2005 was a year of looking for, and acting on, new opportunities for selling nonfood in supermarkets.
The "Multicultural Marketing" study released this year by the General Merchandise Distributors Council Educational Foundation demonstrated just how drastically the demographics of the United States are changing.
Combining numbers for Hispanics, African Americans and Asians, minority buying power will increase by more than 40% from 2004 to 2009, when it will be nearly $2.5 trillion, according to the study, which attributed the statistics to the Selig Center for Economic Growth, University of Georgia, Athens. Hispanics will represent the largest part of that $714 billion growth, with $306 billion.
Minority groups join baby boomers and Gen X-ers as strong new income sources for supermarkets.
New and more welcoming formats, upscale skin and hair products, and a focus on natural and health products were all employed this year to help supermarket nonfood gain on other channels.
Supermarkets are redefining the nonfood set in ways that are more intuitive, more comfortable and aligned with what shoppers are doing, said Bill Bishop, president, Willard Bishop Consulting, Barrington, Ill.
"This whole idea of recreating the shelf is more than signs and adjacencies, it is building category logic," Bishop said.
Pharmacy prepared for the Medicare Part D prescription drug benefits to begin in January while planning innovative ways to provide Medication Therapy Management to beneficiaries and incorporating nurse-run health clinics for customers and enhancing the overall "wellness" feel of stores.
"The energy and enthusiasm generated by our pharmacists and our customers has really helped us find solutions to these challenges," said Ken Dickson, director of managed care for Supervalu Pharmacies, Chanhassen, Minn., "because these stakeholders realize how important and beneficial their efforts are."
By catering to baby boomers, Gen X-ers and a variety of rapidly growing ethnic populations, supermarket health and beauty care executives are reshaping HBC and plugging the leakage to mass market and other channels that have been prevalent in the past few years.
There is a spending-power commonality between the growing ethnic populations, baby boomers and Gen X-ers, said Roy White, vice president, education, of the New York-based Educational Foundation of GMDC, Colorado Springs, Colo.
"Everyone has suddenly, over last 12 months, realized that multicultural is a market of the scope, complexity and spending power of the other two groups," he said.
According to the "Multicultural Marketing" report, African American women spend 25% more of their disposable income on personal care products than Caucasian women, and Hispanic households spend nearly $20 more annually than non-Hispanic households.
Meanwhile baby boomers and young Gen X-ers, including men, are paying more for quality skin and hair care, retailers told SN.
Sales of personal care products to African American, Hispanic, and Asian-American men are expected to increase by nearly 20% over the next four years, according to the GMDC study.
Better-educated, more health-conscious consumers are the new target for supermarket HBC and retailers are responding with more welcoming and informative HBC sections.
For supermarkets, health is now a huge focus, White said. "Some chains are now experimenting with consultation areas above and beyond the pharmacy."
GM: DESTINATION MERCHANDISING
This year, some supermarket chains found that they can put the customers in charge by successfully adding a destination section.
Wegmans, Rochester, N.Y., and Bill's ShurSave Supermarkets, Daleville, Pa., an independent supplied by Associated Wholesalers, Inc., York, Pa., are just two retailers that have stood out from the pack.
"There are two critical issues here," said Robert Passikoff, president of Brand Keys, New York. "First, convenience is very important to the consumer. Second, there's a lack of differentiation between retailers."
For example, Wegmans' Reading Center stirs up consumer interest through book signings and other such events. The move also works for the retailer on a corporate level, according to Burt P. Flickinger III, managing director, Strategic Resource Group, New York.
"Wegmans' tremendous book and magazine strategy is complementary to their corporate efforts in literacy and reading," Flickinger said.
Pets are another opportunity for retailers to deliver convenience, as Bill's ShurSave has done: Families can handle their weekly food shopping without having to make a separate trip to pick up food for the family pet.
Lakeland, Fla.-based Publix is also on the cutting edge of meeting consumer needs through digital photography.
Through Snapfish, an online photo service, part of Hewlett-Packard, Palo Alto, Calif., Publix has managed to attract the younger set who "don't spend a lot of time in the supermarket," Flickinger said.
Lund Food Holdings, Edina, Minn., successfully tapped housewares. Using its already-established role as a supermarket, the retailer used food demonstrations to help launch its quality housewares department.
Putting Out Fires
Managing in-store health clinics while preparing for the onset of the Medicare Part D prescription drug plan in January, which carries the possibility of reimbursable Medication Therapy Management, has kept retail pharmacists more than busy this year.
Other issues were hurricanes, localized flu shot shortages, and legal and moral disputes.
The number of health clinics run by outside companies and staffed by nurse practitioners has been increasing all year.
The first of these clinics appeared in Cub Foods stores about five years ago, and more chains have begun testing them in the last year as permitted by state regulations.
The space used for clinics will also act, at some stores, as space used to administer MTM services, an opportunity that may mean reimbursement for retail pharmacy after the onset of Medicare Part D.
Adjacent to most of its pharmacies, Ukrop's Super Markets, Richmond, Va., has wellness centers that have been used, "for a number of years," to provide immunizations and health screenings for Ukrop's customers, said John Beckner, director of pharmacy and health services, Ukrop's.
