Archive for Pithy Posts

Amazon Fresh…Changing the Rules of Engagement

MorningNewsBeat.

A news article posted by MorningNewsBeat speaks to RetailNetGroup’s recent analysis of the experiment in on-line grocery shopping that is Amazon Fresh.  I am always interested in those who are convinced that to-your-door groceries is coming into its own.  While Ahold’s Peapod, Fresh Express, MyWebGrocer, and others have carved out a sustainable yet small niche in the grocery industry, Amazon may just be the one to kick start the offering on its journey to a more pervasive service.

Unlike those other services, Amazon is seemingly prepared to expand this service without any sustainable profit in sight.  They likely mean it when they say Amazon Fresh is a strategic initiative, not a profitable tactical one.  Without the burdens of financial contribution, coupled with Amazon’s mastery of logistics, Amazon Fresh could conceivably be the service that finally breaks through to critical mass.mobile-shopping

If that is true, Walmart, and all leading traditional supermarkets will need to pick up the pace on refining and expanding the services.  It could also mean that delivery fees are lower, order size minimums are waived, and it certainly could mean that home delivery and in-store pick up will never pay out using traditional metrics and full allocated costs.  Amazon Fresh may dictate that all players in this space see it as strategic as Amazon purports.

Departments and offerings within the mix of the traditional supermarket that do not profitably stand on their on is not a new phenomena.  Just add on-line grocery shopping to the list and understand the indirect benefits of incremental shoppers and transaction size growth that these services can foster.  With Amazon moving in, and Walmart not about to be left out of the mix coupled with more time starved, tecno-savvy consumers, the stars are aligning for grocery e-commerce.  Let the games begin.

 

Consumer Spending in U.S. Climbs as Incomes Decline

Let’s face it, the rumors of yet another economic recovery flies in the face of declining personal income.  You do not need to be an economist to understand that no lasting recovery can take place until America gets back to work and businesses who are posting strong profits are motivated to grow and hire.

Consumers are spending, but for how long?  Those in retail need to brace themselves for continued margin pressures as consumers will look for deals and value in the near term.

 

mh

 

Consumer Spending in U.S. Climbs Even as Taxes Hurt Incomes – Bloomberg.

Giant Eagle Ends Foodperks and Adds Gas Discount | Retail & Financial content from Supermarket News

Giant Eagle Ends Foodperks and Adds Gas Discount | Retail & Financial content from Supermarket News.

There is an important take-away for every retailer who engages in continuity and loyalty programs.  Even the best programs have a shelf-life.  Over time, even the most effective consumer offerings can lose their punch and appeal to the shopper.  Moreover, their existence over a period of time, becomes more of an entitlement than a benefit, thus producing increasing costs for the retailer without the benefit of the necessary incremental behavior needed to create a positive ROI.

Before starting any campaign or program, have an exit strategy that provides a smooth way of ending or changing the program without alienating the shoppers who have participated.

 

 

Perishables Keep Many Retailers from Perishing

At the risk of stating the obvious, nothing defines a traditional supermarket chain better than their perishable departments.  Survey after survey tells us that superior meat, produce, and bakery offerings are consistent reasons why shoppers continue to patronize supermarkets.  Nurturing this marketing position is absolutely imperative.  But it has never been easy to do.  

Maintaining superior perishables requires an investment in in-store expertise, a reasonable approach to inventory control, high standards of product selection, the willingness to pull sub-standard product and  most importantly the flexibility to give up a few points in margin for the sake of these standards.  

Wegmans, HEB, Harris Teeter, and other notable supermarket retailers get it. Fresh Market and Whole Foods are examples of the viability of the market for superior perishables.  They know that their image in perishables is their life-blood.  Measure the average basket size of shoppers that buy two or more perishable items in your store.  If it follows the “norm” these baskets will be anywhere from $3-$10 more than your average transaction.

Instead of squeezing every last cent of margin out of the fresh departments, train your focus on investing in these areas, knowing that even at a few less points of margin, these departments serve as a magnet for shoppers, who value these investments and reward retailers for doing so.

Focus on Five Things, Just Five

Sophisticated marketing plans often neglect to recognize the need for focus and customer recognition. I begin my conversation with many of my clients by asking “What are the five things your customers consistently give your credit for?” In some cases I can get one or two delivery elements, but most struggle with answering that question with confidence and clarity.

The point is that successful businesses establish a “clear identity” with their patrons. If that vision does not exist, there is more than likely a very weak customer connection in place.

