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Retail Trends — The Same, But Different
By JOANNA COSGROVE
Wal-Mart still reigns but competitors are charging
back; and retailers across the board are pinched by the carbonated slump
The 2004 year in retail can best be characterized as one of shifting
sands. Wal-Mart still possesses inexorable growth, traditional grocery is
still having trouble with positioning, and alternative channels continue to
encroach on grocery’s business. But Ken Harris, founding partner at
Cannondale Associates, Wilton, Conn., says the fundamentals are the same
but there is an undercurrent that’s throwing off the predictable
sense of balance. “Wal-Mart today is very different from who they
used to be a year ago in terms of their positioning,” he says.
Who would have thought that a company besieged by
legal actions, labor unions, class action suits and international setbacks
all in the same time span could still finish the year with the biggest
slice of the retail pie chart? Amazingly, Wal-Mart’s fiscal
performance makes its troublesome roadblocks seem like nothing more than
white noise as it proceeds seemingly undaunted, growing its business by
blowing away the competition on the basis of lowest prices, clearest
company strategy and store branding. But one thing has changed since last
year: the competition is finding new and original ways to respond and
it’s starting to resonate with consumers.
A formidable Wal-Mart competitor is the club store,
and club stores are enjoying increased sales due, in part, to increasingly
diverse product offerings. ACNielsen’s Consumer
and Market Trend Report 2004 likens club
store shopping trips to treasure hunts, “where unexpected bargains
are a staple and seasonal merchandise adds holiday flair to an otherwise
unadorned concrete expanse.”
“No one will beat Wal-Mart by responding to
Wal-Mart,” Harris says. “The best chance a competitor has lies
in creating its own path and following it.”
Harris lumps notable examples into two categories:
“the innovators” such as Whole Foods, Trader Joe’s and
Aldi; and aggressive regional competitors in tightly confined areas which,
Harris says, have “simply taken it to Wal-Mart in a way that’s
unique to the company. HEB won it on demographics; Publix won it on clean,
well-lit stores; Wegman’s beat them on the ambient shopping
experience; and Safeway’s Lifestyles shopping experience is on the
road to success, although it’s too early to tell.”
Regarding consumer loyalty, Harris recounts a recently
read article that argued the demise of consumer brand loyalty.
“It’s an initiative that retailers are perusing with the
argument that people care more about the stores
they shop in than the brands that are offered,” he says.
“That’s why store brands are doing much better than they used
to. If you play that through to its natural conclusion and the retailer
starts to brand its store, then other factors may start to weigh in in
terms of how consumers are looking at the importance of the retail shopping
experience.”
Ranking manufacturer performances
The recently issued Cannondale
Associates PoweRanking Survey 2004, which
identifies the best retailers and manufacturers, as evaluated by their
trading partners, ranks Wal-Mart as the leader in many key strategic and
business fundamentals categories, but also gives credit to competing
retailers. “The balance of power in the PoweRankings is shifting:
from supermarket retail to ‘super-regionals’ like HEB, Publix
and Wegmans, who are all privately held and have a lot more latitude and
flexibility,” Harris says.
“Dollar stores
are continuing to grow, club stores are continuing
to encroach on traditional supermarkets, and most importantly, consumers
are a lot more fickle than they used to
be,” he says. “Right now, retailers are trying to decide where
to reposition themselves, while manufacturers are trying to decide where to
invest their energy.”
On the manufacturing side, Procter & Gamble
continued its reign as the No. 1 ranked manufacturer. Those surveyed
appreciated P&G’s innovative
marketing, especially when it came to the company’s monthly Brand
Savers coupon advertising program, something retailers tied into for better
leverage.
P&G also ranked high for its ability to provide
accurate consumer insights. This type of information has proved helpful for
retailers as manufacturers are working to positively influence shelving, assortment, pricing and merchandising
recommendations. Anheuser-Busch was cited for its insight into the impact a
beer consumer has in stores, extending beyond the purchase of beer. A-B
also won kudos for its straightforward category management program, which
uses simple terminology to convey how beer sales can improve total store
sales.
