will continue to decline. Some of the companies that operate those stores today will operate a smaller portfolio of stores that are more customized, with many of their other stores moving into the hands of independents.

Manufacturers will use some of the available demographic information to customize their offerings, with more ethnic merchandise or other products geared to specific neighborhoods, and wholesalers will have to facilitate those kinds of activities as well. In fact, supply chain will be a critical component, however you go to market.

Dick King

Vice president

Associated Food Stores, Salt Lake City

Retailing will be more specialized in five years, with retailers having to look at the type of store they want to operate by area and by type of customer and then designing a store around that. One-stop shopping is not going to work because stores may not be able to carry enough selection to please a mass audience when they're trying to appeal to particular demographics.

Consumers will look for greater ease of shopping, and that will involve the use of more technology, mostly at store level, to help them understand what's on sale, which could come from in-store TVs or videos on the shopping carts. There will also be some form of personal shopper technology that will enable consumers to send in a shopping list of basics and have that part of their order ready for pickup when they get to the store, which will slow consumers down a bit once they get there and allow them more time to spend shopping perishables and other perimeter departments or taking cooking lessons or participating in other in-store activities that remove some of the drudgery of grocery shopping. And some younger shoppers may use warehouse stores for bulk shopping and specialty stores for picking up something for dinner that night.

Retailers in the future will have to do a better job hiring the right people and then training and educating them properly so they can talk knowledgeably with customers about new items or in-store services. That's going to take several years to evolve, and it may not be fully developed in five or even 10 years. But it will require some skilled people, like meat cutters, to spend more time out front talking to consumers.

With stores becoming more customized, manufacturers won't be able to offer as many different programs or items, and they're going to have to design programs and packages for different niches and deliver their messages in-store. Down the road, they must help retailers by not coming out with so many "flavors of the month" to help reduce labor costs and out-of-stock issues.

Online shopping will be big, especially among younger consumers who are more comfortable with the computer, and that ties in with this personal shopper concept. There may also be more ads and coupons on Web sites as manufacturers discontinue use of freestanding inserts.

Steve Smith

President and CEO

K-VA-T Food Stores, Abingdon, Va.

Consumers will want us to continue to deliver convenience, and supermarkets will have to continue to innovate with more conveniences for consumers, whether that be pharmacy, fuel, organics or self-checkouts. Consumers like the convenience of food at drug stores and the convenience of occasionally going to big-box stores for stock-ups, so supermarkets will have to focus on how to get as big a piece of the retail pie as they can.

In five years, consumers will want to be able to e-mail or somehow submit orders to the stores that they can pick up when they come in. As people continue to be time-stressed, that may be an option they want. But supermarkets will also have to add service departments back into their stores because consumers want that special attention.

In five years, I think we'll see different methods of marketing used in different parts of the country because consumers in different areas will expect and demand different things. But we must remember we're in the people business, and most of the successful companies are the most people-oriented and -focused. How we sell groceries is what differentiates us.

More suppliers will work with retailers on corporate brand items to fill a niche, and rather than using corporate brands just for staples, we'll see more suppliers interested in partnering with supermarkets to develop unique, signature items to differentiate their brand.

Jonathan Ziegler

Retail analyst

J.M. Dutton & Associates, El Dorado, Calif.

In five years, supermarkets will be more highly differentiated and tailored to the environments within a two-mile radius of each store -- upscale, price-oriented, fresh-oriented, heavier on general merchandise offerings -- to accommodate whatever meets the needs of the neighborhood, based on the databases supermarkets have from frequent shopper cards. Supermarkets will have more limited [stockkeeping units] in the center of the store -- with substantial cutbacks in the sizes and breadth of each offering -- and most center-store items will be sold on an everyday-low-price basis. The space gained from cutting back selection will be used for additional offerings of general merchandise or services such as in-store clinics. Perishable sections will be a major draw, and they will probably be more upscale.

With each store more specialized, the boxes are likely to get smaller -- probably less than 55,000 square feet -- and there will probably be more stores than we have today. Supercenters will probably have achieved saturation by then and Wal-Mart will be rolling out more Neighborhood Markets. And there will be fewer conventional mass-appeal markets, except maybe in small towns.

Retailers will work with vendors to improve private brands and to develop brands that are unique to a particular chain. And there will be more scan-based tracking where vendors own the merchandise on the shelves until the product is scanned, which will free up working capital that's tied up in inventory and encourage suppliers to develop more ways to help retailers drive sales by developing more powerful promotions.

Online shopping will be more attractive to people who don't want to leave their homes, though that kind of demand will make it possible for online providers to charge a fee for their service.

Jack Brown

Chairman, president and CEO

Stater Bros. Markets, Colton, Calif.

