Pick Your Retail Turf

There are many strategies stores have adopted to fight off new competition. Consultants, for example, have commonly suggested that the proper response to the opening of a Wal-Mart Supercenter is to become the “anti-Wal-Mart” — that is, to emphasize high service, organics, perishables, etc. This approach can enable supermarkets to cultivate and retain customers who are not going to be so drawn by Wal-Mart’s siren song of low prices.

Such a strategy has its imperfections: It may help — and has helped — individual operators to survive, but on an industry-wide basis, it is not so much a strategy to compete with Wal-Mart as it is to get out of its way, to cede the paycheck-to-paycheck crowd to Wal-Mart.

In many places, the “anti-Wal-Mart” strategy is becoming problematic in a multi-format world. Consumers are intelligent, and many are perfectly capable of buying fine prepared foods and perishable items at the local upscale supermarket while also running in occasionally to a warehouse club or supercenter to stock up on core grocery items. This means, of course, that the high-end foodservice and broader perishable offerings can’t just differentiate the store; they have to pay the bills.

Most competitive strategies are reactive, and thus likely to fail. Reactive strategies are, by definition, built around some other organization’s strengths. We see this all the time when retailers deal with the entrance of discounters in the marketplace by being more price-competitive. To make these reduced prices feasible, the chains look for cost reductions. Next thing you know, the chains have secured “better” union contracts that, for example, might significantly lower wages for newly hired meat cutters.

The consequences: Soon the chain is short on great meat cutters, and the service meat counter can’t handle all the special holiday orders that differentiated the store. So it soon converts most of its meat program to case-ready and is now left without a differentiated offer and is still more expensive than the discounters on meat.

Another common mistake is to rely on pricing to achieve a positioning that is more economically achieved in another fashion. For example, profits have needlessly been drained from the banana category as supermarket CEOs have demanded that produce departments “give” the fruit away as a kind of flag advertising that the store is price-competitive.

This is a large and continuous expense, yet it may not be the key to low price perception at all. Walk through the Demoulas Market Basket stores in the Boston region with experts in advertising and marketing, and they will tell you the stores look frozen in time. They will critique the flooring, the color scheme, even the tinsel cheapness of the holiday decorations. Yet this chain is a powerhouse! It has a reputation for low prices, is opening stores left and right and gaining market share every day.

Possibly, it is successful despite dated décor. But it is even more likely that it is successful because of the dated décor. In other words, the message consumers get when they walk into the store is that this operator doesn’t overprice to buy wooden floors and track lighting. The holiday decorations can be bought for a few bucks and consumers know that — plus the decorations look like they have been saved and reused from previous years.

In other words, many chains are asking the produce department, through cheap banana prices, to obtain a value image at great cost — when that image could probably be obtained far less expensively by focusing on overall presentation.

In essence, marketing and positioning of the store need to be consistent. All of Whole Foods’ efforts to moderate price perception are probably counter-productive. Customers want Whole Foods to be different. They want the store to pay extra to protect the environment, and keep the employees well paid and the food wholesome. To the extent that Whole Foods convinces customers, it is priced normally, Whole Foods also persuades customers it buys, pays and builds normally.

A proper competitive strategy has to begin with a self-assessment. What is your chain good at? What does your chain want to be? Once that is understood, one can build on those strengths to get where one wants to go.

Aside from lack of strategic focus, the big obstacle is often ego. Proud families who have operated supermarket chains multi-generationally have a perception of themselves and their role in the community that includes thinking of their stores as the place for everyone to shop. So if told they should cut their square footage in half, expand perishables and rationalize grocery SKUs, these proud and successful families recoil. They don’t view themselves as grocers to the elite — they view themselves as everyone’s grocer.

This can be done, but we live in an increasingly fragmented world. Those in their fifties today grew up with five or six TV channels; today there are hundreds. In today’s retail world, you need deep discount formats à la Aldi and Save-a-Lot; you need upscale stores such as HEB’s Central Market; you need a health and environment concept such as Whole Foods or Publix’s Greenwise; you need a Warehouse Club; you need a Supercenter… on and on.

Too many retailers have 10 percent of their stores in marginal neighborhoods and not performing well because the owners are unwilling to re-banner the underperforming stores, give them their own ad, maybe negotiate a special deal with a distributor to keep costs low. Too many retailers know full well that their market will support a Whole Foods but are unwilling to pre-empt Whole Foods with a specialized store concept.

It barely matters what owners want. What matters is that reality is upon us. If you are not a mass-market giant, either specialize or develop multiple specialized approaches or watch your concept strain as more concepts — from internet shopping to ethnic stores to drug stores and more — chew off a little piece of business. Small bites or large, in the end, one gets consumed. So pick your turf, make sure it is a defensible position, then play to win.