business news in context, analysis with attitude

We received the following email responding to yesterday’s e-interview about differentiating stores on a non-price basis, which was a preview of an upcoming session scheduled for the Food Marketing Institute (FMI) convention in May:

“FMI is supporting a seminar on ‘differentiating traditional grocery on a non-price basis’ and three [or so] articles lower on your site is an article, ‘Wal-Mart predicted to be the first to one trillion with grocery being a prime engine of this growth’ !!!!!

“Hmmmmmm..... if traditional grocery doesn't soon figure out that price/value is the price of admission [ie just get 'em in the door], then which of the top three's doors do you think will be locked for good ---first!!

“Price/value is more important than location, now and moving forward. Locations are still important , but with this archaic thinking, traditional grocers will become a mega convenience store, yet with all the current fixed expenses, [imagine those costs as a percent to sales in the future].

“Traditional grocery gross margins are driving sales to other channels. The shrinking sales pie of traditional grocers is simply demonstrating the 'productivity trap' in action and accelerating the downward death spiral.”

We’re not sure that we’d argue that price is important…just that in a market where Wal-Mart clearly dominates on that issue, retailers need to have additional differences with which to make their mark.

In addition, it’s probably fair to say that the rules are different for Safeway, Kroger, Albertsons, and Ahold on this issue. Because of size and proximity, they can play the price game a lot more effectively than anyone else can.

MNB user Glenn Cantor wrote in on the same issue:

“The difficulty in today's supermarket competitive market is that there is no difference in the "five inherent strengths" between most of the "supermarket" competitors in any given, local market. If you look at food store choices offered in most neighborhoods, and therefore offered to most customers, all of their choices are basically equal in all five of these strengths. (For example, in my neighborhood, I can drive to either a Shop Rite, Pathmark, Stop & Shop, or A&P - all in about the same time- and find the same thing.) This forces the local supermarket to "brand" some other competitive advantage, or try to compete on price in the absence of branding expertise or capital. (After all, retailers are able to compete on price by leveraging manufacturers' trade promotional allowance, while they must be willing and able to pay for the unique competitive advantage on their own accord.) They are not going to be able to differentiate on any of these five strengths.

“Competing with local supermarkets, however, are alternative choices that do excel in one of these five strengths. For example, the local farm market offers a stronger expertise in perishables than any other local retailer. In fact, they are usually weaker in the other five strengths, but that one advantage is enough to attract business.

“A successful supermarket retailer must look beyond the five given inherent strengths to attract or retain a customer base, and they must have the fortitude to do so on their own, without manufacturers' financial support. Unfortunately, this is not happening with the larger, national chains. It is only apparent at the local level, in the private regional chains and unique independents.

“Differentiation is NOT a short-term, quarter-by-quarter proposition. Rather, differentiation is accomplished through earning lifetime customer loyalty. Earning it must be a long-term commitment, and there must be a tangible reason to want to keep customers, other than equity market value.”

And MNB user Andy Casey chimed in:

“This is right on. When customers think of Wal-Mart, they think "low prices" - not convenience or customer service or even friendly associates. Wal-Mart has essentially branded the low price image and continues to pound it home with advertising. I have never seen a Wal-Mart ad with anything other than price as the focus.

“Sam Walton said it best in his book "Made in America". If you want to compete successfully with Wal-Mart, know your customers better than they do.

“Naturally, prices have to be reasonable, but if they are the primary focus of your competitive stance, the efficiency of the Wal-Mart supply chain will grind you into the ground.”

We wrote yesterday that as Kroger’s and Supervalu’s interests in acquiring Safeway’s Dominick’s division in Chicago appear to wane, there still is interest on the part of leveraged buyout specialists Kohlberg Kravis Roberts & Co. (KKR), Yucaipa Cos., the private equity vehicle of Ronald Burkle, and Wisconsin-based Roundy’s. There also is said to be the possibility of a bid by Dominick’s current management team.

One MNB user responded:

“Speaking as an employee, one of the drones that are in constant contact with the PUBLIC, I can say that if handled in the correct way, the company can be productive again. The public is WAITING for someone NEW to acquire us. (I) hear it on a daily basis.

“What the company does not need is another absentee landlord. It needs someone that is in "touch with the public."

“KKR in my opinion WOULD be another absentee landlord. From all reports they would just sell off piece by piece, not rebuild.

“Yucaipa ran the company before. The company was growing during their ownership, but much of the debt that Safeway bought when they acquired the company could have been from Yucaipa's need to make the company grow.

“Roundy's, and Bob Marino. They know the area, know the public, but will they want to keep the warehouse when they have distribution centers close by? Many Dominick's workers have both husband and wife working for the company. Husband at the warehouse, wife in the stores. Either one losing their jobs would be devastating.

“Long-term employees want an owner that will STAY not just to rebuild, and sell.

“While we are not happy with Safeway being the owner, we want an owner that has vision and wants to rebuild and stay, not make a quick buck!”

Another member of the MNB community wrote:

“Clearly, someone CAN make Dominick’s work. The stores have, for the most part, great locations, good facilities and infrastructure, and hard-working employees who know what the customers want. If either KKR or Yucaipa acquires the chain, they would be wise to install management who knows Chicago and its environs in all its white/blue-collar ethnic polyglot melting pot wonder. This town takes its food seriously. Just bring back the right variety of products and price points at store level and watch the sales grow! I, and many other Chicagolanders miss the old Dominick’s shopping experience, and would gladly return there if the stores carried what we wanted to buy.”

Is anyone listening?

We got the following email about the ongoing travails of Fleming:

“It is very sad to see a company that was a very short time ago the epitome of wholesalers for independent retailers to be in such sad shape. I don't believe that Fleming can avoid bankruptcy no matter what. I always had the utmost respect for the top corporate guys but have they screwed up lately or what. I don't think we have to take a collection for Mr. Hansen as I am sure he was paid millions to leave but he made some terrible decisions.

“I strongly believe Fleming’s problems actually began when their ego's forced them to buy Scrivner so they could be the number one wholesaler. It was down hill from there.”

We had an email posted yesterday from an MNB user and father who wrote that, “Being a father of three boys I really think that McDonalds is barking up the wrong tree trying to put fruit and veggies in the kids happy meal. I really do not think that my kids or any kids for that matter are going to be asking these items at a McDonalds. It's time that they stop trying be something they are clearly not and started focusing on the core product "fast food". “

One MNB user took exception to this reasoning:

“Why is it such a problem for McDonalds to focus on offering fruits and veggies in a Happy Meal? Fruits and vegetables are the “fastest food” on the planet – pick it off the tree or pull it from the ground, wash it, eat it…and if someone else has already done the picking/pulling and washing for you, how much faster and more convenient can a meal get? McDonalds is trying to address exactly what dietitians are always recommending about children’s nutrition – eat more fruits and veggies!

“McDonalds appears to be finally embracing this information, while at the same time helping those parents who already consistently and successfully provide healthier food options (fruits, veggies, yogurt) to their children. I know this does not guarantee that the kids will actually eat the fruit/veggies out of the Happy Meal box, but it definitely makes these healthier foods more available and noticeable as a food option to the kids. Besides, who says “fast food” (i.e. a Happy Meal) can’t be of fruits and veggies? Please consider broadening your “fast food” perspective and accept McDonalds attempts at providing healthier food to our children – it could result in healthier, (and quite possibly, non-overweight) adults.”
KC's View: