Technology has already profoundly impacted the supermarket industry, but many top executives believe the real benefits still lie ahead.
In discussing their outlook for 2001, industry executives told SN that technology -- and how it is applied -- would play a major role in dividing winners from losers. Many have taken the view that the data-mining efforts of the bonus card and the trading efficiencies that can be tapped into on the Web -- still fairly recent innovations -- have only just begun.
"The successful company is always looking for efficient ways to better integrate technology with its day-to-day operations in every area, including distribution, purchasing and at store level," said Norman Rich, president, Weis Markets, Sunbury, Pa. "The information we generate and collect and how we use it will be the key to success in the coming years."
Ron Pearson, chairman, president and chief executive officer of Hy-Vee Supermarkets, West Des Moines, Iowa, expressed similar sentiments, saying that the industry was "waking up" to benefits of technology ever since the Efficient Consumer Response movement of the 1990s.
"The ECR movement was a wake-up call, just a start," Pearson said. "I see 2001 as an explosive opportunity to build on what we've already accomplished."
On the other extreme, some feel there are companies that have not yet done enough to exploit the benefits of technology -- which will make the coming year a major hurdle.
"We'll see more and more of a need for state-of-the-art software and systems," said Gerald Lestina, president and chief executive officer, Roundy's Markets, Pewaukee, Wis. "I think some wholesalers in this industry are behind the curve on that front and they'll have to catch up."
Executives also said personnel issues and customer service would be key components of successful food retailers in 2001.
Although there is some belief that the economy may soften a bit, executives are still mindful of a tight labor market and said they would maintain or step up efforts attracting and retaining employees. "With all the buying, selling and merging that's gone on in this industry, [employee relations] may be an area that needs improving. Employees want to feel wanted," said Jack Brown, chairman, president and chief executive officer of Stater Bros. Markets, Colton, Calif.
Supermarkets will continue to keep an eye on erosion from other channels, which will encourage them to greater use of the Internet, the executives said. At the same time, industry leaders feel less concerned about competition from "pure-play" Internet retailers, which took a hard hit in 2000 as many failed to achieve scale before their money evaporated.
"Internet food retailing will grow in the control of the established brick-and-mortar players, because they have all the built-in advantages as far as buying power and distribution," Brown said.
Channel erosion will also be a driver in some consolidations, executives predicted, particularly as mass merchandisers further encroach on independents.
"Strong growth by the mass merchandisers into groceries is driving some consolidation," Pearson said. "These [mass merchants] are well-financed, strong companies and they're putting some people in a lot of peril."
The executives' complete comments follow:
Gerald Lestina, president, CEO Roundy's Markets
I see more of the same that we saw in 2000. There will be additional consolidation within the industry, though perhaps not at the pace we've seen in previous years. There's definitely going to be additional pressure on small independents, particularly on those that have not reinvested in their store base, because the supercenter initiative is going to hurt them quite a bit.
I see a continued emphasis and importance on technology, which is needed for logistics on the wholesale end, and on the retail end for customer service. We'll see more and more of a need for state-of-the-art software and systems. I think some wholesalers in this industry are behind the curve on that front and they'll have to catch up.
I really don't think the supercenter initiative is going to have much of an impact in urban America. If you look at the players and where they're going, they're mostly headed to small communities and rural areas. So, it's the rural independent retailer that's under the greatest threat.
Employee retention I think will continually be a challenge for all of us -- not just in the food industry but all retailers -- because I don't see the low unemployment rates of recent years changing a whole lot. So just like last year, it will be difficult to attract and retain employees.
Jack Brown, chairman, president, CEO Stater Bros.
In past years we as an industry spent a lot of money and time dealing with the technical side of the business, and I think some of that time and effort in 2001 will have to go toward serving your customers. Not giving them good or OK service, but better service, than any of your competitors. Companies are going to have to take the same amount of effort and funds they devoted to technology and apply it to customer service. They'll have to re-prioritize.
Of all the things we give credit to Wal-Mart for, one of their big advantages is having that greeter in front of the store. Someone there to welcome you and say, "Have a nice day." That makes you feel good about shopping there.
Obviously, stores in our industry have to stay focused on issues like price and quality, but customers also have to feel they're wanted. One way to do that is to make sure your people feel wanted.
