IDENTITY CRISIS 2005

Christina Veiders

If you ask consumers to draw a picture of a conventional grocery store they shop, what would you get? Most likely it would be a blank box empty of symbols, icons, color or emotion, said brand marketers and consultants.

The image of a blank box presents a big problem and challenge for food retailers competing in today's highly specialized retail environment. Without having a well-defined position in the consumer's mind, supermarkets are doomed to be a commodity service shopped on low prices and convenience alone. That leaves supermarkets treading water as they experience further erosion of market share to those with established distinct brands such as Wal-Mart, Target, Costco and Whole Foods, among others, brand watchers told SN.

Attempts are being made to change the plain vanilla image that grocery stores convey to their consumers. Safeway's new branding campaign is the most notable example of a big-box food retailer trying to break out with a distinctive impression. But the task remains a formidable one for food retailers and requires a long-term commitment. Even Wal-Mart Stores risks losing its identity as it tries to shift its image to the left in an effort to broaden its base with higher-income shoppers.

There are a number of barriers that supermarkets must overcome to achieve a distinct identity that can captivate shoppers. Laura Ries, president of Ries & Ries Consultants, Atlanta, sees supermarkets caught in the "mushy middle" between Wal-Mart on one end of the spectrum, with a clearly defined brand strategy of "low prices always," and Whole Foods on the other end, with quality natural and organic foods at high prices. "Traditional supermarkets in our opinion have done a poor job in branding themselves, because they haven't stood for anything," she told SN. "They haven't defended themselves, and they are playing defense to the big branded [retail] giants that have come into the arena."

The reason why brand-building among supermarkets has been relatively nonexistent, said Neil Stern, senior partner of McMillan/Doolittle, Chicago, is because food retailers operate on a distribution-based model, promoting and showcasing consumer packaged goods companies' products rather than building and promoting their own brand. For example, Procter & Gamble's Tide gets the customers into the stores, and retailers, supported with manufacturers' promotional funds, are there to sell it efficiently. Retailers have "distinguished themselves through cleaner stores and better service, but that doesn't have much resonance as being a retail brand," Stern said.

A cultural shift needs to take place among conventional food retailers in order for them to become brand marketers, said Ted Taft, managing director, Euro RSCG Meridian, Westport, Conn. He points to the pool from which supermarkets draw their top executives, typically coming up through the ranks from stock boy to store manager to buyer and into the executive suite. "They haven't had marketing as part of their backgrounds," he said. "Many of those at the buyer level are evaluated based upon how much money they can secure from their suppliers. A lot of focus has been on that, as opposed to how can we better market ourselves to the consumer."

RAISING THE STAKES

The branding stakes are being raised not only by the alternative players that tout a distinct offer, but by e-commerce retailers such as Amazon.com and online grocers Peapod and FreshDirect. These are all recognized brands that have entered the food retailing field and are extending their reach, noted Bill Bishop, principal, Willard Bishop Consulting, Barrington, Ill. Amazon has been beta testing its Gourmet Food Store since it debuted in 2003.

"You've got quasi-virtual companies coming in under the protective cover as a brand," he said, warning supermarket operators to take heed when a strong brand like Amazon launches a grocery strategy with a completely different operating model.

Positioning supermarkets as being all things to all people has become a trap, making it difficult for food retailers to establish a strong branding proposition for themselves, consultants pointed out. "Almost all food retailers would like to sell as much as they can to everybody who will buy it," also part of the operating philosophy supermarkets are based upon, Bishop said.

From the consumer perspective, Ries finds supermarket shopping frustrating and often finds herself engulfed by a mishmash of merchandise. "Every time I go in [a conventional supermarket], there is a new category aisle or stuff in the store. In some respects, there is less of what I want," Ries said. "The way to build a strong brand is by sacrifice. You can't stand for everything."

EXORCISING DEMONS

Supermarkets have become generalists; they lack a clear area of expertise, said Jim Emery, president of Viewfinder Consulting, Savannah, Ga. He said it's important for retailers to pay attention to the various need states of their consumers today.

"Grocery chains don't win on any particular consumer need state compared to other channels. That is a challenge. In being generalists, supermarkets suffer from a branding point of view. The specialists today are the winners," he said.

Emery pointed to Best Buy as a retailer that has taken consumer need states to heart. Best Buy is aggressively pursuing a new go-to-market model inspired by co-authors Larry Selden and Geoff Colvin in their book, "Angel Customers and Demon Customers."

The electronics retailer is betting that a customer-centric model will keep it the country's leading electronics retailer. The company realized that "not all customers were created equal, and some are better than others," Emery said. After closely tracking the shopping patterns of its customers to find out what value they add to the shopping trip, Best Buy discovered it had too many "demon" customers who weren't contributing profits.

The company identified five key customer segments: affluent professional males, young entertainment enthusiasts, upscale suburban moms, families who are practical technology adopters and small businesses with fewer than 20 employees. The Minneapolis-based retailer redesigned its stores, which it calls segmented stores, targeting the five groups with specific services and merchandise to meet their needs. For example, personal shopping assistants are available for busy moms, who can choose from a broader product assortment, including digital imaging, kitchen, laundry, gaming, home theater and mobile video.

