Independents are facing intense price pressure as the recession propels shoppers to low-price retailers.
David Livingston, managing partner, DJL Research, Pewaukee, Wis., who consults with many small-town grocers, doesn't think shoppers will cut back on the amount of food they purchase. But where they buy groceries and how much they pay for food should not be ignored by independents, he said. “Companies like Wal-Mart are well positioned, with the lowest prices in the food category, to get sales if consumers decide they can't afford to shop at the grocery store.”
What can independents do to combat the siphoning-off of shoppers to low price? Livingston said independents have to give shoppers a compelling reason to shop their stores and maintain good customer service levels. “I have a customer in Louisiana who spends most of his time on the sales floor talking to his customers. He uses his personality to draw people into his store, and he has lightning-fast checkouts.”
Bill Bishop, chairman, Willard Bishop, Barrington, Ill., said independents have the ability to compete on price despite the price-competitiveness that exists in many markets.
Grocers can do this through smart procurement, by exploiting unique niches and strengthening special alliances, he said.
Connecticut retailer Stew Leonard's is cited as a prime example. The retailer is known for procuring off-price deals in smaller quantities that successfully sell.
“The agility and flexibility of some price-oriented independents to buy in niches allows them to be price-competitive, admittedly, on a different basis than somebody like an Aldi, with rock-bottom private label, or Wal-Mart, which has the ability to have a supply chain that allows rock-bottom pricing consistent with national-brand offers. If you can be an opportunistic buyer and sell the product at a good price, you can be pretty competitive. That's what independents can do,” Bishop said.
Jon Hauptman, a partner with Bishop who has consulted with independents on their price position, says it is important for independents to narrow the price gap with key competitors. They can do this by leveraging their knowledge of the marketplace and identifying items that are most important to their shoppers.
Hauptman said providing strong values in every category can positively bolster a retailer's price image.
“That is often done by bringing in a second-tier private label or other value-oriented brands. It's a way for independents to prove their price image and compete against anybody without lowering prices,” Hauptman explained.
Communicating also is important and too often overlooked. Independents can never have too many messages in the store that highlight all the ways shoppers can save with hot deals, Hauptman said.
Price optimization, often employed by larger chains, is now being utilized by independents through KSS Retail and Revionics, which have made price analytic software affordable for small-sized retailers. “Price optimization helps fine-tune what the most important prices in store ought to be and helps retailers identify where they can make back margins on items that they don't necessarily need to be as sharply priced on. It helps manage the whole process, which is important when looking at 20,000 to 40,000 SKUs in a store,” said Hauptman.
Independents today also are aided by efficient wholesalers. “Wakefern with ShopRite has very powerful procurement marketing. C&S is a low-cost provider. Co-ops give independents a chance to participate in warehouse profits, and then someone like Nash Finch is making progress providing services on a corporate basis,” Bishop mentioned.
Independents have access to local produce, which they can promote to their advantage. “They can work the local markets very advantageously, and work with a different margin structure and a completely different price level.”
Other ways in which independents can trump price is by concentrating on ethnic niches and a unique product mix. Chicago's Caputo's, with seven stores that specialize in selling international, multi-ethnic foods, cannot be copied easily by the big chains.
“The amount of products Caputo's brings in for the Polish and Latvian communities is amazing. You wouldn't see that kind of store-by-store merchandising in a chain. It just wouldn't be possible,” said Bishop.
Another Chicago grocer, Eurofresh Market, brings in containers of product from Italy, which it can sell at a reasonable price. Such stores add value and differentiate themselves from low-price competitors, said Bishop.
He also pointed to the strength of special retail alliances like Chicago-based IGA. “As an organization, IGA is working hard to make sure it maintains the equity of the IGA brand. When you can be an independent and have a brand that says ‘Home Town Proud,’ that is a pretty cool thing,” said Bishop.
“Our outlook for the future of IGA's independent retailers is as bright as we've ever seen it,” said Mark Batenic, chairman, president and chief executive officer of IGA, in a written statement to SN. “After two years of brand research, we have a greater understanding of our brand and, most importantly, the way in which our customers perceive it. Today we know that IGA has a distinction that is ours and ours alone: Simply put, IGA customers know that at their community-focused IGA they'll receive friendly, professional service from local people they like and trust. That bond — and the customer loyalty it fosters — puts our stores in the best position to compete in even the most challenging of times.”
Bishop said such alliances and ethnic market niches are difficult for competitors to counteract. “There is some protective insulation around them that gives independents some protection against price.”
As a result of executing such strategies, Bishop said he expects to see a significant number of independents flourish despite the bad economy.