With all the buying, selling and merging that's gone on in this industry, that may be an area that needs improving. Employees want to feel wanted. Last year, when we took over 43 former Albertson's stores, we spent 40,000 hours re-training 3,000 employees. It wasn't as if Albertson's wasn't doing their job, but we wanted to make sure our people know what it means to work for us. I think we'll see that kind of commitment throughout the industry.
As for consolidation, I think we'll see more of what Safeway did with Genuardi's and Kroger did with Baker's in Omaha. Regional independents with 50 stores or less are in demand as the major chains go about acquiring. There really isn't a lot of room anymore for major mergers. It's more of a Pac-Man scheme now, with the big guys gobbling up lots of little ones.
I also think it's important for the industry to speak in one voice on governmental issues -- with a new administration coming in, that will be important. But the bureaucracy is really running things, and that's who we need to address with the message that food safety should be in the hands of one agency, and not three as it currently is.
Food safety is the No. 1 concern of our customers, and I think it's crucial we never disappoint on that front. We have to stand together on that front.
Internet food retailing will grow in the control of the established brick-and-mortar players, because they have all the built-in advantages as far as buying power and distribution. We're very happy with the Whyrunout service we adopted this year. Though maybe only 5% of our customers actually use it, the other 95% like that we offer it, and that's an important consideration.
Lisa Kent, president, NetGrocer
One of the challenges for 2001 for traditional brick-and-mortar retailers will be to stop the erosion to other channels, and address the need to simplify the lives of their customers. Around 60% of families with infants at home have both parents working today, so marketers and merchandisers have to find a way to adapt to the changing lifestyles of their customers.
For NetGrocer, our challenge is to get big enough to hit our profitability target and to differentiate ourselves from other on-line services. I think there are lots of models that can succeedl, but many on-line grocers never got a chance to prove theirs. Webvan and Streamline began working under the assumption they could reach profitability by 2007, then the rules changed.
Ron Pearson chairman, president, CEO Hy-Vee
I think business is going to be strong in 2001. We've seen some signs of it already in the northern part of the country, with the winter weather a lot more like we're used to seeing and not the mild weather of the past two winters. That means a boost in in-home consumption, and less of the restaurant industry thriving than we've seen recently.
We'll continue to see consolidation, both in the retail and the product sector, where it seems to be especially busy. Supplier-manufacturer consolidation does affect us [retailers] especially at the outset, because the combinations are never as smooth as they're expected to be. For a time, we don't know who we're buying from or how they want to promote things. Almost without fail that kind of thing happens, although our experience is that they eventually assimilate and get together.
In the retail sector, strong growth by the mass merchandisers into groceries is driving some consolidation. These are well-financed, strong companies and they're putting some people in a lot of peril.
We'll continue to see technology having an impact. Our business is a very labor-intensive industry, and technology is going to help us make the most of our resources. I can eventually see a checker-less front end.
Technology is also helping us communicate with our customers more effectively, and we're just scratching the surface of that now.
The ECR [Efficient Consumer Response] movement was a wake-up call, just a start. I see 2001 as an explosive opportunity to build on what we've already accomplished
Norman S. Rich, president, Weis Markets
One of our most crucial challenges is recruiting new associates. With a booming economy and low unemployment, recruiting at store and corporate level has become more of a challenge, which leads to a second and even more crucial challenge: retaining qualified associates. People have more options, which means we have to work harder to retain qualified associates.
Technology is another key area. Increasingly in our business, there are two criteria separating the successful supermarket operators from the less successful ones. The first is having the capital to invest in your store base -- be it new constructions, expansions or remodels or acquisitions. Second, the successful company is always looking for more efficient ways to better integrate technology with its day-to-day operations in every area, including distribution and purchasing, at the warehouse and at the store-level.
The information we generate and collect and how we use it will be the key to our success in the coming years. Since 1994, Robert Weis, our chairman, has been committed to moving aggressively on both fronts, which we certainly will continue to do in 2001.
We were among the first to introduce a loyalty card in our markets four years ago and it's been a successful program -- but we are continually looking for ways to improve it for our customers in a way that increases sales and enhances our profitability.
As for competition, we continue to operate in over-stored markets -- where the competition is intense and many of our competitors are in the midst of aggressive expansion programs.
As a company, we are determined to hold onto our already substantial market share, and to expand in these markets and in new markets where we operate.
