In the next two to five years, supermarkets will respond to the growth of alternative formats by expanding their perishables departments, adding in-store services, and focusing on efforts that more clearly define their points of differentiation, according to the supermarket executives polled by SN.
Training and customer service are expected to improve also, as retailers foresee a need for store-level employees to have more knowledge and expertise. In-store branded departments like Starbucks are catching on, but their growth may be limited, these retailers said.
SN also asked the executives how they see trends in store size, site location, marketing and labor issues evolving in the next few years. Their responses follow.
Joe Azzolina, president and CEO, Food Circus Supermarkets, Middletown, N.J.:
You're already seeing one of the trends -- more perishables and less hard goods. As these big-box stores and clubs become common, and you get more low-price image stores, most stores are going to add more perishables.
In terms of branded departments, I don't know how big those are going to be. I don't think they are going to generate any overall volume. Krispy Kremes, for example, are too expensive, especially if you get stuck with a good chunk. We were getting hit too hard, and we couldn't make good on them.
With labor issues, more products, especially meats, are prepackaged, and there's no need for as many butchers as before. That's changing. You need a butcher to cut meat, but not help package stuff, so they call them "meat clerks" now. Some stores will keep in-store meat cutters as a point of differentiation, however. I know we will. I see some chains going completely to boxed meat.
Loyalty cards are here to stay -- savings for this, savings for that. A lot of people are getting into loyalty cards, and giveaways.
We do see more people charging to credit cards, and that is costly for us all. I don't know what the big chains are paying, but we pay 1% to 2%.
Jack Brown,
chairman, president and CEO, Stater Bros. Markets, Colton, Calif.:
There will definitely be a winnowing out of underperforming stores. The majors will set criteria, and any stores that don't meet those criteria will be sold or closed.
I don't believe store size will change. The industry has come down to about 50,000 to 55,000 square feet that it's comfortable with. As for departments, we'll see more in-store pharmacies. I also expect retailers will add new general-merchandise items related to health, like vaporizers, diabetes supplies and blood-pressure testers.
Supermarkets will get better in perishables to strengthen their franchise against competition from club stores. The industry has been losing sales in meat and produce to club stores as they have gotten better, and it's important that we look at our own competition to be sure we work perishables to the fullest.
Beyond Krispy Kreme and Starbucks, I don't see many other opportunities for branded companies to come into supermarkets, but we will see more space given to controlled and private-label goods, with those selections reaching 30% or more in sales at some chains.
In terms of site selection, retailers will look for more full-sized parking spaces instead of more compact spaces to allow more room for parking.
As far as labor, the club stores will need a lot of experienced and talented people as they develop supermarket programs. That workforce will probably come from the ranks of experienced supermarket personnel. So it's critical that supermarkets stay in touch with their people about their personal goals, and communicate the company's goals to them so each member of the team has all the facts, or else they will be recruited away from us.
Supermarkets may also use television more as an advertising medium because of the creativity of the ads we see on TV and the fact that 30 to 45-year-old consumers watch TV more.
Craig Cole,
president and CEO, Brown & Cole Stores, Bellingham, Wash.:
Convenience will play an important role, along with store location, layout, product offerings and lifestyle services -- the ability to meet a lot of needs in one place. People will seek wellness, health, nutrition and freshness -- concepts that will drive baby boomers as they get older.
People will get tired of driving 10 miles to a big box and will want to shop closer to home, possibly in smaller, easier-to-shop formats. As baby boomers age, they will cocoon, and that will strengthen the idea of neighborhood shopping. Supermarkets will pay more attention to freshness and programs that serve consumers' desire to eat and live healthier. They'll stock more pharmaceuticals, nutritional supplements and organics. Supermarkets may try to penetrate the market that's being served by drug stores today. Why can't a supermarket offer everything that a drug store does, including HBA, general merchandise and gifts, especially supermarkets with larger square footage? Why should drug stores even exist if supermarkets are doing their job?
Adding and deleting departments is something that will evolve. Fresh de
partments will certainly be expanded, while certain mature areas like video will continue to be a question mark.
In terms of labor, supermarkets today are being crushed by health and welfare benefits, so in the future, union operators will have to collaborate more with the unions to develop solutions, or those operators will be at a competitive disadvantage that could affect their viability. I'd like to see the unions take a leadership position on this issue in shaping a solution that is in the interests of everyone.
Regarding marketing, supermarkets will make loyalty programs work to the level that's been anticipated, with more focus on taking massive amounts of data on customers and learning how to use it more effectively.
Luis de la Mata,
president, Southern California Division, Unified Western Grocers, Los Angeles:
Supermarkets will understand the need to defend their franchise against much stronger competition, particularly if the economy plays a more important role in determining how they go to market and what services they need to provide. Consumers are being tempted by clubs, supercenters and ethnic businesses, and supermarkets will have to offer better services.
Supermarkets also will have to do things differently -- to not get comfortable in their niche; to continually upgrade their stores to conform to developing trends; and to provide a place for consumers to enjoy the shopping experience. When consumers go to a supermarket in the future, they will be willing to spend more time at the store -- to look at sizes, nutritional information, competitive prices -- so point-of-sale enticements will become more important. That could include increased emphasis on the store perimeter, with more stores going to full-service meat, especially for ethnic customers, and quality produce and fresh bakeries, plus expanded itemization of products that are different, reflecting cultural differences.
Stores of the future will add value to the overall shopping experience through branded departments, which will bring customers and extra family members in and compel them to spend more time. We could see something like a Nestle booth that merchandises branded and store-brand products, and we'll see more demos and sampling because customers like to try what they buy.
