No longer hunter-gatherers, or self-sustaining farmers, or even city folk dependent on local harvests for fresh food, Americans approach the new century comfortable, even blas, about their grocery stores.
As the nation’s grocers gathered here recently for the annual trade show sponsored by the Food Marketing Institute, the industry’s trade association in Washington, D.C., they carried in their pockets a powerful proxy for standing pat: a consumer satisfaction rating of more than 80 percent, a level that has become the norm. Furthermore, the supermarkets’ claim to be champions of the consumer is bolstered by a decade-long food inflation rate barely above 2 percent.
So why aren’t many grocers smiling these days? Because the path to growth and increased profits is nearly as pock-marked as a Chicago expressway in winter.
“The only thing I am absolutely sure of is that people will not be cooking more in the future than they are today,” says supermarket consultant Howard Solganik of Dayton, Ohio. Add to that a population-growth rate that is virtually zero, and you have what another consultant, Glen Terbeek of Breakaway Strategies in Hilton Head, S.C., calls a “saturation phase.”
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Supermarkets have stopped growing too. FMI reported the 1997 median store size at just less than 40,000 square feet. With closings offsetting openings, the number of U.S. supermarkets has remained close to 30,000 through this decade. Product introductions have fallen sharply, due in part to slotting fees manufacturers must pay to display them.
But beneath the surface, the industry is churning like grain in boiling water. For evidence, one need look no farther than Chicago. Our two largest supermarket companies, Jewel-Osco and Dominick’s, changed ownership in the past nine months, and major changes are under way at Dominick’s. (Dominick’s new owner, California-based Safeway, has already replaced some of the private-label products under the Dominick’s name with its Safeway line.)
Being clean, brightly lighted and devoid of personality is no longer sufficient for profit-hungry chains, industry analysts say. Increasingly, markets are being forced to differentiate themselves by means other than price and will have to strive harder to cater to the lifestyles of the community where they are located.
Product selection is becoming more distinctive from one store to another and increasingly will include high-profit non-food merchandise. Special services ranging from child care to massages are being offered.
Chains are exploring ways to make shopping more exciting and less time-consuming. They also are wrestling with the challenge of feeding non-cooks with flair as well as provisioning traditional families.
TO COOK OR NOT TO COOK
An immediate challenge is to provide those non-cooks with prepared or semi-prepared foods to take home or eat in the market.
An eye-catcher in many stores has been the introduction of a real kitchen with real cooks turning out food for customers to eat on premise or take home. Dubbed “home meal replacement,” or HMR, the fresh food program is designed to compete with restaurants doing carryout food preparation and fast-food chains.
Although launched with great expectations and visions of a chef in every supermarket, HMR programs currently are out of favor, considered by analysts as being too expensive to build, too labor-intensive to be profitable and lacking consumer appeal. Critics cite the disappointing HMR experiments as evidence that supermarkets are best at being supermarkets and should compete with one another, not with restaurants and fast-food chains.
But Robert Mariano, former president of Dominick’s says not addressing HMR fully is the “biggest failure” of the industry in recent years.
“Supermarkets are comfortable operating as a pantry for cooks, but not yet comfortable running a kitchen,” he said.
Some chains appear to be more comfortable with central kitchens. Jeff Geitzen, president of the 25-store D&W Food Centers in Michigan, is bullish on his company’s program. Others are pushing a European-style approach where chains would partner with manufacturers to produce private-label prepared foods to be sold in the deli area.
“It’s a fact of life,” Solganik said. “People want food ready to eat or ready to reheat and eat.”
As for other areas in the supermarket, a spirit of innovation seems prevalent, best reflected in the supermarket’s produce department. From 1987 to 1997, sales increased to $37.3 billion from $21 billion, or more than 40 percent, according to the Food Marketing Institute. Many markets have been reconfigured to make colorful, high-profit produce displays the first department a shopper encounters.
Al Buehrer, whose Pennsylvania-based Indian Rock Produce company provides vegetables to markets in the Northeast, sees sales of exotics becoming stronger. “I’m about to do an in-store demo of heirloom tomatoes and ramps (garlic-flavored wild onions),” he said. “Stores buy anything I can come up with. `Fresh’ sells.”
Another significant innovation has been the improved selection and quality of private-label products and the introduction of “designer-label” items such as Newman’s Own, a line of pricy products marketed by actor Paul Newman. A profusion of boutique products will continue, some of them backed by large producers to stimulate interest in an area dominated by a single brandfor example, Anheuser-Busch’s purchase of Seattle’s Redhook brewery. Line extensions based on new flavor combinations, a la Ben & Jerry’s, are regarded as inevitable.
Beverages of all sortsbottled water, tea, wine (especially red wine)are in demand. The NPD Group, a market research firm, reports that carbonated soft drinks are the fastest growing food/beverage category, while beer, wine and other spirits have overtaken coffee as the beverage of choice with home meals.
Jo Natale, assistant to the president of the highly regarded Wegmans supermarket chain in upstate New York and Pennsylvania, considers health-related items, both food and non-food, as a crucial area for supermarkets in the new century. Lynn Dornblaser, publisher of the newsletter New Product News, cites new drinks with herbal ingredients and health implications in names such as “Calm” and sees more products labeled “organic” on display. Energy bars and drinks play to health concerns as well, and among the new products at the recent Fancy Food Show in Chicago was a line of vegan terrines.
Other winners in terms of increased percentage of the action are baked goods and the service deli. Looking ahead, Solganik thinks artisan breads baked in supermarkets represent “a wave that is only beginning and will sweep across the country.”
Another new trend indicates that shoppers increasingly are trying a range of pre-cooked, ready-to-eat beef products marketed as “easy beef.” The meat (plus poultry and fish) counter remains the largest income producer, but grew only $7 billion (to $48 billion) in the same decade and lost percentage share of each dollar spent in the store (as did dairy, frozen foods and “dry” foods, among which are canned goods and fats and shortenings), according to Supermarket Business magazine.
TINKERING WITH SUCCESS
As for the store itself, the familiar formats will remain. But experiments are now being conducted with the hope of providing automated self-checkout terminals and hand-held scanners for shoppers to use in the store as well as electronic ordering by on-line scanners located in the home.
Consultant Terbeek dreams of small stores in high-rent or high-traffic areas with limited on-site inventories and a wider selection available on the Internet, of office workers placing grocery orders on personal computers that will be delivered to them at the end of the working day.
Others tout refrigerated safes placed in cellars or garages to receive food deliveries during working hours when no one is home. Inside the store, merchandisers are looking at more sophisticated video technology and interactive kiosks to charm and inform tomorrow’s information-hungry consumer.
“Clearly there will be innovations in shopping inspired by new electronic technology,” says Wegmans’ Natale. “But so far we have not seen a system that would work for us.”
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Following the example of natural foods-oriented Whole Foods, some stores will severely limit the choice of non-food items such as household basics, essentially making the selection of paper towels or plastic wrap for the consumer.
Other stores may offer a wider choice of non-food items and activities. These include “cooking resource centers” that will offer more and better kitchen utensils than is the norm.
In his Trend/Wire newsletter, industry observer Art Siemering foresees supermarkets as “indulgence centers,” with showroomlike displays of food and flowers as well as ongoing “culinary entertainment” in the form of cooking classes, demonstrations and tastings.
Within the changing configuration, even if the product mix and pricing is correct, a great deal will depend on a chain’s employees.
Siemering writes, “First and foremost, 21st Century consumers will demand a restoration of more personal connections in relation to things they buy and who they buy them from.”