Walk down the seasonal aisle of many large supermarket chains this week and you'll see everything from outdoor patio sets, gas grills and lawn mowers to an array of gardening supplies, with many items priced well over the $100 mark -- evidence that retail channels continue to blur.
The product and service diversification going on in the food channel today is partially the industry's efforts to stimulate growth in a highly competitive retail environment while dealing in low-margin grocery items. It is also the result of consolidation and a strong economy, say industry observers.
Last month, for example, Kroger Co., Cincinnati, launched a nationwide promotion on 27-inch color televisions for $299.99. The chain also added a special department in three of its Detroit stores for tax-return processing. An official for Kroger's corporate office said the retailer "would not have been able to accomplish the television promotion without the buying power of Fred Meyer." The two large chains merged last year.
Karen Brown, senior vice president of the Food Marketing Institute, Washington, sees mergers like that of Kroger and Fred Meyer as a significant factor in merchandising changes and product innovations. "Merged entities like Kroger and Fred Meyer learn different merchandising techniques from each other, which can result in the addition of different kinds of products," she noted.
According to Roy White, vice president of education for the General Merchandise Distributors Council, Colorado Springs, Colo., supermarkets are moving from only a transactional channel to one also providing entertainment products and information. "Supermarkets are extremely flexible in getting into other areas," said White. "They have banks, appliances, health items. It is a tactic of building volume. And they need strategies to strengthen sales."
Most supermarket executives agree that a consumer-demographic bias toward higher quality products with more fashion and design is contributing to the trend.
"This offers an opportunity for higher profits for supermarkets," said Phil Brandl, president of the National Housewares Manufacturers Association, Rosemont, Ill.
Although Brandl does not see supermarkets going head to head against the big mass merchandisers, he views the supermarket strategy as one of careful selection. "They're picking their spots and choosing and identifying a niche rather than a full-breadth attack. Supermarkets have the foot traffic, the customer knowledge and the market research to capture new profit opportunities," he said.
An official for a large Southeastern chain said that it has been selling big-ticket general merchandise for the past five years and each year price points go a little higher. "The philosophy of the group is that Wal-Mart will be taking more and more of our food business away in the next few years, so we have to go after their business." he commented.
"We are doing very well with gas grills, patio furniture, canopies, computer games and boom boxes," he said. "It's basically an in-and-out business."
Harps Food Stores, Springdale, Ark., has revamped its spring lawn-and-garden program with an assortment of gasoline lawn mowers, priced at $108 to $239, and outdoor furniture, priced as low as $3.50 for a plastic lawn chair to $189 for cast-iron table/chair sets.
"People have more disposable income, so we're trying to get some bigger ticket items out there in lawn and garden," said Bob Yehling, general merchandise director for Harps.
Supermarkets are also introducing new services, most notably auto gas-fueling programs, to increase traffic, enhance one-stop shopping and compete with retailers like Wal-Mart, which plans to add fuel centers to some 150 existing locations this year.
Other players in this area are Albertson's, Boise, Idaho; which plans to build 600 gasoline stations in the next five years. Tops Markets, Giant Food Stores and Fleming Cos. are also players in the fuel business.
Gerald Lestina, president and chief executive officer of Roundy's, Peewaukee, Wis., said the wholesaler will add above-ground, self-contained portable gas stations. "We've tested one at a store in Eau Claire, Wis., and we're now negotiating with various oil companies to expand our base. I assume we can probably add 24 locations during the year. It's a value-added service we think we can offer at larger stores, where gas stations will be an additional traffic draw."
The focus on higher ticket items and services is the next step in the blurring of the channel lines, according to Bob Hilarides, partner in Cannondale Associates, Wilton, Conn., the consulting firm.
"There have been more channels attacking groceries than groceries striking back. But supermarkets have had success in prescriptions, prepared foods [and] health items. Now they are looking to upsize their basket whether it is via a bigger package of diapers or a TV set."
He pointed out, however, that, for most consumers, "supermarkets still stand for more everyday convenience products and impulse items. While there is a place for higher ticket items, in the electronics entertainment line, multiple versions of [the] Walkman or boom boxes would be more consumerable than TVs and they would also take up less space."
Whatever the tactic may be, the addition of new products and services is already giving food chains a new look. "It is a natural evolution growing out of supermarkets serving consumer needs that they historically did not serve in the past," said Brandl.
