Food retailers aren't expecting too many surprises this holiday season.
Buoyed by a shift toward more at-home dining and buffeted by strong price competition and frugal consumer spending habits, supermarket operators told SN they expect those trends to continue through the end-of-year holidays.
“Our sense is, consumers are still a little apprehensive about what 2010 will bring, so we're holding the line for the holidays,” Greg Sandeno, chief operating officer for C&K Market, Brookings, Ore., told SN.
“With the slowdown in restaurant business, we believe that throughout the holidays people will stay home and bake and put out good holiday spreads, so we look for sales to remain right at our trend line, with no drop-off — maybe not hugely better, but we expect to hold the line.”
Analysts are forecasting consumer spending to be about even with year-ago levels — perhaps up 1% or so — but still below the level of spending in 2007.
Steven Wieting, an economist for Citigroup, said in a recent conference call that after a year of penny-pinching, consumers have some “pent-up demand” to splurge this season, which could help propel sales. Any gains in consumer spending, however, could be tempered by rising gas prices, which he expected would be up about 50% over year-ago levels, he cautioned.
Food retailers said they will be especially competitive with basic items, and some said they have to be ready both for the budget-pressured shoppers and for those who are ready to spend a little extra.
Steve Smith, chairman, president and chief executive officer of K-VA-T Food Stores, Abingdon, Va., said although many consumers might want to splurge for the holidays, he's not sure a lot of them are capable of doing so, given the high level of unemployment.
“At K-VA-T, we are going to have to appeal to both ends of the spectrum — to those who want to have that special ham or special dessert or special party tray — but we also have to make sure we have the commodities out there at prices people can afford, with one or in some cases both spouses out of work,” he explained. “You can't be everything to everybody, but in this case you do have to have something to appeal to those that have the money to spend and those that don't.”
He said he expects competition to be highly price-aggressive throughout the season.
“What do grocers do when they are competing for a smaller piece of the pie? They promote some, and give up margin, something grocers have been doing for years and years and years,” he said. “I think it will be one of the more aggressive holiday periods, and we have already seen some of the moves by some of the big guys.”
Wal-Mart Stores came out swinging late last month with price cuts on both popular holiday foods and on toys and other seasonal goods, seeking to position itself as the one-stop shop for holiday savings.
“I'm afraid it is going to be more aggressive and maybe downright vicious,” Smith said of the current holiday season.
At K-VA-T, he said the chain, which operates under the Food City banner in Kentucky, Virginia and Tennessee, will focus on “stealth” marketing, with targeted offers to the company's best customers.
“We want to make sure they purchase all their holiday items at our stores,” he said. “I'm sure others will do that as well, but we are going to step up those offers above and beyond what we have done in the past.”
The company uses a variety of methods to get those offers out during the season, including direct mail, email and point-of-sale coupons through Catalina Marketing.
He said the chain would focus on having sharp pricing on basic commodities for the season.
“I think you have to hit the right prices on the right items, and that will be a focus for most retailers,” he said.
Greg Saar, president of 11 Saar's Marketplace Food stores in the Seattle area, said the company hopes the season will be even with last year's holiday sales levels.
“We're having to be more competitive to get there, however, because the chains are being more aggressive this year,” he said.
To keep up, Saar said his stores are putting more focus on the perishables departments — expanding their holiday offering beyond turkey to include items like prime rib and pork roast “at very competitive prices that are hotter than last year's,” he pointed out.
To maintain sales, Saar said he's had to lower margins “and become a lot more aggressive and competitive” — an approach that predates the holidays. “We've been doing it for a while, and so far we've been able to claw our way back, despite the impact of deflation. But we're struggling to boost our average order size, and to achieve that, we've lowered prices on items that are highly consumable and need to be replenished often, including beverages, cereals, toilet paper and 2-pound cheeses.”
Retailers with credibility in pricing heading into the recession have been better off during the last year, noted Javier Herrán, director of marketing for Sedano's Supermarkets, Miami.
He said the chain's longstanding focus on values — particularly on staple items — should serve the retailer well this holiday season.
“We've been fortunate enough to be on the good side of the bad economy,” he explained. “I'm not going to say the economy has benefited us — because I think we could have done better — but we're showing good percentage growth and same-store sales this year, and we're looking to accomplish the same this holiday season as well. Thanksgiving, Christmas and New Year's are our biggest days of the year.”
Herrán said Sedano's would likely stick to its strategy of providing deals on items its customers purchase most often — including milk, coffee, sugar and rice. “We've been offering milk at two gallons for $5 for the better part of two years, and it's the cheapest in town,” he said.
Niemann Foods, Quincy, Ill., has stepped up its efforts to communicate a value message at its County Market stores, said Ron Cook, vice president and director of marketing.
“The holidays are going to be different this year than last, but as much in our approach to attracting customers to our retail sites as it is to customer shopping patterns,” Cook told SN.
“We understand that customers are looking at things differently this year. They're value shopping, and from what we can see they're making choices based more on promotional offers presented to them. So retailers have to increase the level of communications with them. We have to be out there with the right message and the right frequency, and have the right product, price and service in the store. Those are the things that equal value to shoppers.”
