Breathing new life into nonfoods

Focusing on customer needs and food-related items can help drive more traffic to the HBC and GM aisles. By Craig Levitt Some supermarket retailers say that nonfoods is getting the shaft; others say the category has simply not lived up to its promise and after years of trying the time has come to figure out a new strategy with their health and beauty care and general merchandise segments. The bottom line is that nonfoods has long held a secure role in a typical grocery store’s merchandise mix. The overall category has produced strong profits—albeit at the cost of relatively low turns—and it has served as a traffic builder, particularly with the pharmacy and key HBC segments. But nonfoods has always had a fragile spot in the supermarket hierarchy. Some grocery executives even feel that they should dramatically downscale their nonfoods assortment and give the space to other sections, including produce, the bakery and meats, that have more in common with the typical supermarket shopping experience. Those who sell nonfoods have a different point of view, arguing that with all mass retailers battling over the same consumers, it is vital that supermarkets actually beef up their nonfoods commitment. The attitude appears to be that if a mass merchandiser or drug store sells it, why can’t a grocery store. “My opinion is that supermarkets sell the customers,” says Perry Reynolds, vice president of marketing and trade development for the Rosemont, Ill.-based International House­wares Association (IHA). “I get that the mission is to sell groceries, but the real mission is to sell the customer. That is an important difference. Even with some of the changes over the last couple of years the grocery channel is still the most frequently shopped retail channel in the country. That means they have the most valuable thing going, the customer.” Split trips Industry observers estimate that while the number of trips shoppers make per week on average has increased in recent months, the number of weekly trips has declined over the past 10 years. Furthermore, those trips are being split up among a wider range of retailers—all of which sell food. As the most frequently shop­ped retail channel, supermarkets have the ability to not only increase their bottom line with stronger GM and HBC sales, but improve the consumer’s shopping experience, therefore building customer loyalty as well. “Retailers are always asking, ‘How do we get shoppers into our store?’ So they are looking at items that bring profit,” says Ted Taft, managing director for Wilton, Conn.-based Meridian Consulting. “But they are also looking at items that can enhance the attractiveness of their operation versus another. The strength of supermarkets is and probably always will be food. Products that relate to that equity; enhance that equity and make consumers say ‘Wow! I can pick up chicken breast for dinner tonight but they have also got a lot of products that can help me cook and enhance the occasions we eat at home,’ those products can do very well.” Robert Passikoff, founder and president of Brand Keys, a New York-based consultancy specializing in customer loyalty, says the problem for many supermarkets is convincing consumers that nonfoods is a viable category to be shopped at grocery. There are, of course, some food retailers that do a good job in nonfoods. Passikoff points to Wegmans as “the gold standard.” The reason is relatively simple: Wegmans dedicates space to many general merchandise and HBC categories. “One of the biggest barriers for supermarkets is that the matter of space is always at a premium,” he says. “Often when [a manufacturer] visits with a supermarket and says ‘this is how much space I need to do this,’ the retailer’s face blanches. ‘Where are we going to get that from? We will have to give up something else. We have to reorganize.’ I never got the sense that Wegmans was unwilling to do that.” In fact, Wegmans offers lots of space to such categories as greeting cards, stationery and magazines on the general merchandise side. Building around an impressive pharmacy counter, the Rochester, N.Y.-based chain incorporates one of the largest HBC departments in the grocery industry, featuring perhaps more health and beauty SKUs than any other grocery chain in the country. Interestingly, Wegmans also tends to place its nonfoods department squarely in the middle of its stores. Providing a destination When it comes to the GM and HBC categories, many of these items are destination purchases for consumers. The problem, according to several industry executives, is that many supermarket operators still take the traditional approach to retail, regarding the two as convenience categories that shoppers simply pick up while in store. “The reality is, today, that classic definition of a convenience category—there aren’t many of those left,” says Jim Wisner, president of the Libertyville, Ill.-based Wisner Marketing Group. “Today a category is essentially a destination or emergency. That’s a fundamental change, but part of what happens is that going back to the traditional supermarket viewpoint of ‘Well, if I lose a GM or HBC sale, it’s not a big deal.’ Now what happens is people make separate trips to Wal-Mart, Sam’s, Costco, etc. and those stores are filled with food. So you don’t just lose a sale, you lose an entire trip.” The greater risk is losing customers altogether, experts note. Wisner offers the need for batteries as an example. He says that a household full of teenagers will typically need to replenish batteries on a regular basis and unless a supermarket provides an offering that appeals to that need, that family of consumers is going to go to a mass or club store to make that purchase. While there they will more than likely buy a fair amount of groceries otherwise purchased at a grocery store. Over time, depending on how the face of retail changes, these consumers may forgo trips to the supermarket completely. For a category such as batteries, Lou Martire, vice president of trade development for St. Louis-based Energizer, says retailers should get back to the fundamentals, making sure batteries are visible and in high-traffic areas. As technology advances and new electronic devices enter the marketplace on a regular basis, Martire says it would also benefit retailers to display battery products in a manner that helps educate shoppers. Furthermore, Martire is optimistic that the entire GM segment, not just batteries, is positioned to do well in the grocery channel. “The biggest opportunity that grocery has is the weekly traffic they have, especially with the state of the economy,” says Martire. “General merchandise has a much higher gross margin than most food items, so a modest gain in GM sales can contribute to a store’s gross margin gains.” Another area of opportunity for supermarkets seems to be greeting cards. According to Steve Laserson, vice president of greeting cards for Cleveland-based American Greet­ings, a growing number of grocery retailers are placing a renewed emphasis on the greeting card category as focal point and key strategy in growing sales and profits. Laserson likens the challenge to selling greeting cards to that of selling food—the need to bring freshness and innovation to shoppers. He says American Greetings works with grocery retailers to ensure a constant stream of innovative products and merchandising programs designed to give shoppers a reason to visit the aisle. “These innovative product introductions are based on our deep understanding of the consumer,” says Laserson. “Along with the latest tech enhancements, our newest cards also feature updated language that reflects a more casual and conversational tone, which is more indicative of how people communicate today.” Products for all seasons Seasonality plays a large role in greeting card sales as well as other categories. However, for a company such as Elmer’s Products, the challenge is working with supermarkets to create opportunities beyond the traditional seasonal “back-to-school“ timeframe. With that in mind, Andrew Kingery, manager of sales and marketing integration for the Columbus, Ohio-based company, says Elmer’s is trying to break away from the idea that they are a kids’ glue and become and older, more adult product. “That is what is going to help us drive volume outside of back-to-school and resonate with shoppers on a year-round basis,” he says. “We are now in the process of creating new promotional windows that we think can help drive that traffic. On a dollar volume most of our products are actually purchased outside of back-to-school.” Batteries, office supplies and greeting cards seem like logical categories for supermarkets to dedicate time and space. When it comes to supermarket GM sales there are two old retail bromides insiders dusted off and no matter how simple they may sound they are still important principals that, especially in a tough category such as GM, should be adhered to: “You can’t be everything to everybody,” and “Know your customer.” “I believe that deeper assortments in fewer categories sends the right message to the consumer,” says Jim Wells, executive vice president and national sales manager for Garden City, N.Y.-based Lifetime Brands, which designs, develops and markets of a broad range of nationally branded consumer products. “I have always believed that food retailers can sell anything if they convince the consumer they are serious about the category. But they have to show them that they are really serious.” There are several ways that retailers can demonstrate their dedication to the category. Wisner says the key is for a retailer to position itself as the destination in a particular category and build on it. He stresses that supermarkets don’t have to have the lowest price either. In fact, he says they are better off carrying higher-end items and price them competitively with other retail channels. Passikoff points to ethnic food as an example. “Look what has happened with ethnic food, particularly Latino and Hispanic,” he says. “Supermarkets were like ‘OK, here’s the shelf.’ That sold out, so they went bigger. Now there are whole ethnic sections. The same dynamic can work with GM.” No matter the strategy, everyone agrees that to make an impact, it is absolutely essential that supermarkets carry quality items. “There are some times when a retailer can be in-and-out with quick turn items, but at the end of the day, if they want to sustain in GM retailers are going to need real quality in the programs they present,” says David McConnell, president and CEO of Colorado Springs, Colo.-based Global Market Dev­elopment Center (GMDC). “This provides continuity and it’s clear to the customer when they walk into the store that you are in the business.” Wisner also dispels the notion that consumers would prefer to shop at channels other than grocery for their GM and HBC needs. GMDC conducted a study a few years ago that took into account promotion frequency, average pricing, among other factors, across a variety of different channels. He says the results bore out that performance had less to do with retail channel and more to do with what a retailer did to promote the category. “For example, a supermarket that put the same kind of emphasis on pricing and promotion behind a specific GM category as a mass merchant those numbers would generally be comparable,” says Wisner. “It’s not like people prefer to go to another channel, they go because that channel does a better job. Most supermarkets have basically walked away from GM.” In fact, some believe consumers would actually prefer to make certain purchases, such as their HBC needs, at supermarkets. Kate Jones, vice president of Vancouver, Wash.