CONVENIENCE ONLY ONE SMALL PART OF TOTAL VALUE EQUATION

Mark Hamstra

In New York's Union Square neighborhood, the only accessory more common than the strategically displayed piercing lately has been the Trader Joe's shopping bag.

But where do all those Trader Joe's customers go after waiting in a checkout line that snakes to the back of the store?

Recent observations reveal that although many walk to local apartments or dormitories, others tote their Joe's O's for miles on the nation's largest subway network. For these shoppers, the value of shopping at Trader Joe's exceeds the convenience of shopping at neighborhood supermarkets in New York, where prices are notoriously high and food stores are decidedly unpleasant environments.

In some ways, Trader Joe's has become to Manhattan supermarkets what Wal-Mart has been to small-town food stores across America, in the sense that the values offered by Trader Joe's exceed the convenience of local shopping.

"There are price-gap tipping points," said Jon Hauptman, vice president of consulting firm Willard Bishop, Barrington, Ill. "Consumers are willing to pay a little bit more to get greater value. That tipping point is typically around a 10% price gap. If prices are within about 8% to 10%, consumers will prefer to stay at the store that is more convenient, and when the gap gets a little greater, they start to look elsewhere."

In New York, Trader Joe's easily exceeds the 10% price gap on many comparable items - Applegate Farms natural cold cuts, for example, were recently priced about 20% cheaper at Trader Joe's than in a chain store 70 blocks north - and it adds the cachet of carrying one-of-a-kind products and providing a more upbeat shopping environment.

Consumers in Middle America are faced with similar choices, with the added variable of the high cost of gasoline thrown in the mix. Supermarket executives have told SN they expect to reap benefits from consumers' desire to save fuel by avoiding trips to outlying supercenters, but those shoppers will still be acutely aware of pricing and the other attributes that weigh into the value equation.

Proximity has a limited worth in that equation. Retailers that rely solely on their convenience and fail to generate enough additional value will miss an opportunity to convert a shopper who is temporarily put off by the high cost of gasoline into a permanent customer.

Although their more accessible sites might give retailers some pricing leeway, the current environment also dictates that they stay within the 10% "tipping point."

Hauptman suggests that retailers could do more to communicate their value position.

"That's the greatest opportunity today," he said. "Many retailers don't show consumers where the values are or how they can take advantage of them. Particularly with the high price of gas, shoppers are looking for great value in their convenient and local store, and supermarkets have an opportunity to go above and beyond in their effort to show consumers how they can find values in their local store."

As any subway rider who has shared a long train ride with a dozen Trader Joe's shopping bags can attest, that's something many New York supermarkets have apparently failed to do.