CHICAGO -- Small- and medium-sized food retailers have an opportunity to grow if they execute well at the store level and exploit opportunities created by the weaknesses of their larger competitors, according to a presentation at the Food Marketing Institute conference here last week.
"There is no correlation between scale and the ability to grow," said Bryan Gildenberg, president and general manager of the training division at Management Ventures, Boston, during a session geared toward independent operators. "When looking at things that are predictive of growth, it is not scale, but skill."
Retail growth potential is more closely tied to the effective management of finance, operations and marketing -- a combined attribute he termed "business capability."
Using an analysis that takes into account a variety of performance measures and observations about their business capability, Management Ventures has identified 32 "leader retailers" from all retail segments that have accounted for about 88% of the growth in U.S. retailing in the past five years. Among those leaders are traditional supermarket operators Kroger, Publix Super Markets, H.E. Butt Grocery Co., Wegmans Food Markets and Ukrop's Super Markets, along with such fast-growing specialty players as Whole Foods Market and Aldi.
The 32 leader retailers identified by Management Ventures accounted for $289 billion in growth in the last five years, compared with total U.S. retail market growth of $329 billion. These 32 leaders are projected to grow their business by another $215 billion by 2007, according to Management Ventures.
Although Wal-Mart Stores is among the leaders, Gildenberg said he expected supercenter growth to moderate in the next few years. Compound annual growth for the supercenter format totaled 18.8% from 1999 to 2004, but the rate will fall to 13.7% from 2004 to 2007, he estimated. Club-store growth is also expected to slow, he said, because the format tends to perform the best during a "boom economy." Clubs will grow 7% in the 2004-2007 period, vs. 10.1% in the preceding five years.
Supermarket growth is expected to accelerate in the next few years, however, from 2.3% in the 1999-2004 span to 3.5% in the period from 2004 to 2007, according to Management Ventures research.
Gildenberg argued that retailers have an opportunity to grow because Wal-Mart accounts for only about 8.5% of the $2.7 trillion retail sales in the U.S., according to Management Ventures' calculations, which is a much lower percentage than the leading retailers in many other countries enjoy, including Loblaws in Canada, Tesco in Great Britain and Metro in Germany. "The U.S. retail market is highly fragmented, and that creates opportunities," he said.
Among the advantages small and midsized retailers have is their ability to be flexible and react to changes in the market, according to Gildenberg.
"Leveraging scale is all about predictability," he said. "If you are trying to compete with a scaled operation, you've got to think about ways to be unpredictable in the market."
The ability to maintain tighter control of store operations is another advantage small retailers have, Gildenberg said.
"Most of your larger competitors do not execute at the store level," he said. "As a medium to small retailer, you should out-execute your larger competitors."
In terms of marketing, he noted, "Most retail brand building happens in the store," despite the enormous sums spent by Wal-Mart and others on mass-media advertising.
"If knowing your market is the key to your success, prove it every day in your stores," he said.
In terms of financial structure, Gildenberg noted that there's a high degree of correlation between retailers that have high debt levels and slow growth, regardless of the size of the company.
Other observations by Gildenberg:
- Time is becoming as valuable a commodity as money to consumers, even those with low income. Part of the appeal of dollar stores and everyday-low-price operators is the simplicity of their pricing structures, which makes shopping faster, he said.
- People have a "reduced tolerance for an unguided experience," Gildenberg suggested, partially because of the influence of the Internet on the way consumers retrieve information. Supermarket aisles, he said, need to be better designed to help shoppers navigate the store.
- Knowing why a customer is in your store is more important than knowing who that customer is, he said. Shoppers should be segmented according to different shopping occasions, he suggested, because the same person can be a customer for different reasons at different times.
- Consumers' perceptions of price form at the checkout lane, not at the shelf. "Most retailers are wrong about how many items customers are aware of the price on. It is a much lower number than you think."