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Content Guy’s Note: Each Monday, we are featuring an article previewing some aspect of the annual Food Marketing Institute (FMI) show, scheduled for May 4-6 in Chicago.

The hyper-competitive world of food retailing requires that stores have to find ways to differentiate themselves on a non-price basis, to leverage their unique strengths to defend against competitive channel encroachment and grow profitable sales.

On Tuesday, May 6, in an FMI Learning Lab entitled “Defending Against Competitive Channel Encroachment,” Christopher Hoyt and Nancy Swift of Hoyt & Company will focus on five key points on which supermarkets differ from other retail formats, creating the basis for a sustainable growth. And, they will look at fifteen categories where supermarkets should concentrate to rebuild traffic without going broke in the process.

For a preview, MNB conducted an exclusive e-interview with Nancy Swift.

MNB: You say that “differentiating your company on a non-price basis is key to attracting new customers and building loyalty,” and yet it would be my perception that it is the rare supermarket company that doesn’t advertise price and doesn’t focus more on efficiency than effective marketing and brand building. True? Has this always been the case historically, or is it more a result of the confluence of ECR and the age of Wal-Mart?

Nancy Swift: Very true! Historically, supermarkets competed with other supermarkets. They had similar business models and could compete with each other by advertising hot prices on different items each week, creating a low price impression (the high-low strategy). With the advent of Value Discounters (Supercenters, Clubs and even Dollar Stores) supermarkets cannot compete on price. Value discounters have lower acquisition costs, operating efficiencies and a merchandise mix that the Supermarket business model cannot replicate. Despite this, most supermarkets continue to try to compete almost exclusively on price -- in effect, advertising a weakness. Ironically, many supermarkets have actually weakened their inherent strengths by their attempts to be efficient at the expense of being effective -- reducing assortment via Category Management is one example.

MNB: Can you explain briefly the “five key points” that you’ll be focusing on in your session that supermarket retailers should be focusing on?

Nancy Swift: Supermarkets may be disadvantaged on pricing but they absolutely have inherent strengths. Key among these, as we see them, are: 1) Household penetration and shopping frequency; 2) convenience (location/store size); 3) expertise in perishables; 4) assortment; 5) community ties/involvement.

MNB: One of the comments I always run into is that people are concerned that by not focusing on cost and price, they inevitably will go broke. How do you overcome that concern?

Nancy Swift: When you differentiate by price alone, you are a commodity. If you differentiate on price alone AND you cannot compete on price, you are doomed. Consumers buy value, not price. Value encompasses much more than price alone. In fact, price is usually a minor component of the whole value equation. Value includes many other things that appeal to the needs and aspirations of the consumer. Supermarkets see this in action every time a customer chooses a branded product over a private label -- which is about 80% of the time. That said, this does not mean that we don't feel price is important. Some categories have very strong reach -- the combination of household penetration and purchase frequency. These are categories where price awareness is very high and supermarkets can convey a low price impression by focusing their price-promotional efforts on these categories.

MNB: Should suppliers be more than just a source of product and promotion money? And if so, how so?

Nancy Swift: Absolutely. The opposite of a commodity is a brand. Brands command premium prices because they add value or perceived value beyond the physical aspect of the product. Supermarkets need to command premium prices -- to be a brand -- yet many supermarkets only know how to be a commodity. Supermarkets have 1500 suppliers who know how to create a brand and, based on the suppliers we know, they would be glad to help. This is the strategic part of co-marketing that has too often been overlooked.

MNB: Can you give an example of a non-supermarket retailer that has effectively done what you are suggesting, and what the results have been?

Nancy Swift: There are lots of examples of retailers who have built a brand: Nordstrom's, Neiman-Marcus, Costco, Best Buy, Target, Kohl's, Toys R Us, PETsMART, Sears' Great Indoors, Walgreen's, Saturn dealerships and Starbuck's are but a few examples. Branding has allowed Neiman-Marcus to sell its private label at retails higher than many of its suppliers' brands, allowed PETsMART to expand into veterinary services and pet boarding and allowed Starbuck's to sell their coffee on supermarket shelves all over the country. There is no question in our minds that a Kroger, Albertson's or Safeway as well as smaller chains and independents could differentiate themselves from the rest of the pack (profitably!) if they learned how to brand their stores.
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