retail news in context, analysis with attitude

CHICAGO – One of the mainstays of any Food Marketing Institute (FMI) Show is “FMI Speaks,” the annual state of the industry review delivered by Michael Sansolo, the organization’s senior vice president.

Among the warning signs in this year’s report:

  • Food industry retail sales were up 2.4 percent in 2003, as compared to the 1.6 percent increase of a year ago. But the sales increase was offset by 2.2 percent inflation.

  • Alternative formats continue to lure price-conscious shoppers, with 21 percent of shoppers saying that a discount store or supercenter serves as their primary grocery store, a figure up four percentage points from a year ago. Only 72 percent of shoppers, down five percentage points, say a traditional supermarket is their primary grocery store. One out of five consumers surveyed said they don’t go to supermarkets at all.

  • While 17 percent of all shoppers eat their main meal away from home three or more times a week, 31 percent – almost twice as many – of shoppers between the ages of 15 and 24 each their main meal away from home three time or more per week.

What these numbers seem to suggest is that, despite the fact that the FMI survey continues to suggest that consumers like supermarkets – giving the format an 8.3 ranking on a 1-10 scale – the mainstream supermarket industry has got some serious issues with which to contend.

To get a sense of the marketing and operational realities behind the numbers, MNB engaged Sansolo is this exclusive e-interview.

MNB: What impact does the current state of the economy seem to be having on shopping patterns?

Michael Sansolo: Shoppers tell us they are keenly attuned to prices, convenience and cleanliness no matter how well or poorly the economy is performing. Yet there are a number of signs of behavior that clearly shift with the economic times and our 2004 survey of consumer attitudes detected many of them.

Among the shopping tactics on the rise this year are the numbers of shoppers making and following lists, checking for specials, and stocking up on those specials when they find them. Also when asked the reason they shop a second store in addition to their primary supermarket, nearly 40% of shoppers say price tops the list.

The combined impact of this price awareness is clear at the front end. For the second consecutive year, shoppers found a way to buy their groceries for less money—adjusted for inflation—than they spent the previous year. That translates into lots of pressure on top line sales growth.

MNB: Any changes in the priorities that consumers have in terms of choosing their supermarket?

Michael Sansolo: The basic picture doesn’t change much each year, but under the surface consumer needs are constantly changing and good retailers have to keep moving with them. Although shoppers list all the basics—cleanliness, quality fresh products, price, service and location—as their top reasons for selecting a store this year, we see many other trends emerging.

Shoppers are clearly concerned about their health and nutrition and clearly stated in our Shopping For Health study that they’d love to see their supermarket do more in this area. Likewise, we see growth in certain demographic groups, such as Hispanics, Asians and the elderly, who put priority on a host of different products and services they want from their store.

The changes come in many ways. A quick look at any best seller list or the ever changing menus in restaurants makes it clear that Americans are cutting back on carbohydrates and our Trends survey found that exact concern. The result is many stores and suppliers offering more products geared to low-carb diets.

The simple answer to this question is that the marketplace, like nature, abhors a vacuum. If there is a growing consumer need that isn’t met, someone will find it and serve it. Sometimes the need is clearly stated and sometimes it isn’t. Good retailers know how to read the marketplace to get the information on what’s coming and move with shoppers.

MNB: Is it your view that retailers are adjusting effectively to these changes? Or are they in a constant state of playing catch-up?

Michael Sansolo: Retailers face an incredible challenge in being reactive or pro-active to trends. If you act too soon, you may be so far ahead of the marketplace that you are doomed to failure. If you are too late, others may have already locked in a segment, leaving you on the sideline. The key seems to be the willingness to make almost constant change and the flexibility to move with the marketplace.

MNB: Any other surprises contained in this year’s edition of “Speaks”?

Michael Sansolo: Most of the measures of industry performance reflect a picture that we’ve all seen developing throughout the year. The industry continues to struggle for top line growth and competition is as tough as ever and coming from more directions than ever before.

The most surprising statistic is the incredible level of concern about skyrocketing health care costs, whether medical, dental, vision or prescription costs and with good reason. Nearly all of these costs are rising at double-digit levels, which creates a real squeeze on retailers when the marketplace permits only the smallest of price increases. This issue actually tops the level of concern retailers have over new competitors and a significant percentage of respondents said this issue will loom large this year and could result in more labor troubles.

MNB: There are two simultaneous trends taking place in the food industry – consolidation (as there seem to be fewer companies) and fragmentation (as there seem to be more and more places selling food and competing with supermarkets).

This would seem to create a kind of perfect storm that is incredibly tough for the traditional supermarket to survive…would you agree? And what is the best way to survive?

Michael Sansolo: Your question is exactly the reason why we have themed this year’s convention around “solutions for growth.” For a good number of years, distributors and their supplier partners have focused on improving efficiency and have achieved some good results. Today’s marketplace demands that all companies, large or small, operate as cost effectively as possible, simply to be competitive on price.

But consumers want more than just an efficient shopping experience. They want excitement and they want some element of discovery. They want specific needs met and they want stores that match their values and desires. As you state the challenge is to create flexible or differentiated stores that meet these demands.

It’s not an impossible task. Many retailers talk about the incredible success Tesco is having in the United Kingdom with an array of formats ranging from supercenters to convenience stores. Efficiency and differentiation can be achieved together, but it requires significant creativity.

