retail news in context, analysis with attitude

by Michael Sansolo

There may be no better place to find a clear example of how the global economic calamity has changed retail competition and consumer needs than in Spain. But before contemplating the interesting market shifts on the Iberian Peninsula, consider the following wisdom from a very unlikely source:

“Nobody likes the game that they’ve won over and over again to change.” - Lady Gaga

Gaga apparently knows competition and the status quo because she’s right. When the game is going my way, I have no desire for it to change. Yet sometimes it does change and the challenge is changing with it. That’s where Spain becomes so interesting and important.

Last week I had the good fortune to visit some supermarkets in Barcelona, including Mercadona. Given all the raves I’ve heard about this company, the visit was honestly disappointing. The store, shoe-horned into a crowded neighborhood, was really nothing special. Ordinary merchandising and displays jammed into a less-then charming store and little more. In fact, the displays, especially of perishables, were far better in the other store I toured that day.

Except for this: the Mercadona store easily had more shoppers than the other three stores we visited combined.

Apparently, that’s not an unusual situation. Over the past few years, Mercadona is on fire. Market share is growing rapidly moving the company into a dominant retail position through Spain. While that may be nice, it’s the forces fueling that growth that make this a story worth following. Mercadona’s growth demonstrates the power of a strong supply chain, the clout of private label and a classic study in how the touch economic times are reshaping consumer habits.

The story has to begin with supply chain, long the unsung hero or villain of many retail stories. Logistics is rarely sexy, but always seems at the heart of any story of great growth. Sure, Apple makes cool devices, but as many business analysts have pointed out, the company’s real edge is its supply chain. Likewise for Zara, the Spanish clothing company that is building market share and profits off world class logistics.

Mercadona is doing the same. While details are hard to come by, everyone tells the same story. The company attacked its inventory levels, reduced variety and addressed waste to become a model of lean and mean. In the process, the company’s market share more than doubled to 26% up from 12% in 2002, according to Symphony IRI. The leaner supply chain enabled Mercadona to hold or cut prices - a consumer’s dream - just as Spain was sliding into an economic calamity that makes the US look healthy. (Unemployment nationwide sits at about 25%.)

Mercadona also recognized the need to build brand through an aggressive private label program that now accounts for 50% of sales in many categories. Once again, that’s a difficult strategy, but one that is clearly correct one for a country in such economic difficulty.

However, the last lesson may the most interesting over the long-term. Spain’s economic crisis is changing the way Spaniards shop. With economic pressure, consumers limit the size of their market baskets because they don’t have the money for massive stock up trips. In the process, shoppers are finding smaller local supermarkets much more appealing than the hypermarkets that previous dominated the industry. Today, supermarkets have re-emerged as Spain’s market leaders (led by Mercadona, of course) and hypermarkets are hemorrhaging market share. If global fuel prices continue their recent rise thanks to turmoil in the Middle East and growing demand elsewhere, the return to neighborhood stores might only grow stronger.

Which takes us back to Lady Gaga’s bit of wisdom, recently offered up in an on-line blog about sports of all things. Nobody likes change, especially those winning regularly at the current game. But like it or not, the game is changing and is likely to change more. The challenge is how to change with it like Mercadona, or how to get left in the dust like the Spanish company’s competitors.

After all, would Lady Gaga give you bum advice?

Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .
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