Published on: April 11, 2005Another in a series of previews of the 2005 Food Marketing Institute (FMI) Show…
A recent study by McKinsey & Co. suggests that most supermarket retailers, faced with enormous competition and increasingly long odds of survival, remain satisfied with nibbling around the edges of possible solutions rather than developing and executing strategies that clearly differentiate themselves to customers.
Which is, of course, a perfect recipe for disaster.
In a Super Session scheduled for Sunday, May 1, from 3:45 to 5 pm at the annual Food Marketing Institute (FMI) Show in Chicago, Kevin Sneader, a director with McKinsey & Co., will address these challenges and possible solutions head-on.
In this exclusive e-interview, MNB chatted with Sneader to get a preview.
MNB: At FMI’s Midwinter conference, you put up a map on the screen showing that in 2003, there were seven states where Wal-Mart had market share of more than 20 percent, and 12 states where Wal-Mart had a market share between 10 and 20 percent. Those are enormously daunting numbers...made worse when you estimate that by 2015, it is entirely probable that the only places where Wal-Mart will not have more than a 20 percent market share will be California, New York, Massachusetts, and Illinois. Faced with these numbers, is there a good argument for why opposing retailers shouldn’t just retire?
Kevin Sneader: Rather than retire, we believe that there can be a place in a value driven world for retailers who have followed the four part program that we outlined at Midwinter. This entails: differentiating the brand; getting credit for value delivered; working customer back to take out cost; reshaping the organization to deliver in the face of new consumer demands for value. Together, this four-part approach should enable retailers to carve out a place in the market that is sustainable. But it will not be easy and there is no room to pick and choose: an integrated approach is required and anything less will result in failure.
MNB: You talk about competing with value-oriented retailers, but most people hear that and think Wal-Mart. Are there other retailers that fit this description that you believe need to be focused on with a more competitive mindset?
Kevin Sneader: Indeed, we think about value orientated retailers more broadly than Wal-Mart. Our definition encompasses not just supercenters, but also discount stores, warehouse clubs, dollar stores and limited assortment grocers. In fact our first speech on "The Value Driven World" at FMI Mid Winter 2003, forecast the strong growth of dollar stores. Now, the performance of the dollar and club stores' together with their improving customer propositions and push into perimeter categories make them formidable competitors to watch and challenge.
MNB: Clearly the notion of competing with Wal-Mart on price is almost out of the question, given your additional premise that while shoppers who buy products at Wal-Mart perceive the discount they are getting to be between five and 10 percent, the actual discount is between 15 and 25 percent. How close does one have to come to keep Wal-Mart from having too much of a competitive advantage on price?
Kevin Sneader: It all depends on the overall value delivered. The right answer to this critical question is therefore unique to each grocer and driven by local consumers and the extent to which the grocer is getting credit for value. That said, our research underscores that winners are well positioned on key value items and the overall basket - not necessarily across the whole store. This position reflects pricing investments focused on those categories that disproportionately drive consumers price perceptions of the store. And these categories can be identified and prioritized.
MNB: There seem to be advantages and disadvantages for retailers of various sizes – small independents, regional operators, and national chains – in dealing with Wal-Mart. Can you speak to what each of these three categories bring to the table in this competition...and where, by and large, they need to improve.
Kevin Sneader: The smaller more local players must deliver on their inherent advantage: the ability to know their local customer and serve the specific needs of the market. Conversely, they need to work hard to offset their lack of scale to compete on price or to achieve superior operating efficiencies . Regional operators have to exploit the local scale that they often enjoy and marry this with value and a proposition that makes the most of their local connections. For the national chains, the opportunity lies in capturing the advantages that come from having so many stores while also enjoying the scale needed to develop unique products and services.
MNB: Okay, tomorrow we’re going to give you carte blanch to open the supermarket of your dreams, one that you feel can compete on value. What kind of store would it be, and how would you position it?
Kevin Sneader: That’s an interesting question, and one that we often confront as grocers seek to redefine what they stand for.
Many are experimenting with new concepts and formats, and I think the jury is still out on the final outcome. Having said that, let me share some top of mind perspectives: firstly, it's unlikely that it would be a single store, but rather a portfolio of formats ranging from convenience stores to hypermarkets, with traditional grocery stores in between; secondly, it would have destination perimeter categories, particularly in produce and meats; thirdly, a truly exciting and innovative center store to draw shoppers down the aisles to increase the basket; fourthly, it would offer unrivalled customer service from associates committed to the success of the company ... and lastly, be easy and quick to shop designed around customer 'shoppability' behaviours and utilizing new technologies to reduce operating costs.
Now, you did say I could dream ....
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