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US supermarkets are stuck in time-warp, says Hartman: ‘The bland midmarket, hi-lo, be-all-things-to all-men strategy is not working’

By Elaine Watson+

09-Aug-2013

Hartman Strategy: Millennials 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. Picture: James Vaughan, Flickr
Hartman Strategy: Millennials 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. Picture: James Vaughan, Flickr

Many US supermarkets are stuck in a timewarp, and their market share will continue to decline unless they makes radical strategic changes, according to a provocative new report from Hartman Strategy.

“When input prices and inflation are driving virtually all revenue growth in the average supermarket, it is clear that the growth engine has stalled”, claims Dr James Richardson, senior VP at Hartman Strategy and author of ‘Re-imagining the American Supermarket for a New Era in Food Culture’.   

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 told FoodNavigator-USA.

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 claimed.

“Pantry-stocking is clearly not driving growth at the supermarket, even if it does move product and generate slotting fee income.”

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 said.

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.

There was always a fear that if you don’t stock some low-velocity item that you’ll lose shoppers, but I think this fear is overplayed. People don’t expect to do a one stop shop anymore. They shop at multiple stores.

“Some low-velocity categories like BBQ sauce simply need to be merchandised with corresponding perimeter fresh items permanently. They could be far higher velocity items if retailers though about them as impulse buys instead of pantry staples.

“We’re not a nation of pantry stockers anymore. These stores have great locations and they could be wonderful places for impulse shopping.”

Grocery retailing has been about neighborhoods from the beginning

Dollar stores are gaining market share from mid-market traditional supermarkets

Similarly, many stores are still operating a standardized merchandising system based on store size and slotting fees rather than meeting local food culture needs, said Richardson, who urges retailers to “tailor each of your stores boldly to either an up-market or down-market position after careful study of trade-up vs. trade-down patterns in local grocery spending.”

For many big CPG suppliers, the neighborhood level of geographic analysis is “alien and uncomfortable territory”, he said. “Yet we believe the store level is actually where a great deal of the uncaptured value is left in the U.S. grocery market.

“Grocery retailing has been about neighborhoods from the beginning. Independent operators know this intuitively, but centrally managed chain retailers have increasingly lost sight of this.

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:

  1. A pure up-market play (Whole Foods)
  2. A pure down-market play (Winco)
  3. 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.”

Get fresh: We have become a nation of par-cookers

CPG suppliers must retool their foodservice offerings to fuel the emerging food court inside grocery stores

Ultimately, far more 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.

“While progress has been made in merchandising grab-n-go snacks and meals for immediate consumption, the classic supermarket design disperses/scatters cooking components all over the store in a way that inhibits convenient impulse buying for same-day cooking needs.”

He added: “We have become a nation of par-cookers, where jarred pasta sauce is now considered an ‘ingredient’ and where meal components are literally just heated and then assembled on the plate. Today, the primary cooking occasion, dinner, involves intensive preparation from scratch only about 32% of the time.”

CPG suppliers need to retool their foodservice offerings to fuel the emerging food court inside grocery stores

Ultimately, he predicted, the “West Coast region augurs the near future of many supermarkets, where fresh is the future of growth. This new, emerging fresh zone crosses the packaged/unpackaged boundary.

“It will include everything from hot prepared foods made on site to manufactured, refrigerated hummus. It will involve the innovation of perishable packaged goods whose package engineering ensures super high-quality taste without engineering the food to do so.

“It will involve CPG suppliers retooling their foodservice offerings to fuel the emerging food court inside grocery stores.”

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