Since the 1930s, supermarkets have been catering to shoppers' desire to purchase diverse consumer packaged goods in one location. But the emergence of Walmart as a grocery retail powerhouse in recent years has changed the dynamics of the industry. While upscale fresh markets have found a niche among health-conscious shoppers and drug and dollar stores have developed a following among quick-trip consumers, many traditional supermarkets have felt the squeeze.
Retail Leader asked experts to share their views on how traditional supermarkets can adjust their strategies and their store offerings to better meet shoppers' changing wants and needs. The answers range from emphasizing energy conservation to developing more playful perimeter offerings, bolstering services and adding transparency about products' nutritional profiles.
1 Provide both value and fun.
Supermarkets caught between high-end stores like Whole Foods Market and discount outlets are differentiating themselves in new ways. While the centers of mid-sized stores must provide value that is "close enough" in pricing to Costco and Walmart, store perimeters "must be made more fun to shop," says Paul Weitzel, managing director of retail advisory firm Willard Bishop Consulting.
Willard Bishop Consulting
Many retailers have made entertainment a centerpiece of their store renovations to encourage repeat business. St. Louis-based Schnucks emphasizes product presentation at a flagship location with a wine-and-cheese room and food stations that offer made-to-order sandwiches, salad, pizza and artisan breads. The store also offers a cooking school with classes ranging from tapas recipes to a "Kid's Boot Camp." And at Gates, N.Y.-based Wegmans Food Markets, a 101,000-square-foot location features a Market Café, an expanded Nature's Marketplace and an Old World Cheese Shop. Wegmans also offers a little bar for sweet grass drinks. Others like Matthews, N.C.-based Harris Teeter and Milwaukee-based Mariano's Fresh Market, a Roundy's Supermarkets Inc. banner, are revamping locations with cobblestone floors and faux street lights to freshen up perimeters, while featuring high-end products, Weitzel says.
In an age when shoppers often visit multiple stores, such as Walmart for bulk staples and Trader Joe's for wine and appetizers, mid-size stores increasingly are targeting affluent shoppers with high-end options. Often, today's shoppers are looking for prepared meals at lunchtime or on their way home from work. Retailers are adding sushi and seafood bars to satisfy shoppers who are willing to splurge on gourmet prepared foods at grocery stores even as they cut back on restaurant meals.
2. Go green to improve image while cutting costs.
By incorporating environmental sustainability into their locations, retailers can score points with shoppers while also saving money and reducing their carbon footprint.
Energy conservation initiatives on average have saved Ahold USA $30 million per year since 2010, says Jihad Rizkallah, vice president of store planning. In 2008, the company's Stop & Shop division experimented with installing a roof-mounted solar photovoltaic system, which converts sunlight into electricity, at its Fairfield, Conn., store. In addition to generating as much as 10 percent of the location's energy needs, the new technology inspired a brighter outlook for everyone passing through the aisles.
"Overall, the feel of the store was different," Rizkallah explains. "Customers and associates surveyed felt more comfortable with the ambient lighting and overall environment. This is an area where in the future we believe we can make even more improvements."
In all, 24 stores in the Ahold USA network of brands now have photovoltaic systems installed on their roofs. In addition, Stop & Shop in 2010 started using natural gas to produce electricity at its Torrington, Conn., location, and the company estimates this fuel cell technology will ultimately provide 95 percent of the store's electricity requirements. Other initiatives to conserve energy while also changing the layout of Stop & Shop stores include walk-in coolers and freezers, reach-in cases and track lighting.
In 2011, Ahold USA was the first supermarket chain to be deemed certified in LEED (Leadership in Energy and Environmental Design) by the U.S. Green Building Council for at least 50 locations. Ahold USA, which has 750 locations, plans to build six to eight additional LEED-certified stores each year, Rizkallah says.
"In addition to a commitment to environmental stewardship," Rizkallah says, "our goal is to maximize value for customers inside the store, lowering expenses and passing on that savings to our customers."
3. Make natural and organic categories a priority.
As childhood obesity and food safety and nutrition continue to be front-page news, retailers will become increasingly proactive in communicating to shoppers the nutritional makeup of the food and beverages they purchase.
Last September, the Grocery Manufacturers Association and the Food Marketing Institute unveiled the $50 million Facts up Front Educational Campaign. The program, inspired in part by first lady Michelle Obama's public calls for nutritional transparency, includes a nutrient-based labeling system and multimedia educational campaign.
"This is the grocery industry's response to government pressure so that the FDA doesn't eventually regulate this language," explains David Browne, senior analyst at market research firm Mintel International Group. "It's a good-will effort to show that the industry is cognizant of the issues."
It's also good business. Browne points out that the growth of natural and organic categories regularly outpaces more conventional options. In fact, healthier fare is no longer confined to designated "organic" aisles as items promoting nutritional quality, environmental conservation and the humane treatment of animals are permeating throughout entire stores.
Above and beyond the industry response, chains like Whole Foods Market and Publix Super Markets are investing in personalized nutrition programs that encourage repeat business.
Mintel International Group
"Retailers stand to have an advantage if they can distinguish themselves by becoming gatekeepers" of nutritional information, says Browne. "This is a huge opportunity and a permanent change."
4. Add partners to become a one-stop shop.
While pharmacies within supermarkets and banking outlets near the checkout lines have become standard, larger stores with extra capacity are leasing space to providers of new complementary services.
From dry cleaners to short-term daycare and cooking schools, stores providing additional services to shoppers inside their locations also are generating lease income. Stop & Shop locations in New England, for instance, allocate space to helping people find their dream house.
"Banks have proven to be a very valuable service to customers, and we feel the same about real estate," says Jay Hummer, executive vice president of Re/Max of New England.
Last year, Re/Max signed a contract to open 17 skeleton offices within Stop & Shop locations with the first in Springfield, Mass. Hummer is leasing the space so that when shoppers consider real estate purchases, Re/Max is top-of-mind. "It's a natural fit for us, and a valuable service for their customers," he says.
Beyond real estate, other non-traditional offerings ranging from Starbucks cafés and dry cleaners to supervised daycare areas can be found within supermarket confines.
5. Use digital technology for new marketing opportunities.
The rapid expansion of smart phones has retailers increasingly experimenting with digital technologies to keep shoppers engaged. Many are offering iPhone and Android apps that provide virtual coupons and aisle navigation services, while a few are testing pay-by-phone apps that allow for self-checkout.
Rather than hire their own developers, many retailers are outsourcing the work to digital experts who can help them decide whether to offer their own branded apps or create a presence with a third-party app that provide services and deals for multiple chains. Some retailers are doing both, says Jason Gurwin, chief executive at Pushpins, a Cambridge, Mass.-based startup that provides mobile coupons and circulars for thousands of stores including J&J Foods, Giant Eagle and ShopRite.
Safeway, Hy-Vee and Walmart are major chains that have their own branded apps. Still, for many shoppers, generations-old technology is more convenient than anything they can tap into on their mobile devices.
"There is a lot of friction around this behavior," says David Emerson Feit, senior director of quantitative research at the Hartman Group Inc. "When you have a shopping cart in one hand and a child in another, it is not always easy to look at your phone. Paper is still perfectly sufficient as [a] shopping list tool."