It's not just Wal-Mart -- everybody wants a piece of Center Store.More than half of respondents to a new SN survey recognized that all non-supermarket channels, not just the mega-discounter, rival them for Center Store sales. That's a marked change from a year ago, when only 25% fingered alternate channels as one of the biggest threats."People are buying Center Store items where it is convenient,

It's not just Wal-Mart -- everybody wants a piece of Center Store.

More than half of respondents to a new SN survey recognized that all non-supermarket channels, not just the mega-discounter, rival them for Center Store sales. That's a marked change from a year ago, when only 25% fingered alternate channels as one of the biggest threats.

"People are buying Center Store items where it is convenient, whether at Wal-Mart or other mass or drug outlets," one retailer wrote in response to this year's survey.

The competition may be even broader than commonly recognized, warned another retailer respondent.

"I believe alternative channels pose the biggest threat, due, in large part, to the fact that we fail to identify all alternative channels as such," the retailer wrote. "Just as we lost pet food to pet stores, we must be alert to the threat posed to the coffee/tea aisle by Starbucks."

In another shift from last year, fewer respondents considered price among the best ways for retailers to compete for center aisle shoppers (15% vs. 24%).

Those results didn't surprise John Carlson, partner at Cannondale Associates, Wilton, Conn. "More channels are threatening traditional retailers with low prices, so they need to find other ways to compete to avoid a downward spiral of eroding profitability and loyalty," he said.

Part of the threat comes from within, however, he said. Retailers are shifting space to perimeter departments to make up for weak Center Store performance, which further erodes department sales, feeding that downward spiral. While it makes sense to use the perimeter to differentiate the store, he said, in so doing, they essentially give up on Center Store.

Chris Hoyt, who specializes in shopper insights and differentiation at his consulting firm, Hoyt & Co., Scottsdale, Ariz., traced the problem further back , to a trade allowance-dependent business model he said isn't sustainable. "As center-of-store items continue to migrate out, so do trade allowances."

He urged supermarkets to get as close as they can to competitors' prices, and then create enough of an enticing environment that shoppers don't mind paying the remaining difference.

Trends support respondents' fears about channel-blurring. An ACNielsen study showed that from 2001 to 2004, shoppers made fewer annual trips to grocery stores and more to supercenters, warehouse clubs and dollar stores.

Feelings about non-traditional grocery channels varied somewhat by respondent group. Retailers were more likely than respondents overall -- which also included manufacturers, wholesalers and sales agencies -- to name Wal-Mart Stores (66% vs. 57%) as among the biggest threats to Center Store sales. An almost equal percent of retailers (63%) named alternate channels as a top foe, though -- up from only 16% a year ago.

Of the other individual groups of respondents, only manufacturers put more emphasis on alternate channels than the nation's biggest food retailer (57% vs. 48%).

"Wal-Mart and alternative channels are killing grocery center store sales," one manufacturer lamented. "Why would consumers spend more money at the grocery store when they know items are deeply discounted at club and mass?"

In a rare contrarian view expressed in the survey, one wholesaler respondent wrote, "The 'backlash' against [Wal-Mart] in the media may have some effect. Also, many consumers prefer not to shop in the huge supercenter formats."

If retailers are losing faith in a price-based approach, they're bullish on technology, private label and ethnic marketing.

In response to a series of questions new to this year's survey, half of retailers said they are pursuing or would pursue aisle optimization in the next 12 months, with stockkeeping rationalization and price optimization next in order of importance. Within private label, top areas of focus were natural/organics, followed by value-tier, ethnic and specialty.

"We are on an aggressive campaign to increase private label across the board, not as a value-tier, but as a high-end alternative value from the national brands," one retailer respondent wrote.

The vast majority indicated they would take steps to increase their ethnic marketing in the year ahead, with two-thirds planning to increase their ethnic product assortment in the year ahead. Next in order of importance came participating in community events, private-label launch and adding bilingual signage or employees.

In other broad findings, the survey found:

Among all respondents, health and wellness were seen as the top trend in Center Store, followed by convenience, ethnic flavors and low-carb/diets.

Respondents saw the greatest innovation in the natural/organics category, followed by ethnic, frozens and private-label products. Retailers, not surprisingly, were more likely than all respondents (26% vs. 19%) to emphasize private label as a way to attract shoppers to Center Store.

All respondents expressed the need for more center aisle space, considered by close to half the biggest challenge to category management. One retailer spoke for many in writing, "Perishable departments are taking more and more floor space and marketing efforts. There is also a tremendous amount of new items brought to market annually. There is simply nowhere to go with some of it."

Among all surveyed, cross selling was the leading strategy to attract shoppers to center aisles.

"Cross merchandising puts ideas into people's minds," wrote a sales agency respondent. "When the customer only takes a few seconds to decide on a purchase, cross merchandising will lead to more impulse buys."

Retailers considered category management the back-office strategy most critical to success, but technology was more likely to be seen as a weak link. Commenting on their answers, retailers cited familiar obstacles: turf battles, unions and cost of technology. Summed up one: "Dollars, time, people -- the resources."

Among non-retailers, new products and consumer insights were seen both as the strategies most critical to attracting retailers -- and as the areas most needing improvement.

The survey indicated areas of division between retailers and their trading partners.

The former group, which was roughly split between companies under $1 billion and over, was more optimistic about the sales outlook for Center Store sales. About 72% forecast sales gains (an increase from 53% last year) vs. 55% among the latter group of manufacturers. Wholesalers were more pessimistic, with 75% expecting sales to remain the same or decline.

An equal percentage of retailers and manufacturers recognized out-of-stocks as the leading problem in managing Center Store categories. Not surprisingly, the first group put more emphasis on space limitations, while their trading partners gave more weight to slotting fees and out-of-stocks.

