Signs That Supermarket Value Message Is Working

It wasn't the kind of article you'd normally see in a store circular, certainly not from Trader Joe's. In that retailer's most recent “Fearless Flyer,” the whimsical publication that typically promotes the chain's unique products and values, one story lampooned how supermarkets conduct business.

Two flow charts were shown side by side. A Trader Joe's chart showed a vertical line running directly from supplier to Trader Joe's to customer. Another version, called the “Other Guys,” displayed a similar vertical line with lots of offshoots, including those marked research, development, calculate slotting allowances, ask people random questions, Power Point presentations, read market research, and more.

The accompanying copy explained, “Nearly 40 years ago, we realized that we could offer far better prices for you, our customers, if we stripped away all those extra costs associated with the brand names and packaged our products in our own brand.”

Trader Joe's wins points for presenting its case in a humorous fashion, but why did the retailer feel the need to do this? Doesn't it have a strong enough value proposition with consumers to avoid having to bash the other guys?

The answer is yes, but the retailer also realizes other grocers are gaining traction with their own value messages. Supermarkets have increasingly trumpeted lower prices and private labels, and consumers are taking notice.

“Supermarkets are getting more aggressive with private label, which is Trader Joe's No. 1 component,” noted Neil Stern, senior partner with retail consulting firm McMillan Doolittle, Chicago.

Trader Joe's isn't accustomed to having its long-time message adopted aggressively by the other guys, so it needs to remind customers of its unique claim to value.

There are other signs supermarkets are making strides with value. A nine-market survey cited in last week's SN found supermarket prices were closing the gap with those of Wal-Mart.

That research was conducted by Simeon Gutman, an analyst at Canaccord Adams, New York. He said Kroger and Safeway in particular are leaders, and Supervalu has become newly aggressive.

Despite these findings, supermarkets have experienced recent market share losses compared to other formats. The latest data from Food Marketing Institute, also reported in last week's story, showed a slight falloff in the percentage of shoppers who point to conventional supermarkets as their primary grocery destination, compared to a gradual rise for supercenters. But Gutman told me that when a marginal improvement in the economy holds for a couple of months, shoppers may begin to shift from cherry picking a wide range of stores to consolidating trips around preferred shopping venues, which he predicts will include supermarkets.

Grocers' efforts to invest in price has sometimes hurt their bottom lines. Nevertheless, supermarkets are staying on the value radar of shoppers and managing to make some competitors — even fearless flyers — a bit defensive.

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