This same space will be used to deliver Medication Therapy Management, Beckner said.
Although the Medicare Part D legislation allows for pharmacists to administer this service and with the possibility of reimbursement, pharmacy will have to work to ensure that this privilege does not fall to other possible sources, such as plan providers.
Outside of MTM, Medicare Part D sign up, which began in November, has increased customer involvement in the pharmacy due to a myriad of questions brought on by a confusing number of plan choices, said Bruce Kneeland, president, PharmacyConnections, a consulting firm based in Valley Forge, Pa.
"This has been both good and bad, resulting in store visits but also in lots of time drain," Kneeland said.
The force over which there may be the least control, Mother Nature, also had a daunting effect on pharmacy this year.
Hurricanes Katrina, Rita, and Wilma left pharmacies in affected areas ruined and victims in those areas without medication. This led to the deployment of mobile pharmacy units, acting as temporary pharmacies, by a number of retailers.
"I believe that companies will continue to invest in mobile pharmacy units that can be deployed not only for natural disasters like Katrina, Rita and Wilma, where they were obviously needed, but also because there are any number of local-level business-interruption issues such as fires and localized flooding that could use this type of aid," Kneeland said.
Flu season came shortly after hurricane season and despite guidelines from the Centers for Disease Control and Prevention, Atlanta, to limit flu shots to those at high risk until Oct. 24, localized shortages still occurred.
A number of supermarkets offering flu clinics administered by Maxim Health Systems, Columbia, Md., this season, were forced by Maxim to close all flu vaccine clinics scheduled for retail locations after Nov. 6 because of an inability to meet the high demand for vaccine this year.
For those looking for over-the-counter cold and flu remedies, products containing the ingredient pseudoephedrine were pulled behind the counter in many states and some were replaced with new formulas.
Meanwhile, an indefinite postponement by the Food and Drug Administration to switch emergency contraception to over-the-counter status has shed light on a number of pharmacists who aren't willing to dispense emergency contraception with a prescription.
Walgreen Co., Deerfield, Ill., placed four pharmacists on unpaid leave for refusing to fill prescriptions for emergency contraception, in violation of a state rule. The rule requires Illinois pharmacies that sell contraceptives approved by the FDA to fill prescriptions for emergency birth control.
Lower Sales Increases
It could have been worse. Instead of selling DVDs, retailers could have been selling movie tickets.
The much publicized downturn in box office sales - usually a surefire barometer of future video trends - only resulted in a less robust percentage sales increase in 2006 for supermarkets than the year before.
What saved video for supermarkets, as for other channels, were two trends: a dramatic increase in lower-priced product, usually under $10; and the explosion of TV programming offered on DVD.
In the case of the budget product, it fit perfectly into supermarkets' sales strategies. The TV-on-DVD sets were priced higher than many supermarkets prefer, but consumer demand was very strong, especially in the fourth quarter for new season packages of series like "Seinfeld."
The rise of the budget product was demonstrated in numbers from the Strategic Planner of ACNielsen, Schaumburg, Ill., which tracks prerecorded video sales in supermarkets. For the 52 weeks ended Oct. 8, dollar sales were up 6.7% contrasted to the 23.4% increase seen for the same period the year before. However unit sales were up 14% for the 2004 period, compared with a 27.1% rise the year before. Results from the usually dependable fourth quarter were not in as of press time.
"Supermarkets are embracing lower priced catalog product, as well as value priced product," said Leslie Baker, vice president, sales, grocery and drug, Ingram Entertainment, La Vergne, Tenn. Budget-priced DVDs are far less attractive to shoplifters, making it possible to display them on the main sales floor, she said.
Supermarkets continued to carry the big hit sell-through titles, but with less enthusiasm, and occasionally displaying them behind service counters, which drastically cuts down on impulse sales. For stores that have access to it, previously-viewed DVDs from the rental racks also provided an aggressively-priced sales opportunity.
Another major development for supermarkets in 2005 was rental, mostly in automated kiosks, which many still call "vending machines." Rental numbers were down throughout the later part of the year, prompting some retailers to close departments, but industry sources attributed this to the soft box office and weak theatrical slate.
However this affected specialty video operators like Blockbuster, Hollywood and Movie Gallery much more severely, resulting in financial cuts and some store closings in an attempt to grapple with overhead. Some industry watchers noted that supermarkets that stay with rental, or that put in the low-overhead kiosks, might have a long-term ability to profit from these retailers' losses. Additionally, the cost of kiosks is significantly lower than it was a couple of years ago.
Many supermarket chains started to test the kiosks last year, and one operator, Redbox Automated Retail, owned by McDonald's Corp., Oak Brook, Ill., is expected to attain significant penetration into the supermarket field starting with more extensive tests and roll-outs in 2006.
Other operators, such as DVDXpress, New York, is rolling out machines equipped with radio frequency identification in Bi-Lo, Greenville, S.C., and is targeting other grocery companies for expansion.
"For the first time in the history of the video industry, the vending machines are working," said Andrew Miller, director, supermarket division, Rentrak Corp., Portland, Ore.