Solution To Price Wars: Experiential Retailing

For the supermarket deli, it is the worst of times… and the best of times.

On the one hand, the rapid growth of the discount sector is creating tremendous pressure to reduce costs. The service deli has high costs in labor, shrink and other areas. Speaking to a reporter from the Commercial Observer, John Catsimatidis, who heads up the grocery and real estate empire known as the Red Apple Group, said this in regards to his New York stores:

“The traditional supermarket has gone away.Right now, we’re acting strictly as convenience stores.”

It’s a shocking admission from one of the biggest grocers in the city’s history, but it’s a new reality. Catsimatidis has 35 remaining Gristedes and D’Agostinos, primarily in Manhattan — a number whittled down from 100 in New York City a quarter of a century ago.

Gristedes is offering prepackaged meat instead of a deli counter with a butcher, Catsimatidis told Commercial Observer.

The publication is a New York City based-business and real estate publication. The quote is probably off and actually refers to the meat counter where Gristedes eliminated butchers and went to case-ready meats. Most of the Gristedes stores still offer service delis — although online you can find consumer complaints that they are not well staffed. In any case, the logic is similar: If you want to cut costs — and with the explosion of good quality alternatives, such as case-ready meat and pre-sliced products in the deli, you can cut labor without sacrificing too much on the quality end — one can easily see eliminating service deli as the next step.

So things seem bad for delis, and we can expect many chains to abandon service operations in order to drive costs out of the system while simultaneously speeding up the shopping experience, simplifying procurement, etc.

Yet, Catsimatidis points to a different direction:

And Red Apple Group is considering transitioning into a “private label organic-type food market” and “having more perishables, less canned foods.”

The argument is laid out clearly later in the article:

Specialty food company Agata & Valentina … has been immune to competition, according to company CEO Joe Musco. That is because of Agata & Valentina’s personalized service — customers know the butchers by name — and its heavy emphasis on produce, prepared foods and overall good quality.

“Prepared foods are our signature,” Musco said.

As has become increasingly clear in retail in general, consumers crave experiences. “I think there’s a tremendous hunger for genuine engagement,” said Kate Newlin of Newlin Consulting, a brand consultant for retailers. “If you know the guy behind the counter or he tells you, ‘Here’s something that just came in and you might be interested in this,’ or, ‘We have a sample of this,’ that kind of personal service is tremendously important.”

So, the gist is that BECAUSE of low-cost competition, smart grocers will emphasize those areas where discounters struggle in direct competition: High service, artisan products, heavy local, in-store eating – in general, an experiential kind of retailing.

Although in part this is accomplished with bountiful displays of fresh produce, seafood, and prime meat programs, the essence of this experiential retailing is bakery and deli.

And if you want to be a media darling, stores with attractive food displays and high levels of service are certainly a way to do it. But there are limitations to this approach. Sure, as Newlin suggested, “personal service is tremendously important.” But she needed to add, “to some people, some of the time.”

Recent data from NPD Group’s Checkout Tracking service found that more than 95 percent of U.S. consumers purchased something from Wal-Mart last year. The Number Two player was McDonald’s, where 89 percent of consumers spent money. Is this because everyone so values “personal service”?

Maybe these are legacies of the past, but the retailer that recorded the biggest gain in percentage of Americans shopping at its stores is Dollar Tree. Again, this does not really back up the thesis that consumers highly value personal service.

In select zip codes with high incomes and education levels, there is demand for specialty markets that elevate the experience of shopping. That is why there are fewer than 500 Whole Foods stores in this country. The vast majority of America is filled with consumers who are focused on price, which is why Wal-Mart has over 3,500 giant Supercenters, over 700 Neighborhood Markets and more than 600 Sam’s Club stores.

So while we will all ooh and aah at the incredible high-end deli/foodservice operations being laid out in high-income enclaves across America, the future is being written in median-income and below-median-income areas where those who can offer a discount will win the trade.