On the labor side, we'll see teamwork where both parties understand what a fair relationship should be while enabling the store to still remain competitive.
Neil Golub,
president and CEO, Price Chopper Supermarkets, Schenectady, N.Y.:
There's a whole different series of approaches. I think the good retailers are going to continue to develop their own formats.
There will probably be more situational building, which is building to the potential volume. I see a more focused approach to where stores are placed and the size of the facilities that are put in those communities.
People on the East Coast are going to find themselves more involved in providing larger assortments, particularly of Hispanic products, as we begin to see the Hispanic population move in different directions. We have a large group of Brazilians in one area, and in another area, we've got people from Central America, and people from Puerto Rico, so we're seeing that in different communities.
In terms of branded departments, we'll see a little bit of growth for a period. But if you're running a strong operation, you have to ask yourself if you want to give up your identity and risk an identity crisis. Who are we? Are we Dunkin Donuts? Are we Toys R Us? We have to try a few things, see what fits, and if customers will buy the product.
Clearly those with loyalty cards are going to become more energetic and sophisticated. They are going to focus in on the wins and try to use the cards to appeal to certain groups. There's going to be more of an effort to be competitive with them because there's a very big competitive advantage.
TV advertising continues to be a big challenge because of the tremendous number of television channels and the huge number of communications devices. In most areas, newspapers continue to be the key [advertising] method, vs. home-delivery direct, which is becoming the second.
Stew Leonard Jr.,
president and CEO, Stew Leonard's, Norwalk, Conn.:
The future of the industry is about your concept and what you want to be. Then focus on it and get really good. It's not just good enough to open a store, put up some fluorescent lights, and paste "69 cents" on the window. That doesn't work anymore. You have to be really good at what you want to do.
In the face of the Wal-Marts, which are going to have great prices, there is increasing pressure to do more training, to have customer-friendly people, customer service, to create a more exciting shopping environment. There's a lot of demos, people cooking
things in the stores, smells, colors. There's theater. You don't want to bump into the Wonder Bread buy in every aisle; that's not exciting. You have to create excitement in the store.
There also has to be a real passion for quality in the food. Today, there's more international foods: Who knew about sushi as a mainstream product? All of a sudden, it's everywhere you look. Now, people don't want day-old sushi. They don't want sushi that was packaged eight hours ago somewhere in Maine. They want it made right in front of them. Quality has to be one of the priorities for the industry.
Mark Oerum,
partner, HOWS Markets, Pasadena, Calif.:
Stores will be more individualized, with more niche stores for perishables. People will go to companies like Target and Wal-Mart for groceries and health and beauty care items and go to supermarkets for perishables -- smaller stores that will focus on meat, produce and seafood, and do the kind of outstanding job that companies with hundreds of stores can't do consistently. And if people have to drive a few extra miles for good beef and seafood, they'll do it. So in the future, everyone will have to find his specialty and focus on that.
I also see operators going back to the 1960s with more service departments and letting Wal-Mart handle the mainline items.
There will be demand for more branded merchandise. There's already a large group of people that want to buy branded items, not just private label. Quality speaks for itself, and there are a lot of affluent people, including middle-class consumers, that want a broader selection of brands. Besides
Krispy Kreme and Starbucks, there could be more quality fast-food operators moving into supermarkets, including Panda Express or some Hispanic fast-food franchise.
It's getting harder to operate unionized stores against non-unionized operators, especially in the area of health costs. We need employees to make co-payments on medical insurance to help subsidize our costs. In the real world, people have to pay, and as medical costs continue to go up, it's not fair to put all the burden on the employer.
Direct mailers will grow in popularity. There will be some use of Web sites, but that can be time-consuming for people to sign on, though that could still evolve.
Rich Parkinson,
president and CEO, Associated Food Stores, Salt Lake City:
We'll see greater differentiation for independent operators as they focus on niches in which they perform best. Independent supermarkets will move away from general-purpose operations to where they see the greatest opportunities -- customer service, stronger perishables and more private label. Less resources will be committed to center store, with that section getting smaller as those categories get harder to deal with.
As stores develop greater differentiation and strive to make shopping easier, there may be a trend for overall store sizes to drop from 45,000 to 35,000 square feet. There may also be more branded departments as part of that differentiation. Retailers will look for store sites suited more specifically to the demographics they hope to attract, such as the emerging Hispanic population. Labor in these stores will be more engaged in driving decision-making opportunities. That will require better personnel selection and
more training.
As for marketing, independent stores will move toward promoting aspects that differentiate themselves, which may mean less price-and-item advertising and more institutional ads that stress the kinds of offerings that differentiate them. There will be more identification with local communities because independent operators typically live in those communities, so ads will present more of a "hometown grocer" appeal.
Ron Pearson,
chairman, CEO, chief operating officer, Hy-Vee Supermarkets, West Des Moines, Iowa:
There will continue to be stores that are austere in serving lower-income customers, and there probably will be more stores coming on the market with higher-end items serving other consumers. I don't see any radical shift, just a lifestyle focus.
I can't think of any of the current things we see in supermarkets being phased out. There might be more services that stores can add to distinguish themselves from all of the mass stores that are coming on the market. A lot of consulting things, particularly in stores that have pharmacies -- that's a possibility.
In terms of store size, most have settled in on from 50,000-some square feet to 70,000 square feet. There certainly will be fewer supermarkets available in the marketplace in the next few years.
In terms of marketing, there will be some increase in direct mailing. As different formats try to distinguish themselves in the marketplace, they will try to reach their customers through direct mail.