So far the strategy appears to be working. In its second-quarter results ending Aug. 27, 2005, Best Buy reported that its segmented stores' comparable-sales gain was more than double that of the chain, which was 3.5% during the period. While admitting that the segmented stores required more complex labor and services, Best Buy's Brad Anderson, chief executive officer, stated in the report, "We believe that this new approach, which helps us engage with our customers differently, is essential to Best Buy's success." The company plans to have 350 segmented stores by next fiscal year.

What food retailers need to do, brand marketers say, is rethink how they go to market, and that process starts with the consumer.

"You want a lot of traffic, but you need to identify who is going to love you to death," Emery said. "Identify your brand lovers. If you can satisfy them, then others will see how special you are as well."

COMPLETE MAKEOVER

Safeway, Pleasanton, Calif., is attempting to do just that with its "Ingredients for Life" rebranding strategy. [See Breathing New Life, below.] CEO Steve Burd has said he believes Safeway is the first food retailer to try to rebrand the shopping experience as a CPG company would brand its products. "It's our belief that in the supermarket segment, no one out there has really branded their proposition to consumers," he told analysts at a Banc of America Securities Consumer Conference earlier this year.

The company began rebranding several years ago, transforming itself from the inside out by redesigning and remerchandising its perishables departments. It added more organics and fresh prepared meals, all with an emphasis on quality. The company then followed with a $100 million advertising campaign, launched in April, broadcasting its new branding message.

The first of what are called lifestyle stores debuted in Freemont, Calif., in 2003. Since then, the company has aggressively rolled out its new format across all banners. There are 235 Safeway stores with the lifestyle format. By the end of next year, there should be about 450, according to Liz Muller, principal, Avizia, Novi, Mich., who heads the retail-environmental design firm largely responsible for the new look inside Safeway stores. She told SN the advertising-marketing campaign was created after the in-store lifestyle concept was launched, because Safeway "wanted to make sure their ducks were in a row, and they had the right concept in place" before they created the "Ingredients for Life" campaign. Safeway also wanted to make sure it was best in class in perishables, she said. "So many times we yell out [to shoppers] and say we are going to do something and then we disappoint. Safeway is being careful not to disappoint its customers."

Muller said Safeway's rebranding effort is at the starting line rather than the finish line. The next step is reinventing center store.

While consultants applaud Safeway's effort, they are waiting to see the sustainability of the final results. Some question the impact of the cost of rebranding vs. pricing. "Safeway's strategy may be less than fully effective at sales building, because they haven't focused enough on narrowing the price gap in areas that need it," one anonymous source said. "The brand differentiation could be viewed as less than affordable by average people who can only afford to shop there at special times."

Taft doesn't see Safeway's rebranding as being distinctive enough. "Everybody is doing it. Food Lion has Bloom that is trying to do the same thing. Everybody is focused on perishables, and the next generation of that is trying to create more bridges between perishables and center store. Safeway is doing the right thing, but just by itself it's not necessarily distinctive," he said.

"It will be interesting to see if Safeway can pull it off," said Jim Norred, president of J. Brown, Plano, Texas. "The retailers that will be successful against Wal-Mart are the ones that figure out how to market locally and be something different in their neighborhood." He said Lubbock, Texas-based United Supermarkets' Market Street format is accomplishing just that with its distinctiveness.

MORE RETHINKING

While Safeway's rebranding is the most widely publicized and appears to be fully integrated with store redesigns, remodels, remerchandising, expanded fresh assortments and a new advertising-marketing campaign, other food retailers have begun to rethink their image as well.

Over the last few years Food Lion, Salisbury, N.C., has been pursuing an aggressive brand positioning strategy for each of its banners: Food Lion, Bloom and Harvey's. Michael Haaf, a former Office Depot marketing executive who is Food Lion's senior vice president of sales and business strategy, has led the branding charge at Food Lion. "We know customers, and customers' desires vary," said Jeff Lowrance, spokesman for Food Lion. "Therefore we want to develop different products, services and brands to best meet our customers' needs. We'll use this brand approach in all of our business decisions," he said in explaining Food Lion's strategy.

"When I watch the [branding] process at Food Lion," Bishop said, "I think they have a better chance of rebranding themselves than other larger chains, because they've got visionary leadership and real marketing expertise inside the company."

Under the guidance of Yucaipa Cos., Pathmark, Carteret, N.J., is rebranding itself, too. The company launched an ad campaign in May with the tag line, "Pathmark. It's About Time."

Rich Savner, a Pathmark spokesman, said the retailer learned through focus groups that time is a precious commodity for Pathmark shoppers. To that end, Pathmark is focusing on making shoppers' grocery trips hassle-free and pleasant, he said. This is being done by improving in-stock of products, offering friendly service and providing fast checkout.

"We changed the new branding line and enhanced the quality of the perishables presentation, because that is high on the list of why people shop our stores," Savner said.