Quaker Beverages & Foods made its debut on the
2004 PoweRanking Survey, earning high marks for its clear company strategy,
its combination of growth and profitability, its salesforce/customer teams,
its ability to provide helpful consumer information and its supply chain
management. Conversely, Pepsi-Cola and Coca-Cola’s performance
rankings took a noticeable dip.
Harris attributes the deterioration of
Coca-Cola’s standing to the fact that it is experiencing so much
internal turmoil. “They haven’t had a clear message in the past
few years; they haven’t had the kind of marketing programs that
they’ve historically been known for and they haven’t had a
consistent message,” he says.
Pepsi on the other hand, turned in an outstanding
performance but lagged because its new team strategy had not taken flight
at the time of the PowerRankings. “They used it as a call to
action,” Harris says. “It’s impressive — from Steve
Reinemund down, Pepsi is laser-like riveted on improving their overall
performance, which they will then probably translate into the PoweRankings.
In some respects, they’re a company to be emulated in terms of how
they’ve responded to what they perceive to be not particularly strong
results.”
Grocery bubbles for alternatives
The grocery segment prides itself of the breadth of
its beverage offerings. According to Jeff Lowrance, spokesman for Food
Lion, Salisbury, N.C., beverages are an especially important part of
business. “Consumers in the Southeast and Mid-Atlantic are known for
loving beverages, especially soft drinks,” he says, adding that
energy drinks have shown great growth potential for the company.
Attaining a merchandising balance through the
proliferation of new brands and flavors has proved especially challenging
for Food Lion. Lowrance says his company continues to give beverages a
great deal of shelf space, balancing the need to introduce new products
while maintaining appropriate space for longtime brands and flavors.
For most retailers, the sugar and/or carbonated bubble
has popped. Fortunately, other beverage varieties have flourished.
“With increasing customer focus on living
healthier lifestyles and consuming health-oriented foods and beverages, combined
with ongoing media coverage on important issues such as child and adult
obesity, we continue to witness flat sales with respect to the traditional
high fructose corn syrup, sugar-based items,” says Janet Milan,
director of direct store delivery at Giant Eagle, based in Pittsburgh.
“The main growth in this category is in the diet/light beverage
segments, with new item introductions including Tropicana and Minute Maid
Light items. In addition, the flavored waters and energy drink categories
have experienced strong growth.”
Because beverages play such a vital role in the
overall meal experience, Giant Eagle supermarkets carry approximately 450
beverage items on average, including soft drinks, water and flavored
waters, teas and energy drinks. “Our goal is to ensure that we offer
an extensive variety and selection of beverages that accommodate various
lifestyles (natural and organic, single-serving containers, multi-packs,
etc.) and flavor preferences,” Milan says.
She adds that Giant Eagle continues to experience an
increasing presence of adult beverages that are positioned as offering
health benefits. “There are several companies that are manufacturing
sodas in the natural category that have a 70 percent juice content or
higher, but maintain the sweet flavor associated with sodas as opposed to a
more fruit juice flavor,” she says. “An example of a soda
product that includes non-traditional soda ingredients is Steaz soda, which
offers a soda with green tea.”
Giant Eagle supermarkets carry approximately 60 SKUs
that offer a larger natural and organic product variety, and Milan says the
company is committed to offering USDA-certified organic sodas to
“accommodate the needs of our customers who practice an organic
lifestyle.”
Wild Oats also sells a wide range of progressive,
all-natural beverages, from spring water to 100 percent fruit juice to
energy drinks. “We offer both shelf-stable and fresh juice blends and
beverages packed with nutritional benefits, including ‘green’
drinks, soy-based beverages, and juice blends made with exotic ingredients,
such as Sambazon Açaí, an antioxidant-rich berry grown in
South America,” comments Laura Coblentz, senior director of brand
marketing at Wild Oats Markets, Boulder, Colo. “We sell Italian sodas
as well as carbonated beverages not sweetened with high fructose corn syrup
— as a matter of fact, Wild Oats Italian sodas and canned sodas are
one of the very few carbonated beverages made with sugar, as opposed to
high fructose corn syrup.”
Because Wild Oats is able to offer a wide selection of
unique beverages, they are an important part of the grocery business. “Wild
Oats offers products not available elsewhere for great prices. For example,
pomegranate juice has become wildly popular this past year due to the
discovery of the fact that it contains high levels of powerful antioxidants
— it was even featured in Time magazine,” Coblentz says. “Wild Oats is able to
offer this product under the Wild Oats label at a lower price than the
brand leader, providing a great value to the customer.”
