February/March, 2006

From the Editor

High-Value Customers

This month’s cover story does a terrific job of detailing the “hows” of attracting young adults to purchase in the deli.

It also points out, “The habits they adopt now can shape their loyalties for the rest of their lives,” which, in and of itself, gives a pretty strong justification for why retailers should try to attract young adults and why manufacturers should be behind the effort.

But the truth is that very few supermarkets are focused properly on attracting the right kind of consumer. Most still think that the “best” customer is the “biggest” customer. And that is rarely the case anymore.

That mother of six who may load up on loss leaders may inspire smiles in the office with her cart overflowing, but her paper towels and canned goods — all priced directly against rigorous competition from warehouse clubs and super centers — are almost certainly not as profitable for the store as the seemingly empty cart of a young bachelor who stops by the deli to pick up some prepared food for dinner, pre-made skewers in the meat department for a barbeque tomorrow, a quality balsamic and some fresh shallots to make his marinade, plus a pricey Cabernet to wash it all down.

Many supermarkets have already lost the battle for being the stock-up location for packaged goods. As super centers, warehouse clubs and dollar stores roll across the country, every week more supermarkets become less competitive in this space. It is becoming increasingly obvious that efforts to keep “share of customer” are backfiring as it results in the devotion of shelf space and promotional effort to items that are marginally profitable at best.

What is more, the customers who are attracted to a store because the ad offers really cheap prices on canned green beans are likely to be the least valuable shoppers.

A subtext to the cover story is a biting criticism of retail operations for putting the bulk of their focus on selling low-profit items to low-profit customers. No wonder so many supermarket chains are going broke.

Now some would say that money is too tight for young people to be big profit contributors. And the 18-to-25-year-old range covered by the study does include the college years, which for many people is a time when resources can be limited.

Remember, though, that it is not total income that matters, but disposable income. Many people make much more at age 40 than they did at 25, but their disposable income, in terms relevant to food stores, may actually be less. If at 25 they were sharing an apartment with three roommates, living downtown and not needing cars, it is very possible that their income available to spend on high-profit prepared food items is greater than at 40 with a spouse to support, three kids needing braces and summer camp, a mega mortgage on a house greater than they can afford, two car payments and a bunch of life insurance in case the stress kills the guy.

If you extend the definition of young a bit, to include the young working professionals and blue collar and pink collar workers, all with decent incomes, busy social lives and no time to cook, you’ve got your business target. In fact, expand it a little more to leap over the midlife phase with kids and include your empty nesters and your gay community that never had the financial burden of children, and you have a whole population ready, willing and able to bring profits to the store.

And, of course, the deli department with its increasing orientation toward foodservice is the crucial draw. The new iteration of the supermarket is the deli/foodservice area drawing in the customers who also pick up fresh produce, fine meat, seafood, bakery products and some specialty food items. The old core of the store will still be there, but with far fewer SKUs and much higher prices as the same bottle of Clorox is simply a convenience being offered to people who really are drawn to the store to buy the deli’s wonderful Beef Wellington and couscous salad.

As is typically the case, the obstacles to implementing this vision of attracting the high-value customer are not so much material or logistical; we have the ability to do all this. It is mostly a matter of perception.

Every strategic planning retreat begins with defining who we are and what our business is. And, psychologically, the problem is that supermarket CEOs, almost always rising through grocery or front end, are having problems imagining a store that is fundamentally different from what they built their careers in.

So it may not happen as quickly as it should.

Fast or slow, however, the deli directors and VPs of deli/foodservice are the ones in control of the future. This is their moment to step out and assert their rightful place at the very center of the store, the heart of the customer offer.

Nobody should build a store anymore where you don’t walk into a perishable paradise, and deli directors need to be pounding on the table to make that clear.

And no deli department should think that sliced meat and cheese is sufficient. If any deli director thinks that way anymore, the CEO needs to set him straight — or find a new deli director.

It is good to study the youth. For as it has been written: we never get to visit the future, not even in our dreams. But the young will live there, and by studying them, we can get some dim light of where that might be.

The leaders of today are the ones who position their operations to thrive when that dim light is revealed as a full burning sun.  DB