The pressure is on today's top food executives to maintain a competitive edge in an environment populated with multiple store formats and alternative shopping choices.As executives make short-term decisions to combat competition, changing market conditions, and fluctuations in the economy, they'll also need a strategic vision and plan for long-term growth.It is within this context that SN presents

The pressure is on today's top food executives to maintain a competitive edge in an environment populated with multiple store formats and alternative shopping choices.

As executives make short-term decisions to combat competition, changing market conditions, and fluctuations in the economy, they'll also need a strategic vision and plan for long-term growth.

It is within this context that SN presents the 2005 Strategic Planner -- a compilation of 25 cutting-edge initiatives that are being pursued by the industry to give it an advantage, operational efficiencies, bigger profits and, most importantly, shopper satisfaction.

Of the five initiatives presented here, only one is truly visionary in nature: meeting the needs of the aging baby boomers. Seventy-six million people are quickly getting older. As this large segment ages, its eating, dietary, medical and shopping needs will require retailers to reach out in new and different ways. The strategy will go far beyond electric carts and park benches now offered by some retailers. Merchandising will begin in the pharmacy and be carried out storewide.

Two of the initiatives -- in-and-out promotions and dollar sections -- are strategies successfully utilized by alternative formats that are now being reincorporated by food retailers to help boost traffic and sales. This harkens back to the old adage, "If you can't beat them, join them."

The remaining initiatives -- improving vendor relationships and customer service through training -- have been around since grocery stores first opened their doors. However, if retailers can't keep their businesses in order when it comes to their suppliers and employees, they will never survive.



Associated Food Stores, Salt Lake City, Utah, is committed to training store personnel on how to do a better job taking care of "guests" -- part of an effort, the company said, to blunt the impact of price-oriented formats.

The goal is to create world-class service -- what Alan Ferrell, director of human resources, calls WOW service -- at its 23 corporate stores.

That training may be one of the most effective ways for conventional operators to survive against the escalating growth of supercenters and other price formats, industry observers told SN.

According to Gary Giblen, senior vice president and director of research for C L King Associates, New York, training employees to provide better service is a good way to keep price competitors at bay.

"Most chains are finding it's not a good idea to get stuck in the middle, where you can't get down and dirty on pricing. So it truly becomes matter of survival to have well-trained employees in the stores," he said.

"In the past, good service was nice if you offered it. But now, it's an absolute necessity for some operators because it allows them to differentiate themselves from the lower-priced formats."

A strong service orientation is part of what has made Whole Foods so successful, Giblen pointed out, "and Safeway is in the process of Whole Foods-izing its stores with that same kind of service offering."

The kind of computer-based training that many companies relied on in the past "created very canned behavior, and customers could tell their [employees] behavior was not totally genuine. Human training is what's required to teach specific behaviors because it helps people create those behaviors from within."

Associated's training will combine human teaching with DVDs for reference and reinforcement, Ferrell told SN. "The goal is to boost service levels and customer expectations, and thereby take ownership not just of selling, but of interacting with customers," he explained.

The training effort will have a twofold purpose, Ferrell noted: to help store leaders train other employees, and to teach those employees how to be more creative on their own.

Associated's training method will involve a series of DVDs it is developing "because if people can see it, they can recall it," he pointed out.

For store leaders, the DVDs will be designed "to help them understand their own inspirational abilities to transform a counsel mentality into a directive mentality," he explained. "For employees, a DVD can put what they're taught into real-life action and provide them with a vehicle to refer back to."

According to Jon Hauptman, vice president of Bishop Consulting, Barrington, Ill., "More and more, retailers want CD- or DVD-based training -- something they can ship out to the stores and that can very easily be played in the break room.

"All of the solutions we're being asked to develop for retailers must have a training element. It's not enough anymore to have a plan -- you have to have a way to make it work at the store level."



How much is a dollar worth? To Albertsons, Boise, Idaho, which installed dollar sections chainwide during 2004, it's worth increased traffic and market share, and higher margins, according to Larry Johnston, chairman, president and chief executive officer.

"Consumers have voted in increasing numbers for the dollar store concept in recent years," Johnston said, "and that trend was too strategic for us to ignore."

Accordingly, after extensive research, working closely with vendors, and testing the concept, Albertsons introduced "10 for 10 Mix and Match" sections earlier this year, featuring items priced at 10 for $10 encompassing dry groceries, fresh foods and general merchandise. In addition, "10 for 10" offers are also positioned throughout the stores on an in-line basis.

"Many of the products sold in [dollar] stores are the same products sold in food and drug stores," Johnston pointed out. "With our size, buying leverage and shopping frequency, we felt we could continue to strengthen and differentiate our food and drug formats by giving customers exciting new values across a wider range of categories."