-based vitamin and supplement manufacturer Northwest Natural Products, says supermarkets ability and expertise in customer service is an area that should be exploited. Service counts “Many supermarkets do a great job at offering top-quality customer service which is lost at larger mass market retailers,” says Jones. “Grocery has a lot of opportunity to expand HBC sales, especially in the vitamin category, but it is important for them to constantly evaluate product mix in order to ensure customer preference is being achieved.” Wisner—along with nearly all observers—is quick to point out that while generally speaking supermarkets do a less than stellar job promoting GM and HBC, there are individual chains that dedicate the necessary time and space needed to do well. Besides Wegmans, those chains most commonly cited include Harris Teeter, Stop & Shop and Hy-Vee. Successful retailers have been able to create in-store departments often designed to cater to its core consumers. Observers cite Hy-Vee and its expanded baby section as a perfect example of a destination department. Stop & Shop has an elaborate section devoted to music, books and movies, which includes marquis-style signage. Most industry executives believe the biggest opportunity lies within a store’s ability to focus on categories that are a natural extension and compliment its core product—food. Urban Trend, a consumer products design and development company, sells quirky, impulse-type products such as branding irons for steaks and molds to make shot glasses out of ice. Michael Stoll, president of the Newport Beach, Calif. company, says one of the most popular products is its candle carver, which is used to cut out a cavity in a piece of fruit so a tea light candle can be dropped in. He says the cavity can also be filled with a sauce for dipping. “Grocery can compete with [other channels] if they make a commitment to do it,” says Jerry Bittick, national sales manager for Urban Trend. “A retailer like Wal-Mart has built-in GM merchandise so they can utilize a lot of flexibility on what they can do. A grocery store has to work a little harder at it to make those kinds of things happen. Can they? Sure it’s just a matter of getting themselves into the mindset that they can make it happen.” More traditional housewares items also present opportunity and while all retailers carry the basics such as pots and pans and cookie sheets, too often these products simply sit on the shelf, as retailers don’t do anything to encourage consumer purchase. “GM has a couple of things going for it,” says IHA’s Reynolds. “First of all there is the opportunity to influence the user of a food prep tool at the point-of-purchase of food. That can’t be over emphasized. Watch the chef’s working the aisles in a Wegmans, they use the tools right out of the department. I think that is a pretty powerful message.” Reclaiming space “We have some major concerns on where the supermarket industry is when it comes to general merchandise,” says David McConnell, president and CEO of the Global Market Development Center (GMDC). McConnell’s biggest concern is the dwindling space provided GM by supermarkets, noting that in some cases key retailers have decreased space allotted to GM by up to 30%. The Colorado Springs, Colo.-based trade association, which is dedicated to serving general merchandise and health, beauty and wellness retailers and suppliers, is working toward addressing those concerns. Through the GMDC’s general merchandise supplier advisory board and working in conjunction with its education leadership council, a program is being developed to try and help the grocery channel take back much of that valuable space. The program, which is a supplier and wholesaler collaboration, will be unveiled at the GMDC Spring Conference, scheduled for May 21-25 in Phoenix. “We have got major retailers who sit on our boards in senior merchandising positions lamenting the fact that senior management has deemed it necessary to take a way space,” says McConnell. “We think there is a real opportunity to get back to basics and tell the industry how important GM is to the overall store and more specifically the overall profitability of the category. GM is still very significant. “The message has to get into the corner office. It’s important that CEOs buy into it or obviously nothing is going to happen at retail.” For some reason however, many grocery chains continue to shy away from GM products, something that Perry Reynolds, vice president of marketing and trade development for the Rosemont, Ill.-based International Housewares Association (IHA), doesn’t completely understand. The IHA is creating a white paper addressing, among other things, what must be done to convince supermarkets that they can be a player on the GM field. Reynolds, who spent five years as in the supermarket industry as a housewares category manager, says that while some supermarkets have done well creating leadership in some GM categories—such as kitchen tools and gadgets and foil and bakeware—there is still plenty of work that can, and needs to be done. “There is definitely more work to do,” Reynolds says. “The white paper we are putting together will help point out the advantages of having a unified GM strategy. We are working with manufacturers now, eventually we will work with retailers as well, and put together something that I think will resonate with those hoping to grow their business.”