Supermarkets caught bewteen Wal-Mart and Whole Foods
Steve Kaufman, Editor, VM+SD
Just a decade after introducing its hypermarket concept, Wal-Mart has steamrolled the grocery business.
Its Supercenters thrive because, today, people shop almost entirely for price. Which, of course, explains the phenomonal success enjoyed by – Whole Foods?
Someone at our International Retail Design Conference said, "Whole Foods makes you feel good about spending $6 a pound on heirloom tomatoes." So much for price.
Caught in the squeeze, between Whole Foods' outstanding stores and Wal-Mart's outstanding prices, are the traditional supermarkets.
In a recent New York Times article, a woman from Denver said when she wants fresh fish, meats and produce, she drives 25 minutes to the nearest Whole Foods Market. And when she needs packaged or canned products, she goes to Wal-Mart. It has been at least a year, she said, since she entered a Safeway or Kroger. "Whole Foods may be more expensive, but it's worth it," she said, "and I make up some of the difference at Wal-Mart."
In 2004, the average American household made 70 trips a year to the supermarket; in 1996, it was 95. In those eight years, annual trips to hypermarkets and price clubs doubled, from 13 to 26.
But supermarkets aren't standing still. They know they can't get caught up trying to beat Wal-Mart on price. Rather, they're studying Whole Foods and Wild Oats for clues on improving the shopping environment. That means more fresh items, bigger produce sections, more natural and organic foods and more prepared foods. It also means figuring out how its customer shops. That's new stuff for them.
Kroger has developed three new formats: Fresh Fare, which emulates Whole Foods' level of service and carries organic produce, sushi, an olive bar, hundreds of cheeses and 2000 wines; Kroger's Marketplace, twice the size of a typical grocery store, selling everything from electronics and kitchen appliances to home office furniture and dishes; and Food 4 Less, a no-frills warehouse operation.
Supermarkets never had to understand their customers before. But Food Lion's popular new Bloom concept is "born from what the shopper wants," according to Robin Johnson, director for marketing and brand development. "For the past several decades, stores have been run in a way that benefits the store and the company's bottom line – not the shopper."
That had traditionally meant placing high-volume items – like eggs and milk – at the back of the store in hopes that the shopper will buy lots of other stuff on her journey. (Also easier to replenish stock from the backroom.)
Bloom places ice cream at the front of the store, on the shopper's way out, so it is less likely to melt before reaching home. And it bans promotional displays from the aisles, which – while they generate nice fees from vendors – annoyingly clog cart traffic. "Taking them out is scary," she told The Times, "because it's revenue." But shoppers hate them.
"Why have [supermarkets] played these games with customers?" Johnson asked. Because they could. But maybe no longer.
Conventional supermarkets have been experiencing unprecedented pressure over the last decade. While the format is far from dead, its supremacy in food retailing has been lost forever.
ReplyDeleteWal-Mart became the nation's largest grocer faster than anyone could have predicted. While a lot of the attention has been focused on its Supercenters, I predict that its Neighborhood Markets will have an even greater impact. The format is still somewhat experimental and has been rolled out slowly, but expect to see a lot more of these stores in the years ahead...Supercenters are becoming increasingly difficult to build.
The changes underway in the supermarket business mirror those in the department store sector. It seems that "the middle" is shrinking and major chains can't afford to be "all things to all people." This article is right to point out that Whole Foods and its brethren have had just as large an impact as Wal-Mart. For supermarket chains, it's either specialize or die.
I think Kroger is smart to focus on its Fresh Fare, Marketplace, and Food 4 Less concepts. Safeway is also going upscale; I am impressed by its "lifestyle" remodels at several Vons units here in Los Angeles. The other major player, Albertsons, has absolutely floundered...it's no wonder the company has put itself up for sale.
The supermarket workers union of the greater Cleveland area has voted to strike. Therefore, our grocery stores will have to close temporarily while they hire new labor. This implies I may be forced to grocery shop at Super-Wal*Mart for a stint...that or bite the bullet and dig into my frozen-food supply....
ReplyDeleteMitch: I worry about the middle-market grocers surviving for much longer.
ReplyDeleteThey're not doing a great job competeing on price against the discounters and warehouses and a lot of them are trying to base their future on prepared foods instead of groceries. Trouble is, their hot food selections aren't very good and cost almost as much as restaurants offering better quality.
Meanwhile, Whole Foods tends to make excellent (if pricey) deli food, and Wal-Mart and others are shilling cheap rotisserie chickens and ribs like nobody's business. Kroger and Albertson's can comepte against both formats, but it distracts from the main business.
Something is going to have to happen with perishables and dry goods in the mid-market grocers that makes them a more compelling place to shop. As it stands, they're losing...and badly.
Carrie: I've been reading a little about that strike in the news and on remembering_retail. I hope it comes to a quick and fair end.
Super Wal*Mart isn't too bad in short doses. I use it for a lot of times for staple-type groceries, and buy the more specialized stuff at Kroger, Dean & Deluca, Whole Foods and other store.