So pick five things.  It could be a signature item or service or perhaps a customer experience element. Make sure each of these elements is important to your customers, and then circle the wagons around these five things.  Sure, it could be four or even three things you want to truly train your guns on, but five elements provides enough variety to cover marketing, operational, merchandising and service dimensions of the business.

Whether its five, four or just three elements, drill them into the corporate culture and insure that” no matter what” they are supported and associates are held accountable for that support.  Identify those elements that can differentiate your business, support them, defend them and do not relent…no matter what!!

Picking Winners and Losers

Traditional supermarkets are currently losing business on both ends of their customer spectrum.  On the “price” end of the business, Walmart, Target, Aldi, Sav-a-lot, and Club Stores continue to chip away at center-store categories.  Conversely, fresh specialty chains like Whole Foods, Fresh Market, and Trader Joe’s are showing up with increasingly regularity as accepted additional options for traditional supermarket shoppers.

Harris Teeter Supports Local Growers

The resulting impact on many, (not all) traditional retailers are negative comp sales, lower margins, and poor overall financial performance.  Some, such as Food Lion, have tried to overhaul their image and offerings with new private label lines, lower prices and sharper promotions.  Others, like Raley’s in Northern California, have launch significant new loyalty programs.  Still others are remodeling their stores and adding new fresh and organic lines of perishables to stave off further attrition.

Two, retailers, however, have continued to produce positive comp sales and have grown their revenues through a variety of programs and initiatives.  The first is Kroger.  Much has been written and said about their dedication to investment in data, fuel programs, and overall pricing prowess.

The other is Harris Teeter, based in Matthews, NC.  Harris Teeter recently posted nearly 4% same store comps for the year, while increasing their shareholder dividend.  They have consistently innovated by offering in-store grocery pick-up, expanded their perishable offerings and services, and have cemented their leadership in their communities through giving and sponsorships.

One could also argue they understand who they are and are not.  They are competitively priced, but certainly not attempting to compete with Walmart and the other “price” players in their markets.  What they have done is expanded their value proposition on-line with digital coupons, and extra value for their e-Vic (electronic frequent shopper program) shoppers.

In essence, Harris Teeter exemplifies a retailer who follows the basic, but often times difficult formula for success. They understand their value proposition to their shoppers and continually re-inforce it.  They stay competitive in price with innovative promotions and embracing digital content.  They also are not shy about making some aggressive investments in their stores and programs to keep shoppers engaged and loyal.  All of this is executed with remarkable consistency.

Harris Teeter is a winner.  But winners are often targets for other winners to challenge.  To that end, Publix has recently announced a major move into the Charlotte, NC market, one where Harris Teeter has significant share.  So Harris Teeter will be tested once again to make adjustments to defend their turf.  But one thing they will likely not do to beat Publix is change the formula that has yielded so much success in such tough times. 

mh

 

 

 

Is There a Future for Traditional Supermarkets?

The trend is clear.  The growth in the U.S. grocery sector today is not found in traditional supermarket formats but rather with specialty stores like Trader Joe’s, Whole Foods, and Fresh Market.  There are further signs of life on the other end of the spectrum as there is also growth opportunities  for smartly located  “price” oriented stores, especially the smaller, quick in and out formats like Aldi’s and Sav-a-lot.


But it has been a proverbial month of sundays (aka, a very long time) since the days of traditional supermarket chains planning dozens of new stores in their capital expenditure plans. Today, after another tough year of “comp sales” their press releases focus more on updating existing facilities, consolidating, and the ever-euphemistic “right sizing” of the number traditional grocery stores.

 

 

I see three prevailing reasons for this dearth of growth.

  • First, the sluggish economy has slowed residential growth and consequently the opportunity for new shopping centers and emerging business locations that have traditionally been fertile ground for supermarket expansion.  (BTW- If you are counting on the leadership from Washington D.C. any time soon to finally get fiscal policy right and end this malaise, don’t hold your breath)
  • Secondly, competition and complacency are killing traditional stores.  In medical terms, the autopsy of the traditional supermarket will read something like this; “death due to over-exposure, and multiple lacerations from savvy competitors over an extended period of time”.  I mentioned these competitive culprits in the opening paragraph.  They are at good at what they do and they have figured out how to profitably propagate their formats and brands nationally.
  • Thirdly,  traditional supermarkets are closing in on the end of their product life cycle.  For more than sixty years, this format has carried the load for grocery selling in the U.S.  Current trends indicate that there is little doubt that the traditional supermarket needs a radical reformation, or they go the way of the drive-in theater, the eight-track tape player, and vinyl records.  It should be no surprise to anyone.  Incredibly, these stores are designed for a shoppers that no longer represent critical mass.  The whole concept of grabbing a cart and a shopping list and spending 45 minutes to an hour shopping for food is already a rare and dwindling behavior.   None the less, traditional supermarkets are built for just that type of trip. (I could bury you with facts and figures to support this contention, but I constantly strive for pithiness).  