While economic conditions are daunting, they present opportunities as well, Cook added.
“We're optimistic that we can have a better year based on the trend of more home consumption that we've seen already this year. That gives us better retail opportunities,” he said. “So we're gearing up to be the place to go for meal solutions at the holidays.”
Niemann's efforts will include making certain its prepared foods are appealing and well-priced, while also providing strong values on basics for those who wish to prepare their meals at home, Cook said.
The down economy struck while County Market was in the midst of an effort to broaden its brand appeal from a pure price focus to a quality-service niche.
“To our benefit, people still understood us to be a good value provider, and that has made us more believable in our approach,” Cook said. “If we had been on this path two or three more years, it might have been more difficult.”
Mark Batenic, president and CEO of IGA USA, Chicago, said IGA stores in the U.S. “are, in general, experiencing good sales.”
“And with people eating out less often, we expect holiday sales will be a little better this year than last year, because people will stay home more to celebrate,” he said. “Though the economy is tough, we see signs of life, and we believe people will want to celebrate after such a tough year.”
IGA has its annual Hometown Holidays program in place, which Batenic said “encourages consumers to stock up on items their families use the most, which are reasonably priced, and we believe that will work as more people stay at home this year.”
IGA also hopes sales will benefit from its first-ever Hometown Holidays magazine, which includes recipes and coupons for items from the alliance's Red Oval manufacturer partners, as well as for IGA brands. The 20-page magazine is generally being distributed as a “thank-you” gift by IGA retailers, he noted.
“We think this is the right time to talk about home cooking because the country seems to be eating more meals at home, and we wanted to make this season as joyful as ever, and we think the magazine meets that goal,” Batenic said.
Sweepstakes and Contests
IGA is also offering a national sweepstakes that will award $2,009 to each of four winners in a random drawing “to thank people for shopping at IGA in 2009,” Batenic explained.
IGA has held similar drawings the last two years, “and we get a lot of traction with cash prizes,” he noted. This year's sweepstakes kicked off in early November.
At C&K Market in Oregon, for the second year in a row the centerpiece of the chain's holiday promotions will be a game called “Ray's Great Grocery Giveaway,” in which customers who spend at least $25 can win prizes at the cash register — vouchers worth $1 to $50, which can be used on their next store visit.
In the program, from Catalina Marketing, when a customer order is rung up, the system automatically dispenses vouchers to prize-winners. Consumers can also go online and enter once a day to win free groceries for a year, valued at $2,600.
Last year, the chain gave away 70,000 prizes totaling $300,000; this year, the prize giveaway will total $350,000.
“The game definitely enhanced purchases last year as we increased customer counts and average transaction sizes,” Sandeno said.
The game began earlier this month, “and even during the first week we were already seeing strong numbers at the point of sale, so we think consumers will be very engaged,” Sandeno told SN.
The chain has also gone to market more aggressively this year on “basic needs like butter, flour, sugar and chocolate chips because we see people doing more in-home baking,” he said.
C&K, most of whose stores operate under the Ray's Food Place banner, will feature those items in weekly fliers, to which it's added a gatefold featuring the holiday items and several coupons, he noted.
While the chain will feature hams and turkeys for the holidays, “we're going out there big and bold with roasts and seafood to go with the idea of more meals eaten at home,” Sandeno said, “and we're seeing good sell-through already on some of the ad items.”
Dan Cepeda, director of grocery, GM/HBC and specialty and natural foods, said the chain is leaving less to chance this year by stocking the stores with higher inventories on featured items.
The baking supplies will be available on large displays near the stores' entrances, along with mixing cups, pastry brushes, utensils and related items, he added.
Some Specialty Promotions
Dick King, senior vice president at Associated Food Stores, Salt Lake City, said the wholesaler's 56 corporate stores “will have a good holiday selling period that we think will be better than last year because people have gotten used to doing more eating and entertaining at home.”
With that in mind, he said Associated will be featuring some upscale specialty items as well as holiday basics, he said.
For example, in addition to the stores' basic assortment of fresh pies in the bakeries, Associated is adding several fancier varieties than it had last year, though priced similar to the basic offerings — apple-cranberry, eggnog cream and caramel-apple — “to give consumers something different for staying at home,” King explained.
In meat, the stores will again offer alternatives to turkey, including prime rib and leg of lamb, “but we're also going to have a better selection of chuck roasts and boneless chuck roasts for people who are looking for quality at a lower price,” he said.
The stores will also offer shrimp trays in three sizes — the 2-pounds-plus size they offered last year, plus 10-ounce and 26-ounce sizes, he noted.
Associated's corporate stores will also carry expanded items in the baking needs category, including specialty bread and cake mixes, and an upscale brand of olives, barbecue sauce and artisan breads, among other items, he said.
In nonfood, the stores will feature basic items like lights, wraps and tinsel but will reduce the number of home-decor holiday items, like figurines, that haven't sold as well as in prior years, King said.
There will also be increased varieties of candy and nuts, geared to home parties, he added.
Reporting by Elliot Zwiebach, Jon Springer and Mark Hamstra