2 - The American supermarket: Stuck in a timewarp?
We've just seen how American eating habits are changing. But are retailers adapting to accommodate this new reality?
No, says Dr James Richardson, senior VP at Hartman Strategy, who says many supermarkets are stuck in a time warp: “When input prices and inflation are driving virtually all revenue growth in the average supermarket, it is clear that the growth engine has stalled.”
In a nutshell, claims Dr Richardson, the hi-lo, be-all-things-to-all-people strategy that made supermarket chains such a success 40-50 years ago is no longer working.
Yet the majority of operators continue to base strategies around capturing a larger share of pantry staples, which places them in direct competition with Club, Wal-Mart, ALDI, and dollar stores - with whom they cannot compete on price, he says.
Pursuit of slotting fees has led to over-facings in many declining categories
Meanwhile, the pursuit of slotting fees for profit has led to “over-facings in many declining categories where better SKU management and distribution technologies could allow for smaller shelf sets that are equally (if not more) efficient revenue generators”, he claims.
As a result, 18% of revenues in American supermarkets are now generated from low velocity categories that turn an average of just 89 units per week per store, and 40% is generated from ‘shrinking giant’ categories experiencing declining volume despite high velocities (canned soup, meat, tomatoes, cereal, frozen pizza, chocolate candy, pet food).
In these shrinking giant categories, retailers should consider integrating more natural and premium emerging brands that are currently in a dedicated ‘natural aisle’ and going unnoticed by many shoppers, he says.
People don’t expect to do a one stop shop anymore
Meanwhile, many very low-velocity products could be ditched altogether or re-merchandised on the perimeter, he added.
Similarly, many stores are still operating a standardized merchandising system based on store size and slotting fees rather than meeting local food culture needs, says Dr Richardson.
Be bold: Do one thing well, and tailor your offer to local needs
The fastest growing chains specialize in one of three strategies, he claims:
- A pure up-market play (Whole Foods)
- A pure down-market play (Winco)
- An up-or-down, store-by-store play (HEB).
“The worst performers generally offer the same, undifferentiated experience across all stores and cannot generate meaningful loyalty as a result.”
CPG suppliers must retool their foodservice offerings to fuel the emerging food court inside grocery stores
Ultimately, supermarket chains need to get fresh right, he said, as many younger people are not pantry stockers anymore. They are thinking about what’s for dinner tonight when they walk into a supermarket, and many chains are not making things easy for them.
Ultimately, he predicts, the “Fresh is the future of growth. This new, emerging fresh zone will include everything from hot prepared foods made on site to manufactured, refrigerated hummus.”
Click here to read about Hartman Strategy's 'time warp' theory...
Click here and here for key facts and figures about the state of the US food retail market and why the pendulum is swinging back in favor of small store formats.