The success of Wild Oats’ imported Italian sodas
in flavors such as tangerine, grapefruit and passion fruit, is indicative
of a trend toward products with greater flavor impact, Coblentz says. In
addition to pomegranate juice, she says single-fruit juices such as
antioxidant-rich blueberry and cranberry, are purchased by those who desire
a beverage with health benefits. Along the same vein, “green
juices,” made with spirulina and chlorella, have also proved popular
with Wild Oats customers.
“Wild Oats customers are always looking for a
great-tasting beverage plus one that offers health benefits; our customers
are very knowledgeable about nutrition,” she says.
“Another popular category is the drinkable yogurts sold in the dairy
section. These are a big hit with parents and kids because they provide
calcium, vitamin C and probiotic benefits.”
Coblentz adds that Wild Oats’ biggest beverage
challenge at retail revolves around the efforts that go into maintaining
the company’s exacting standards, while still providing the products
consumers are looking for. “We are continually searching for products
that appeal to customers but do not contain high fructose corn syrup, which
is preferred by manufacturers because it is inexpensive relative to sugar
or evaporated cane juice,” she says. “The Wild Oats label has
an even stricter standard, whereby we prohibit the use of bleached sugar or
high fructose corn syrup in our private label products so that we offer the
best quality products. For example, Wild Oats fresh lemonade is made with
evaporated cane juice while our
competitors’ products are sweetened with high fructose corn syrup. We
are continually striving to offer the highest quality products at the best
prices possible.”
Checking in on c-stores
The convenience store segment enjoyed 13.7 percent
growth acceleration in 2004 in-store sales — more than double those
seen in 2003, according to figures recently released
by the National Association of Convenience
Stores (NACS), Alexandria, Va. This growth also surpassed that of virtually
every competing channel, according to U.S. Department of Commerce data. The
only channel that saw growth surpass that of the convenience store industry
was warehouse clubs/superstores, which grew 13.8 percent. Overall retail
climbed 7.6 percent, and other competing channels didn't match that level,
including drug stores (+7.1 percent), grocery stores (-1.8 percent) and
discount department stores (-0.3 percent). Surprisingly, the strong growth
in c-store sales was driven by particularly strong merchandise sales, which
grew 9.6 percent per store, as opposed to foodservice (-1.1 percent).
Packaged beverages ranked sec ond only to cigarettes
in the lineup of top convenience sales
items, accounting for 12.2 percent of all sales. Beer ranked as the
fourth-highest sales category (following foodservice) and accounted for
11.9 percent of all sales.
But when it comes to in-store business, the biggest
c-store concern, according to Jeff Lenard, spokesman for NACS, is
adjacencies, or remerchandising based on shopping experience as opposed to
product categories. “Convenience stores get the bulk of their
revenues and traffic from fuel (66.5 percent of revenue in 2004), but less
than 40 percent of their profits from gas,” he says. “Therefore
it is critical to grow in-store sales, and grow them beyond individual item
purchases, especially since so many other channels are also in that
space.”
The convenience sector also continues to be challenged
by the upswing in channel blurring, where retail channels not usually
associated with food and beverages are quietly competing to serve the
convenience customer. ACNielsen’s Trend Report reveals that beverage
sales ranked as the fourth-largest sales category behind candy for drug
store venues. And non-traditional retailers, such as Blockbuster and home
improvement stores have beefed up their up-front impulse items to include
beverages. The store-within-a-store concept also has taken off —
Starbucks kiosks are tucked into Target stores and Dominick’s grocery
stores, and Dunkin’ Donuts has even found its way into Home Depot.
Lenard says the increasing encroachment is a call for
c-stores to hone in on a way to turn their store into a destination.
“It is easier to name channels that don’t look like convenience
stores at the counter (selling snacks and drinks) than those that
do,” he says. “Drug stores are well into selling beverages, as
are some other less obvious channels such as electronics stores, pet
stores, craft stores and home improvement stores. It’s not enough to
sell drinks, but to sell your store as a destination for something that
isn’t being met by others — whether it’s some of the more
unique new products that convenience stores carry or combining with other
offers such as sandwich programs.”