Other food operators have climbed onto the bandwagon during the last few months, with Kroger, Cincinnati, offering 10-for-$10 pricing on selected merchandise on a rotating basis at some of its stores. Supervalu, Minneapolis, has been adding general merchandise from its Deal$-Nothing Over a Dollar chain to its Save-A-Lot stores to create a hybrid limited-assortment store.

"Dollar stores are a global phenomenon," Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., told SN. "As they gain acceptance by more middle-income shoppers, it's clear they're not a passing fad.

"For a supermarket, dollar sections can create sales and earnings. The products sell, the margins are healthy, and these sections create a good value image for a supermarket operator. They also serve as a defensive measure to draw customers into the supermarket who would otherwise shop a dollar store."

Wolf compared supermarkets' offerings of dollar merchandise to their offerings of natural foods. "It's a matter of knocking off a growth segment and customizing it to a conventional supermarket. Dollar stores are a growing, profitable segment. So why shouldn't supermarkets participate in it?"

Jonathan Ziegler, principal at PUPS Investment Management, Santa Barbara, Calif., said dollar offerings enhance a store's price image and provide a way to help deal with the dollar store phenomenon, which is growing aggressively."

On the negative side, however, is the possibility that having that kind of offering in a supermarket could dilute its price positioning "because it makes everything else seem more expensive," Ziegler added.

Said Jon Hauptman, vice president of Bishop Consulting, Barrington, Ill., "Having dollar offerings is a way to help stand out from other formats that sell food, or just other supermarkets. It's a way to differentiate, and it's a way to sell excitement and fun in the store."



Everyone loves a surprise -- at least when they're shopping at Costco.

Analysts attributed some of the success of the Issaquah, Wash.-based company and other wholesale club operators to their knack for providing customers with a new assortment of unexpected bargains every time they visit. Costco's in-and-out displays can include everything from consumer electronics to home furnishings, all at deeply reduced prices.

"The clubs have successfully created this in-and-out atmosphere, and people keep going back frequently just to see what's new," said Jon Hauptman, vice president, Bishop Consulting, Barrington, Ill. "I think the club model is built very largely on the urgency associated with in-and-out merchandise and the treasure hunt's appeal with it."

It's a strategy that supermarkets could better leverage to improve their own offerings in the coming year, analysts said.

Hauptman said he thinks supermarkets could make their in-and-out displays more exciting.

"I think very often in-and-out merchandise has a secondary focus for many retailers," he said.

"It's a good idea to get customers in the door, and get them to make more trips," said Brad Prescott, retail analyst, Management Ventures, Cambridge, Mass. "People come in just to see what they're going to find this time."

He said although it probably doesn't make sense for supermarkets to offer high-end merchandise like the club stores do, he sees more opportunity for low-end, in-and-out items along the lines of dollar items many food retailers have been incorporating.

"Supermarkets are trying to emulate the clubs a little bit," Prescott said. "They're trying to create that environment where you go to the store because you don't know what you're going to find."

Costco is especially adept at merchandising in-and-out displays, he said, because it knows which products to offer.

"I think Costco does a good job of selecting aspirational merchandise like flat-screen TVs," he said. "They have the kinds of things you never really wanted, or didn't think you could afford until you saw it at Costco and saw they had a good price on it."

However, Gary Giblen, senior vice president and director of research for C L King Associates, New York, cautioned about the practicality of supermarkets attempting to pull off the same type of merchandising that Costco and others can.

"Supermarkets have been relegated pretty much to convenience stores, and that is the harsh reality," he said. "So they don't have much traffic to monetize on. There also is more and more closeout competition, so it is harder to get goods at an advantageous price. I think it's sort of a desperation move, but in limited cases it can work."

Not all in-and-out displays need to be a surprise, Hauptman of Bishop Consulting pointed out.

One suggestion he had was a strategy employed by Aldi, the Batavia, Ill.-based chain of limited-assortment food stores. Aldi often advertises its in-and-out specials on branded items a week ahead of time so customers will know the product will be available at a discount the next time they come in -- perhaps causing them to hold off on making that purchase at a competitor's store in the meantime.

"It helps people prepare. It will bring them back," he said.



Food retailers that can offer a bit of their knowledge in exchange for a piece of their suppliers' help will be in a position to succeed in 2005, observers said. However, much depends on retailers' willingness to share and suppliers' willingness to listen.

Supermarkets can be superior "learning labs," and should let branded consumer goods companies know it, said Burt P. Flickinger III, managing director of Strategic Marketing Group, New York. Retailers with deep knowledge of their customers and trade areas can be especially useful to suppliers.

"Smart retailers know their consumers much better than [consumer package goods companies] do," Flickinger said. "They should go directly to their suppliers and tell them, 'If you want to build your brand and drive your volume base, it makes sense to work with us."'

