SUPERMARKETS' HARD-LINE ATTACK

David Merrefield

It's been quite a while since the supermarket industry first heard footfalls of discount-store operators treading with their supercenter format into the food-selling arena.

And -- let's face it -- response from the supermarket industry to this significant threat has been mostly characterized by rolling out tepid fight-back strategies involving store remodels, the renewal of a customer-driven outlook, the surrender of entire nonfood categories to the discounters whenever price competition looks costly, the chase after logistical efficiencies and the like. Those efforts have scored some successes and bought some time, it must be acknowledged, but maybe the moment has arrived to forget about depending too much on such gambits and see if the issue can be framed in an entirely new way.

To look at the issue quite differently, let's quit asking how the supermarket industry can protect its turf from discounters' incursions and ask how supermarkets can hold discounters at bay by moving aggressively into the nonfood-selling domain now held by discounters.

The question is seldom framed that way, I think, because the supermarket industry has a scant history of success when it comes to selling nonfood. Indeed, there's been a record of failure, and, for the most part, supermarket retailers and wholesalers that used to have nonfood operating subsidiaries or joint ventures no longer have them. So the lore grew that food people simply don't know how to source and merchandise much more than the simplest nonfood offerings imaginable. But let's also look at that issue another way: Since supermarket operators have decided discounters are capable of learning how to astutely acquire and sell food, why can't it be conceived that supermarket organizations can learn to somehow obtain and sell hard lines -- and in so doing give discounters pause as they march on supermarkets' share of food dollars?

After all, it's now being seen that even the mighty Wal-Mart Stores stands on feet of clay. Wal-Mart's long string of quarterly earnings increases ended lately, and its goal to achieve sales of $100 billion for the fiscal year ended last week evidently won't be realized. The Street expects Wal-Mart to weigh in with about $94 billion instead. Look for Wal-Mart to make an earnings announcement Feb. 27.

None of this indicates shabby performance on the part of Wal-Mart, but it indicates something. And, with Kmart financially hobbled, and Target just moving into the supercenter business, why shouldn't supermarkets drive more aggressively into the heart of discounters' territory right now?

Actually, one tiny and indirect foray is coming from Kroger Co., the nation's largest food retailer, which is testing interactive kiosks in a few stores in various markets. By means of the kiosks, food shoppers can view and order a large number of nonfood stockkeeping units from noncompeting retailers.

The strategy represents a safe means for Kroger to tweak the nose of discounters without incurring the liability of ordering, distributing and merchandising a wide array of nonfood products. (A news article about the kiosk program was in the Jan. 29 issue of SN.)

This is a start, and if it's shown that food shoppers are willing to buy a full range of nonfood products from supermarkets -- even by means of kiosks -- it may give courage to the supermarket industry to make new moves to disperse the circling sharks.

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