Game, set and match.

Before you ask me to check my medication, I do realize that traditional supermarkets will continue to sell groceries for many years to come.  There are over 35,000 of these things out there to be amortized and the accountants alone will prolong the death of this mighty beast until the last drop of  EBITDA is extracted from its veins.   But the trend is clear.  So the next time you see a flyer for a grand opening of a brand new supermarket, consider attending and save the balloons. Its something you can share with your grandkids someday.

 

 

 

 

Is There a Store of the Future? Here’s Mine!

As far back as I can recall, we in the supermarket business seem to have a fixation with what our stores will look like in the future. Like all things that require only an opinion, there are many visions and views about this topic.

Adding to the fray, here’s my quick summation of the elements of a prototypical successful store perhaps as soon as 5 years from now.

1. Smaller not larger (25,000 square feet of selling)
2. Far fewer sku’s in center store, but with access to an on-line store where coveted commodity items can be ordered and waiting for the shopper at a delivery door.
3. Fewer cashiers and more scan as you go, or shelf-checkouts.

4. Fewer “racetrack” layouts in favor of distinct stores within a store.

5. And finally, much more interaction with the in-store pharmacy, which will also become a nutritional resource center.

Nothing here that is terribly controversial, but yet for many retailers, much work to do and significant investments to be made to move from the operational-oriented store they have today to a more consumer-centric offering!

“Spirit” Airlines finally gets the “spirit”

As we look to business leaders to provide glowing examples of exemplary customer service, we often learn more from the dolts than the do-gooders. So is the case of Spirit Airlines refusing a “dying” U.S. military veteran a refund for a flight he could not physically take. Yes, that’s right…a dying veteran.

Ben Baldanza, the venerable CEO of Spirit originally went out of his way to explain the logic and business acumen that drove his decision not to refund the meager sum to the veteran, and even was interviewed on TV, explaining his position.

But all he really needed to know to make the right decision, was two words, “dying veteran”. Baldanza eventually retreated from his unpopular stance and provided the refund and even made a donation to a veteran’s charity…but the damage to the already shaky public image of Spirit Airlines  has already been done. I do wonder how some ascend to the position of authority and influence, without the least bit of evident common sense.  To that point, my next post will be about politicians!

A New Definition of “Sustainability”

I’m not sure who is in charge of coining phrases in the supermarket industry, but “sustainability” is one of the most interesting, providing  a wicked double entendre.  The term implies, of course, that retailers operate with eco-friendliness, thus sustaining the environment for the long haul. Given the performance of some supermarket retailers, it would appear they should be focused on sustaining their sales and marketshare before they embark on saving the world.

But to be “sustainable” you must stand for something and bring something to the customer that no other competitor can .  Developing a sustainable market position is not easy.  It takes investment, discipline and vision.  Good companies have long since established  their “sustainable” position in the marketplace.  If you are a retailer and you cannot quickly articulate what your company’s “ownable” and sustainable position in the consumer’s consideration set of food retailers…….you likely don’t have one.

 

 

 

2012…Watershed for Retailers or Are the Mayans Right?

Having been in the supermarket-CPG business for more years than I care to admit, it is rare that I hyper-ventilate about much these days.  After all, selling  groceries through the years has remained essentially the same, (aisles and checkouts) for as long as I have been alive.  But I dare say there is something different in the air these days.  (All puns intended).  Mobile phones are not just at “critical mass” levels, they have become an appendage for many.  A third hand, if you will, with 50% or more having smartphone phones with applications that can not only aide the shopping experience but can be a repository for coupons, and even a payment device.

So now the onus is on the retailer.  First to better understand this new and emerging breed of mobile-assisted shopper.  Secondly and most importantly, be able to offer meaningful experiential upgrades at their stores for mobile users.  Near Field Communications, Quick Response Codes, combined with locational applications can finally reach the shopper at the Moment of Truth…in the shopping process, at the shelf when many decisions are made or changed.  Some retailers will make that connection this year. Others will remain on the sidelines.

2012 could indeed be a watershed year for growing and differentiating the business….or it could be just another year of sitting back and letting others lead ….waiting to see if the Mayan calendar , which predicts the end of the world as we know it in 2012…is right. For those retailers that wait, I think the Mayans just might have your number!