Pathmark's newest Philadelphia store on Aramingo Avenue indicates where the retailer is headed in rebranding and remerchandising its stores. The store features an expanded deli with a sit-down eating area. The deli serves hot prepared foods and has self-service rib, wing and Chinese food bars. The produce section also has 150 more items than the average supermarket, Savner said.

Pathmark plans to spend over $12 million on remerchandising its stores, said John Standley, Pathmark's new CEO, during the company's second-quarter conference call last month.

Milwaukee-based Roundy's Supermarkets has hired a Minneapolis-based advertising agency, Kerker, to develop an integrated brand campaign. The company declined to comment further on its plans. "Roundy's is a good example of an organization that has potential to be successful in rebranding themselves," Bishop said. "You have to give them a good handicap on this, because they are dominant in most of the markets in which they operate, and they have progressive management. They are a private company and can make it happen."

Even Bentonville, Ark.-based Wal-Mart Stores, the powerful retail brand built on low prices for the common folk, is playing down its smiley face image with a reposition, such as spending big bucks on advertising in Vogue to influence the fashionista set. It is trying to broaden its image, through new advertising, from being small-town and homespun to being more of a savvy choice in satisfying consumers' lifestyle needs.

To do this, it's looking at better in-store execution and is evaluating its merchandise, including the possible acquisition of the Tommy Hilfiger designer brand, according to media reports. This new campaign, under the direction of John Fleming, a former Target executive who was named Wal-Mart's chief marketing officer this year, is being executed to broaden its shopper base to better compete with Target.

"Be very careful!" is what most brand marketers cautioned about Wal-Mart's campaign, though many are giving Wal-Mart the benefit of the doubt. With its sheer clout in the marketplace, Wal-Mart has a chance of pulling it off without damaging its image and alienating its core customers, many marketers believe.

"To see them advertise in Vogue is strange," said David Rogers, president of DSR Consulting, Deerfield, Ill. While Rogers believes Wal-Mart's strategy is dangerous, he said, "If it is done very carefully and sensitively, it could be successful in diversifying them up a bit toward Target. They are well above average in terms of management expertise, so there is a good chance they will carry it out."

Most food retailers are only testing the branding waters and taking baby steps in store-brand development, experimenting with new formats and in-store merchandising rather than taking a leap into a total makeover.

Stern said the gold standard in retail branding today is Minneapolis-based Target, a lifestyle brand. Branding today is "about being aspirational and connecting with customers in a more personalized way. The store is about 'me,' and I think people say that about Target. I don't think they say that about many supermarket chains."

Makeover

Rebranding for Safeway is an evolutionary process that began in perishables. Avizia, a retail design firm, is working with Safeway on its lifestyle format. The redesign uses natural colors, warm lighting and life graphics to educate and sell the "dream" of delicious foods and meals. Produce and floral departments are in the front of the store to provide a colorful appeal to shoppers as they enter the store. Product is often displayed as a selling solution accomplished through extensive cross merchandising of center aisle items to complement perishables. The communication is high quality and best value, but not high price.

Time-Saver

Pathmark recognizes time is a precious commodity in shoppers' lives. The retailer launched a new ad campaign this spring to let consumers know that Pathmark is aware of the time constraints put on them, and it offers a shopping experience that is pleasant and will help them save more time for themselves. In addition to the new ads, a new Pathmark store in Philadelphia may be a prototype for future stores. It features an expanded perishables department and extra services implemented to save time when shopping.

Convenience

Internet services like Peapod, a wholly owned subsidiary of Royal Ahold, with a strong brand identity, have come on the scene as a convenient lifestyle alternative. Such online retailers have the potential to cut into traditional food retailers' market share, especially if they lack a well-defined position in consumers' minds.

Hassle-Free

Food Lion brands its individual banners separately. With the slogan Thought for Food, Bloom was created to satisfy consumers' need for convenience and hassle-free grocery shopping. The name is different, conveying freshness, nature and the beginning of something new. The store layout and shopping experience also are different with convenience sets such as the TableTop Circle where take-out foods and convenience items are sold and electronic kiosks are available to make shopping easier.

Comparison of Ad Expenditures

Grocery retailers have stayed steady on their advertising expenditures, spending about 1% of their annual sales on advertising. This figure does not include co-op revenue from vendors. This is a very small amount when compared to consumer packaged goods suppliers. See comparison of some of the industries reported in the list of 200 largest ad spending industries.

2004 Ad Sales Ratios

Industry: Ad Dollars % of Sales; Ad Dollars % of Margin; Annual Ad Growth %

Grocery stores: 1.0; 3.8; 3.0

Bakery products: 1.2; 2.5; -1.5

Beverages: 9.0; 14.4; 2.0

Convenience stores: 0.4; 1.8; 7.8

Department stores: 3.5; 10.4; -0.8

Drug and proprietary stores: 0.7; 3.8; 8.1

Eating place: 3.2; 14.3; 5.2

Food and kindred products: 11.1; 21.1; 8.3

Source: FMI/Advertising Age/Schonfeld & Associates