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Tough Haul for Grocers' BTS Sales

As the back-to-school selling season transitions into fall promotions, food retailers that weren't aggressive with sales and deep discounts on commodity staples may see more sales go to mass merchandisers and others. Chicago-based market research firm Information Resources Inc.'s latest four-week sales figures, ending Aug. 10, show supermarket dollar and unit sales down by 2% to 4% in two related

As the back-to-school selling season transitions into fall promotions, food retailers that weren't aggressive with sales and deep discounts on commodity staples may see more sales go to mass merchandisers and others.

Chicago-based market research firm Information Resources Inc.'s latest four-week sales figures, ending Aug. 10, show supermarket dollar and unit sales down by 2% to 4% in two related BTS categories: children's art supplies and office products. Writing instruments were down 10% in dollars and units. Meanwhile, drug store sales were up in double digits for children's art supplies; up 8% in office products; and in writing instruments, dollar volume fell by less than 1%, while units were up 33%. IRI does not include sales from Wal-Mart or club stores, which are said to be among the most favored shopper destinations for BTS this year.

According to a recent BTS consumer study done by New York-based Deloitte, the most popular locations for BTS shopping this year were discount/value department stores for 88% of respondents, followed by dollar stores at 37% and office supply/computer stores at 32%. Only 8% of the surveyed respondents said they planned to shop supermarkets for BTS supplies.

Media reports and research organizations have all reported a tough BTS season for all retailers, with consumer spending squeezed by rising inflation, high gasoline prices and a poor overall economy, causing much spending anxiety among consumers — even those with higher incomes. According to the Deloitte survey, among those with incomes between $100,000 and $150,00, 58% said they were likely to spend less on BTS. This compares with 71% in all income brackets who said they would spend less this year.

John Rooney, principal and national retail practice leader at Deloitte, noted during a Citi Investment Research call that those in high income brackets are tending to shop downmarket at the discounters. “Belt tightening is across the board,” he noted.

“It has consumers in a situation right now where they are extremely nervous and careful about what they are going to be spending their money on, and how much are they going to be spending. I think retailers are saying this could be just step one of a two-step problem for us coming down the road at holiday time.” Rooney said he believed momentum from the BTS selling season would carry over into the fourth-quarter holidays.

Some nonfood distributors faced higher product costs, which were generally passed on to retailers. Imperial Distributors, Auburn, Mass., said the cost of BTS goods rose about 3% to 4%. Al Jones, Imperial's senior vice president, procurement and merchandising, said it is impossible to anticipate cost increases from the time the BTS assortment is selected in November/December to when retailers place orders in January. Imperial's BTS orders were up single digits in dollar volume, Jones said.

He attributed the increase to merchandising a college campus assortment vs. traditional staples. Such an assortment consists of hard goods such as housewares, plastic storage, rugs and pillows. “These are higher-margin items, because people aren't footballing the price.”

Jones said food retailers that get caught up in the paper goods/stationery “rat race” can't win against Wal-Mart and other discounters that sell commodity goods below cost. Jones suggests that food retailers give away a free notebook with a $5 or $10 purchase. “It will only cost you what you lose on one notebook. That is a pretty good tactic, in my opinion,” he said.

But most food retailers, such as K-VA-T's Food City Stores, Bashas' and Associated Food Stores, have stuck with the basics.

Associated Food Stores, Salt Lake City, procured its BTS assortment early in 2008 and sold goods to its members at prices set six to eight months ago. “We're selling at the prices we committed to months ago, and our margins are normal,” said Dick King, vice president of the wholesale cooperative. This year the distributor took a different tack to BTS by encouraging consumers to buy BTS supplies at stores and donate them to teachers at specific schools, who would then distribute them to students.

King said he doesn't believe member stores are losing sales to discounters. “Some of these items are offered year-round by places like Office Max, Office Depot and Staples, and the dollar stores typically carry some items, but more on an in-and-out basis. But because we worked so far in advance and because our stores know what sells, we were well prepared for what we need to carry.”

Bashas', Chandler, Ariz., reported that sales were trending down at the start of the selling season. The chain is trying to duplicate last year's successful BTS season with the same aggressive 10/$10 and 20/$20 pricing on key commodity paper items and writing instruments, reported Cathy Kennedy, Bashas' general merchandise category manager.

Chris Smith, director of video/general merchandise, Food City Stores, Abingdon, Va., reported BTS sales up double digits. “We were more aggressive in the marketplace than we had traditionally been. With the economy the way it is, a lot of our consumers were searching for a bargain,” he said. Food City promoted BTS with the theme of “BTS on a dime” and built in retail price points on 10-20-30 cents.

“We knew what is happening with the economy and made a strategic decision to try to go after the business, and at the same time regain a little bit of the position we needed in the marketplace in that category. We tried to made back-to-school exciting for our customers.”
Additional reporting by Elliot Zwiebach