While companies like Meijer, H.E. Butt Grocery and Bashas', as well as national operators like Kroger and Albertsons, are making strides in this area now, consumer packaged goods companies' attentions are focused on Wal-Mart Stores, Bentonville, Ark., Flickinger said. Wal-Mart has pioneered the exchange of its sales data for its suppliers' analytical and category management support, but an opportunity exists for supermarket retailers to cash in, too.

"One thing they can borrow from the Wal-Mart model is leveraging the full power of suppliers' analytical resources," said Jon Hauptman, vice president of Bishop Consulting, Barrington, Ill. "People like Kraft and Proctor & Gamble have hundreds of people on site in Arkansas to support that function.

"Of course, what Wal-Mart does is provide direct access to great data," Hauptman added. "They've made the leap of sharing all their data with their suppliers. There's an opportunity for supermarkets to be open with their data in a way similar to Wal-Mart and, in exchange, request more analytical support and push some of the category management activities to suppliers."

According to Flickinger, consumer goods companies tend to have been "overcommitted" to partnerships with Wal-Mart, but they will increasingly reach out to other channels. "Too many CPG companies have seen their brethren go to bankruptcy," Flickinger said, noting that New World Pasta and Interstate Bakeries are two examples from the food industry.

Observers expect it will be a long process, as retailers overcome their reticence to reveal their data.

"In the purest sense, trading information with trading partners is a good thing. But there are certain parameters they work with that will make them say, 'I'm not willing to share this or share that.' That is rooted into the competitive situation where they may not want to risk giving a competitive advantage to a trading partner," noted Patrick Walsh, senior director of industry relations, Food Marketing Institute, Washington, and a former executive at Kraft and Safeway.

"Today, we've seen a number of other retailers moving in that direction, albeit very cautiously," he said. "The core issue is trust."



They have strength in numbers and are aging fast. Baby boomers -- those born between 1946 and 1964 -- have the influence to transform food retailing and merchandising.

This generation of about 76 million people is quickly moving into their 50s and 60s. In 2011, baby boomers will begin turning 65. Between 2011 and 2030, the number of elderly is expected to rise from 40.4 million, or 13%, of the U.S. population, to 70.3 million, or 20%, according to the U.S. Census Bureau.

Food retailers are just beginning to experience the impact these consumers will have on food retailing. Sales growth of prescription and over-the-counter drugs, beauty care products, vitamin supplements and healthy foods, including natural and organic, can be attributed in part to those concerned about getting older and who want to prevent degenerative and chronic diseases associated with aging.

"Today's boomers aren't going to age gracefully," said Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill. "They're [going to grow old] kicking and screaming. They are incredibly proactive about it."

Consumer demand from boomers will fall squarely on health and wellness-related services, said observers. "I think the one place you're going to see more of a formal focus on meeting the needs of the baby boomers is the area of health and wellness," said Jon Hauptman, vice president of Bishop Consulting, Barrington, Ill.

Hauptman said Ahold's Stop & Shop, Quincy, Mass., and Hy-Vee, West Des Moines, Iowa, have tested HealthSmart Rx in-store information centers that provide shoppers with services and suggestions on satisfying their health needs.

Positioned next to the pharmacy, HealthSmart Rx consists of several components, including an interactive information kiosk that provides answers to health questions, and highlights branded products appropriate for specific health needs.

The concept was developed by the University of Illinois, Chicago's College of Pharmacy, that supplies the health content. This is one way supermarkets can "establish a destination location in 200 to 300 square feet," said Hauptman.

Wisner said providing such information at store level will be a key tactic in reaching aging boomers. "You used to have to go to a doctor to get information, and that is not always an easy process. Now you can go on the Internet for information. We're seeing more health information provided at store level."

Roy White, vice president of education for General Merchandise Distributors Council Educational Foundation, New York, said it also will be important to make connections between the pharmacy and the whole store in order to attract aging shoppers. A GMDC study examined the purchases of shoppers with "high value" medical conditions like depression, arthritis, cholesterol and heart ailments to find out about their lifestyles and what other products they buy to mange their health. "This is all data-driven," noted White. "The key here is not so much what shoppers should be buying, but to turn to the panel data [Information Resources Inc.'s RxPulse Patient Panel] and find out how they are treating their conditions and addressing their lifestyle," he explained.

White said connectors throughout store encompass a range of products that include food, OTCs and general merchandise. Once it is determined what products index high in purchases by pharmacy customers, a retailer can then program the store. In the GMDC study, informational material about specific diseases and conditions was made available at the pharmacy counter. An endcap with connector products was set up next to the pharmacy. Other connector products were flagged with signs throughout the store.