Food retailing in five years will be a very exciting business to be in because of the renaissance we're seeing today of regional chains emerging as leaders of the industry. Looking ahead five years, I think stores will probably get smaller -- under 60,000 square feet -- but with a broader selection of product. Health will be a key issue, and people will want to eat healthy, which means supermarkets will provide more health and nutritional information than we ever thought possible because that's what customers will expect from us. And some speciality suppliers will get a bigger share of market because they'll have the kinds of healthy products more people want. We'll continue to see competition from big-box stores, but they will remain weak in meat and produce, and the majority of customers will still want to shop with supermarkets for those categories.

Stores will differentiate themselves through their service departments -- floral departments will evolve into full flower shops; cheese departments will become cheese stores; bakeries will increase their offerings of breads, rolls and bagels, with perhaps some bagels being made in-store; and maybe more stores will have tortillerias; and we'll see broader selections of meat, deli and meals- to-go. And stores will be more service-oriented, although labor is expensive.

Online will probably be used to enable people to order basic supplies and then pick them up when they come in to shop for perishables.

Neil Golub

President and CEO

Price Chopper, Schenectady, N.Y.

In five years stores will probably not look a lot different, though the ingredients may change. Retailers will have to do a better job differentiating their product lines to meet the needs of different cultures, whether it be African American, Puerto Rican or Cuban, and they'll become more sophisticated about how to serve that diverse clientele. In the center store, operators will learn to adapt to meet those cultural and diversity changes. In addition, they'll have to find better ways to integrate organic and natural foods into their assortments so people know they're there. They'll have to learn to adapt their stores better so they can focus on meeting the differing needs of each community, and they'll have to continue to get better at perishables because that will be the best way to differentiate themselves from competition. And community service will remain an exceptionally important way for retailers to interact at the local level to do what has to be done.

Many suppliers will have to put more focus on regional players and away from Wal-Mart because they'll realize that if they're too dependent on Wal-Mart, then they're vulnerable. Manufacturers are beginning to recognize they have to treat regionals better and, with a lot of chains moving to EDLP, they're going to have to work with other retailers to create more powerful promotions.

Ray Smaltz

Senior VP, grocery buying and merchandising

Giant Eagle, Pittsburgh

In five years I believe supermarkets will be both larger and smaller. Trends are emerging now where you have some very large stores that are taking deeper dives into general merchandise and dabbling in home entertainment and furniture, while others are getting smaller, geared to filling more specialized needs such as convenience, extreme-value or home-meal-

replacement concepts. The traditional box of 40,000 to 45,000 square feet will still be around in five years, but I see more companies seeking multiple answers to a challenge rather than one solution, resulting in different formats for different groups.

What will differentiate stores from each other will be quality, selection and service. It will be hard to differ much on price, so everyone will work to achieve those differences, even in the smaller boxes, which will also result in more companies getting deeper into ethnic offerings, such as what real Indian or Thai foods are all about and being able to cater to specific sectors of the population. So in the future, I think operators will leverage their expertise in specific cuisines, with less emphasis on branded or private-label offerings.

Those changes will put pressure on the supplier community because it will become harder to communicate with retail customers who are pressured themselves to produce better results. Suppliers will have to be more market-focused than brand-focused. They will have to look at retail customers in different ways -- away from a single market appeal and more toward understanding each company's individual mission as each tries to differentiate itself in the market.

Over the next five years, online sales will increase gradually as it becomes easier to order ingredients for more ethnic foods. The No. 1 users of online will be younger people, but I don't see a majority using the Internet to shop.

David Bennett

Co-owner

Mollie Stone's Markets, Mill Valley, Calif.

In five years, supermarkets will offer more perishables, and probably more self-checkouts and more meals to go. They will be oriented more toward meal solutions than toward stock-up grocery solutions, which would continue a trend that's already under way, and stores will differentiate themselves with freshness and quality.

I also think we'll see suppliers of different brands consolidating orders to reduce the number of back-door deliveries, which would lower the costs of fuel, insurance, maintenance and labor. I also think suppliers will customize their products to meet retailer needs -- instead of simply calling on retailers to sell their products, there will be more specialized teamwork concerning what kinds of items manufacturers can make to fit a particular retailer's niche.

Ric Jurgens

President and CEO

Hy-Vee, West Des Moines, Iowa

It strikes me the trend in the traditional food-and-drug combo store has been to get slightly larger every two to three years, and I think that will happen again over the next five years, with the additional space being filled with more service offerings. The increasing emphasis on health will require more expanded grocery offerings, clinic services or knowledge-based services, and when you add five years to the age of baby boomers, there will also be an increased focus on more effective lighting and signage as key elements in the design and style of stores.

Regarding the future role of suppliers, it's ironic that the biggest opportunity for suppliers to help retailers differentiate themselves is private label, which gives retailers a chance to have legitimate differences with competitors. But that can be a slippery slope for manufacturers because if he offers a specific product line to one retailer, another retailer will want to have that product as well, so the difficulty for many manufacturers is to help retailers differentiate themselves, and that can be done with the best presentation, information or knowledge relating to their product line to make a difference company by company.