BUILDING BLOCKS

MONTVALE, N.J. -- A&P is trying to build its business for tomorrow by paying more attention to its baby care aisles today.In an effort to increase its baby department sales, the nation's fifth-largest supermarket chain is expanding baby care department space, increasing selection, stepping up its private label, increasing advertising and deploying category management to operate the aisle more efficiently.Chain

MONTVALE, N.J. -- A&P is trying to build its business for tomorrow by paying more attention to its baby care aisles today.

In an effort to increase its baby department sales, the nation's fifth-largest supermarket chain is expanding baby care department space, increasing selection, stepping up its private label, increasing advertising and deploying category management to operate the aisle more efficiently.

Chain officials acknowledged that that sounds like a heavy level of investment for a center store section that is seeing cutthroat competition and rock-bottom margins in important categories. A&P's baby business, like many other chains', is under attack from supermarket competitors, membership clubs, discount department stores and toy stores.

But for A&P, the baby business is not only worth fighting for, it also still affords the company and its supermarkets a crucial chance for growth.

"You're future growth of tomorrow depends on getting the young families in today," said David Smithies, A&P's vice president of sales and marketing for the Northeast region.

In interviews with SN, Smithies and William Vitulli, vice president of government and community relations, described A&P's operating philosophy for the baby aisle and the role it will play in the retailer's plans to foster total store sales.

"The baby category is one of the most critical in the store, because it is the one that indicates you are bringing your young customers into the store. Children grow up, and they will shop A&P forever, if we run a good store and take care of their parents," Smithies said.

"Baby care also is one of the most critical departments for driving a price image. Your young consumer is very price sensitive. You have to be out there at the right price and have the right variety."

Not surprisingly, Smithies characterized baby care as a "high demand" department offering very low gross margins and being driven by competition.

"Everybody is sensitive to the same thing. Stores want the young family, but that family is aware of what prices are compared to other chains, and it is a big expense for them. When my kids were young, we were spending $20 a week on Pampers.

"The diapers and everything else are very promotional. A lot of companies have lowered prices, resulting in a slight drop in margins in the category," he said.

"Also, the clubs have had an impact on the marketplace. We are selling the larger sizes and the larger sizes are being sold at a lower gross. The gross margin on the category has been low all along, so I don't know how much lower it can go," Smithies added.

Nevertheless, for this chain baby care is still one of the most rapidly expanding categories in the store.

"The variety, particularly on the aids, diapers, etc., is 20 or 30 times larger than it was 15 years ago, so it is taking up a lot more space in the store and becoming a much greater developer of image. I remember when there were three kinds of Pampers on the shelf. Now there is one for each sex, every size, every shape, for every age. And there are three or four different companies."

Smithies also said the formula assortments and other categories have grown tremendously, outpacing the rate of expansion of the more mature baby food business.

"I think the formulas, the baby needs and the diaper category have probably risen in variety faster than the baby foods themselves. In recent years, baby foods have changed by adding different formulas for the different ages, less sugars, etc.," he said.

"We have a few stores that get into toys, but not too much. To recoup some margins, we're carrying more health and beauty aids, like creams, ointments, powders and things like that," Smithies said.

At the strategic level, A&P is bringing category management tools to bear on the baby aisle. The aisle is one of the first important, if problematical, grocery sections to be used as proving ground for category management.

"We're just going into a program of getting people involved in category management, and this is one of the categories that we're focusing on early to make sure that we're handling the right variety. Category management is something that is in the infancy stages now, but I think in the next 10 years it will be a major contributor in how the grocery industry runs," he said.

Smithies said A&P also is seeking to increase private-label offerings in its baby aisle, although he doesn't see the chain introducing private-label baby food. Neither is a baby aisle extension of its Master Choice upscale line of products on the drawing board.

"As part of our general trend, we are using more private label everywhere. But with babies, it is a difficult category to break into because people tend to want the best for their babies and they tend to think national brands. However, in the last several years we've upgraded quality significantly in the private-label line, and we are holding our own. It is price image and it is something we can compete in," he said.

One market observer in the New York area told SN refocusing of the baby care aisle represents a good opportunity for A&P. "They are now promoting the formula, diapers and other baby needs, like cereal, on a regular basis. They are separating the category out, and always have something on the baby aisle in the ads," the observer said.

A&P's Vitulli told SN A&P has not only stepped up its advertising of the category to include weekly circulars, but it also is using more in-store materials for promotion. "All of our people -- the buyers, supervisors and managers -- are alert to these changes happening in the category, and they are taking advantage of those changes to grow the department," Vitulli said.

Although he declined to give specific figures, Vitulli said A&P's recent sales figures indicate a steady increase in movement for baby care items, an indication that its attention to the aisle is paying off.

"The sales distribution rate of baby care items has shown a continuing increase. A recent news report stated the baby boom in the early 1990s has slowed down, with young couples choosing not to have children. Our results at this time do not reflect that statement," he said.

Vitulli said disposable diapers, baby wipes, baby foods, formula and health care products are all frequently featured and carried at competitive retails.

"For customer convenience we plan for all baby care products, other than those in the health and beauty care aisle, to be found together. While we have a basic planogram for this category, the product allocation varies within the individual store setup based on demographics.

"Each store can have different movement on different items because of the setup of that area. The managers have a basic planogram, but they also have to vary that planogram depending on consumer demand for products in that particular store," he said.

"Changes to the baby department are made according to demographics. In each state you will find that the senior citizens gravitate toward a certain area, and new communities are built that attract younger couples with children. You have different ethnic groups; you have different economic groups. You just have to be a merchant," Vitulli explained. "That doesn't change."

Customer feedback also plays a growing role, he said.

"We frequently use customer surveys, focus groups and feedback from store operations to fine-tune the baby aisles in our stores. Store layout and how it is adjusted is based on the location of the store and the local popularity of particular items.

"We have to be aware of trends. If an article in a magazine recommends a certain group of products for health reasons, you will find that you can't keep the products on the shelf, and if they say something is bad, the popularity of it will drop overnight," Vitulli said.

A&P's strategy for the baby aisle has had ramifications for other sections. To accommodate growth in the baby care department, Vitulli said, the chain has had to take shelf space away from other flat and declining categories. The company makes those decisions as much as possible according to the situation in each individual store.

Marketing pressure from the vendor side is likely to keep the pace of change in the aisle lively for the foreseeable future, which means A&P will continue to refine its store sets

"We're getting involved in category management, and this is one category we're focusing on early to make sure we're handling the right variety."

-- David Smithies

VP, sales, marketing Northeast region

A&P.