MNB: Nutrition and obesity issues continue to make news…but we’re intrigued because a lot of people seem to lump them together. It would be our view that they actually are very different…that people who want to eat in a more healthy fashion often are making radically different choices than people who want to drop pounds. Would you agree? And how do retailers need to deal with these differences?

Michael Sansolo: In other words, how do we find a way to win with everyone from vegans to Atkins devotees?

How we perceive the difference between concern on nutrition and obesity isn’t important. What matters is how shoppers see this. Whatever the reason people give for eating healthier, whether it’s related to losing weight or simply to improve on nutrition, the key for retailers is to recognize the need and the opportunity to serve that need. Shoppers tell us clearly that they want to eat healthier, but many say the amount of time it takes to cook convinces them to abandon their plans. Some shoppers even say the low cost of fast food keeps them from eating a healthier diet.

Supermarkets can’t change shopper behavior, but we can help work with shoppers to explain the choices they have. We already give an incredible amount of nutritional information on products. Shoppers applaud that and want more. We already provide choice on the entire array of foods.

Retailers don’t have to understand the difference in shopper goals as much as we have to understand what products they desire and feature them.

MNB: What do you think retailers need to do to compensate for the increasing desire on the part of consumers for greater convenience in their shopping choices?

Michael Sansolo: This is an on going challenge for the industry and one we must keep trying to win by reminding shoppers of the convenience we offer. Our Trends survey of consumers this year found that use of supermarkets for take out meals is growing. Some really good news is that younger shoppers in the western part of the country are as likely to buy a take out meal from a supermarket as a fast food restaurant.

However, the battle goes on. Nearly one-fifth of all shoppers and one-third of shoppers under 24 years of age eat their evening meal outside the home three or more times a week. Those are meals we lose time and again.

Supermarkets continue to offer a wide array of step saving products, all the way to completely produced meals. Yet convenience takes many forms. We must continue to examine other time saving innovations such as gasoline sold at supermarkets or even self-scanning checkouts, both of which are meeting with terrific consumer acceptance. Rich or poor, Americans are living with lots of time poverty these days and the on going challenge for supermarkets is to help them through their day.

MNB: The 2000 decade is almost half over, believe it or not. (It seems like just yesterday that we were all worried about Y2K.) Based on what we’ve seen so far, what do you think the industry is going to look like in 2010?

Michael Sansolo: Predictions are always so difficult to make because there are so many elements of change that we can’t possibly anticipate. Since 2000 we have seen such dramatic events in our world that it’s both difficult and frightening to imagine what the remainder of this decade could hold.

This year, however, we asked the companies responding to our Speaks surveys to consider some scenarios about the future and give us their predictions about certain changes in the industry. Here’s what they had to say:

  • Consolidation will continue. More than 80% of respondents believe the top 10 chains will do more than 75% of industry volume within 10 years, with half of the respondents believing that sales threshold will be breached in five years.

  • Supply chain changes are coming in a number of directions. More than 40% of respondents believe suppliers will deliver seven days a week within five years and another 26% believe that will happen in 10 years. Also, within five years one-third believe most products will remain in distribution centers for less than a day. More than 40% believe direct store delivered products will be handled by distribution centers in 10 years. And within a decade, more than 70% believe Radio Frequency Identification Devices will be on all pallets in the supply chain.

  • Electronic communication will dominate according to nearly 90% of respondents. Nearly 40% believe that will happen within five years and the rest say in 10 years. That may the level of interest in areas like data synchronization is higher that it seems to be so far.

  • Bio-engineered foods will become commonplace in five years, according to one-fourth of our sample. Another 55% say it will take 10 years.

  • Self scanning checkouts use will continue to grow, with 19% saying self-scanners will outnumber staffed checkout lanes in five years; 56% say that will take 10 years. Another 21% believe checkout lanes will disappear entirely in 10 years and smart cards will be a major form of payment within 10 years, according to 65% of our group.

  • Grocery space will continue to decline, with 53% believing the center store will shrink by more than half its current size within a decade. Nearly 40% believe shoppers will buy most packaged goods through the Internet within a decade. And 40% believe that coupons will disappear within a decade—a prediction that may seem farfetched today, but not that long ago stamp-redemption programs seemed equally permanent.

  • Only 7% foresee a time when stores will once again close their doors one day a week, but this question got some incredibly enthusiastic answers. One respondent told us this would be a “dream come true.”

  • Only time will tell.
    KC's View:
    While the numbers suggest that the industry is under siege despite general consumer satisfaction, we think that the results are unintentionally misleading.

    While consumers may indeed rank supermarkets as an 8.3, we worry that this may give increasingly irrelevant operators an excuse to believe that they don’t have to make fundamental changes that will drive sales and improve their viability. This would be a mistake.

    And while many may blame Wal-Mart for their troubles, we believe that this also only allows them to ignore the real problem – stores that are aging, that haven’t changed to be relevant to consumer needs and lifestyles, and that are unable to compete not just because Wal-Mart is bigger and better and tougher.

    Not everybody has this problem, of course. But more than a few. And there’s more than enough denial to go around.

    As Cassius said in Shakespeare’s “Julius Caesar,” "The fault, dear Brutus,
    is not in our stars, but in ourselves.”