Another limiting factor is store size, and on a larger scale, real estate availability. “Above all,
we sell time, so stores can’t become too
cluttered with new products or get too big,” Lenard comments.
“And with competition for the top street corners fierce from all channels, real estate costs are a limiting
factor as well. Stores in some areas can’t afford to get bigger. So
the trick is to better manage inventory and understand what sells and what
doesn’t and manage the introduction of new products. The other
potential challenge is that if you are relying on the customer who wants
new things, you must continually deliver, which can be a daunting
task.”
As evidenced by the NACS figures, beverages play a
vital role in the convenience store product lineup. “More and more
retailers are skewing away from the cigarette part of the business; what
picks up the slack are the beverage categories,” says Andrew Steele,
Shell Trading and Retail Zone (STARZ) product coordinator at Shell Oil
Products U.S., Houston. “If you drive by any site — Shell or
any other petroleum product marketer — you’re going to find
that beverages are pretty prominent, whether that is from an outside
display or from a signage display on the street. Five or 10 years ago,
there wasn’t that much prominence.”
Steele says once consumers get inside the convenience
store, the first thing owner/operators want them to see is beverages, and Shell actively seeks out innovative beverage
marketing tools to improve beverage visualization and ultimately drive
sales. “Our front-end program was probably one of our best programs
— a two-bin front-end cap with two shelves above it,” he notes.
“The two bins allow for two types of beverage products to be
marketed, along with complementary snack items to be merchandised above
them. It allows you to have ‘in-sight’ real estate that can be
transitioned each month depending on the promotions.”
Like the grocery sector, convenience stores are
experiencing a slow down in non-diet carbonated drinks, but c-stores are
feeling a stronger pinch. “It’s such a big part of
everybody’s business. When that slows down, even as little as just
two to three percent, it’s the equivalent of a 50-percent drop in
other categories,” Steele says. “To make up that volume, we
listen to our customers who are, right now, into better-for-you drinks like
water and isotonics. One category that’s particularly encouraging is
enhanced waters. Brands like Glaceau bridge the gap because they’re
low in sugar and full of flavor. Morning drinks like yogurt drinks are also
growing.”
Convenience stores also are working to overcome the
misconception that they are merely a one-stop shop for less-than-healthy
snacks and beverages. “We sell so many things that are perceived as
less-than-healthy. The big challenge for our retailers and operators will
be to separate themselves from that image and find a way to position
themselves as a good-for-you outlet,” Steele says. “Part of the
solution is by merchandising better-for-you products in prominent locations
like a healthy end-cap. Put water wherever you can, be it take home or in a
display. Little things do get noticed by customers. Beverages are the
leader in terms of conveying an image to customers. You make statements with the brands you carry.”
BI
Web-based networking tool connects fragmented
C-stores, vendors
With about 16,000 branded U.S. sites run by around 3,000
owner/operators Shell stores are not franchised, and marketing can vary
from store to store. In order to drive category growth and communicate
valuable offers to its operators, Shell developed STARZ (Shell Trading And
Retail Zone), a Web-based networking tool that allows Shell to directly
communicate to its owner/operators, offering direct access to vendor
information such as contacts, new products and vendor offers and programs.
“We have a huge audience, but it’s also
somewhat fragmented — the same dilemma that many beverage vendors
have,” says Andrew Steele, STARZ product coordinator. “We
designed STARZ to be an easy, cost-effective mode of communication for
everyone involved.”
Launched in February 2004, registered users can log in
to the STARZ Web site and peruse the vendor offers available to them.
Vendors can change their listings as often as they wish, so that if they
have a new product or promotion coming out, they can let the whole network
know about it. The site is designed to encourage daily logins thanks to
fresh content like daily news updates from industry sources, a training and
learning center that gives access to industry best practice information,
vendor tips for merchandising and marketing, and National Association of
Convenience Store data.
“We saw a big need to get each of the two
parties together because there is a lack of consistency in terms of how
vendors market to retailers,” Steele says. “We don’t
dictate to operators how they have to market, but we do the legwork for
them by providing the information we think might be helpful for their
respective businesses and leave the decision-making up to them.”