"Slotting fees serve to dampen the level of innovation in Center Store. However, the real limitation is shelf space. We need to innovate within a confined or shrinking section of the store," one manufacturer wrote.

And another: "Retailers are hooked on the slotting payment and will not look at what their customers' real wants are: service, clean stores, fresh meat and produce, and personnel to help assist them."

When it came to rating strategies that can draw shoppers to the center of the store, the two groups diverged somewhat. Both listed cross merchandising as the most promising. While retailers emphasized advertising and in-store signage as next in order of importance, manufacturers saw more promise in sampling and cooking demos and events.

In comments, retailers complained widely of being unable to compete on price with supercenters, although only 16% listed price as a key way to draw traffic to center aisles, down from 26% in the 2004 survey.

Still, manufacturers roundly criticized retailers as too price-focused, and called for stores to emphasize service and make the center aisles more inviting and informative.

"Many retailers still see price as how they effectively compete," one wrote in. "[They] should be trying to find a point of differentiation."

Channel Woes

Respondents to SN's Center Store survey recognize supermarkets are facing foes on all fronts. In a sampling of their anonymous comments, here's what they said about the challenges to Center Store, and what it needs to thrive:


"The biggest threat is the erosion of sales to other channels of all kinds. Even hardware stores use grocery items to drive traffic." -- Retailer

"Center Store is made up of a lot of canned items; this does not necessarily fit today's lifestyles. Convenience, portability and packaging that has a quality perception with the consumer will be key to capturing sales." -- Manufacturer

"Nonperishables can be purchased in so many different types of stores. Also, the health-conscious public is buying more produce and organic-type items." -- Retailer

"Most retailers still cannot make a definitive decision on who their competition 'really' is. Therefore, they flounder in getting the right mix/concept in Center Store." -- Manufacturer


"Placing a sample in a consumer's hands is the cheapest method in the long run of gaining a trial. You give them something tangible -- a sample, a taste or a free package -- and they will remember it." -- Manufacturer

"The best thing supermarkets can do is to relate personally to customers. That cannot be matched by any big-box store." -- Retailer

"In absence of insights that address shopper motivations, any efforts to revitalize the Center Store will likely miss the target." -- Manufacturer

"Commodity pricing and consumers' spending habits will raise Center Store purchasing. With ever-rising gasoline and housing costs, family budgets are being strained." -- Sales agent

"New items are introduced every day with the demand for more. Yet consumers still want their old standby. We can't have the best of both worlds." -- Wholesaler

"Tie-ins seem like the most obvious idea, but are difficult to execute since they often cover different areas of the store. Getting different areas to work together is always difficult." -- Manufacturer


Retailers; Manufacturers

1% to 2%: 26.3%; 14.2%

3% to 4%: 34.2%; 28.5%

5% to 9%: 7.8%; 9.5%

10%+: 2.6%; 0.0%

remain the same: 5.2%; 23.8%

-1% to -2%: 15.7%; 9.5%

-3% to -4%: 5.2%; 14.2%

-5% to -9%: 2.6%; 0.0%

-10%+: 0.0%; 0.0%


Retailers; Manufacturers

Perimeter departments: 18.4%; 33.3%

Alternative channels: 63.1%; 57.1%

Economy: 10.5%; 9.5%

Wal-Mart: 65.7%; 47.6%

Other: 7.8%; 14.2%


Retailers; Manufacturers

Slotting fees: 5.2%; 23.8%

Space limitations: 57.8%; 33.3%

Out of stocks: 23.6%; 23.8%

Other: 13.1%; 19.0%


All Respondents

Frozen food 15%

Naturals/organics 35.4%

Beverages 8.6%

Ethnic 16.1%

Private label 12.9%

Other 9.6%


All Respondents

Convenience 22.5%

Low-carb/diet 6.4%

Health and Wellness/"Good for you" 48.3%

Ethnic Flavors 16.1%

Other 4.3%


All Respondents

Private Label 19.3%

Price 15%

Assortment 30.1%

Value-added offerings* 19.3%

Other 13.9%

*Clubs, loyalty cards, online Endless Aisle, etc.

Retailers Only

Which initiatives do you plan to increase your ethnic marketing reach in the next 12 months? (Select all that apply.)

Increased product assortment: 65.7%

Participation in community events: 39.4%

Private-label launch: 21.0%

Bilingual in-store communications/employees: 18.4%

None: 13.1%

Other: 2.6%

What are the key strategies needed for your company to differentiate itself? (Select all that apply.)

Improved shelf/store layouts: 42.1%

Updated assortment: 36.8%

Private-label growth: 42.1%

Loyalty marketing/customer outreach: 42.1%

Other: 10.5%

Which of the following technology strategies do you plan to begin/continue employing in the next 12 months? (Select all that apply.)

Price optimization: 34.2%

SKU rationalization: 39.4%

Aisle optimization: 50.0%

In-store video screens: 13.1%

Kiosks: 13.1%

None: 13.1%

Other: 5.2%

Within private label, where do you plan to add to/update your offerings in the next 12 months? (Select all that apply.)

Ethnic: 34.2%

Specialty: 26.3%

Value-tier: 36.8%

Natural/organic: 42.1%

None: 7.8%

Other: 7.8%

How We Did It

SN's Survey of Center Store Performance 2005 was conducted from May 16 to 27 via its online site and e-newsletter. SN received 93 responses that broke down as follows: retailer, 40.8%; manufacturer, 22.5%; sales agency, 16.1%; food wholesaler, 8.6%; other, 15%. Totals may not add up to 100 because multiple answers were allowed or because of rounding.