October/November, 2004

From the Editor

Deli's Gordian Knot

THE GORDIAN KNOT
“Everyone, as the phrase goes, knows two things about Alexander, even if they do not know who he was: he was the man who wept because there were no more worlds to conquer, and he was the man who ‘cut the knot’.”
—-W.W. Tarn, Alexander the Great, Vol. II (1948)

The only possible way to cut this knot is by turning to manufacturers.

Perhaps it is unreasonable to expect us to find a new Alexander among the ranks of supermarket executives. But Alexander the Great solved the problem of unraveling the Gordian knot, fulfilling the prophecy that the one who did so would be king of all Asia. Any supermarket executive who has paid attention to what is happening among retailers already knows that the wicket the industry faces is no less sticky and that we would all be well advised to pay special attention to the advice our category captains are dishing out in the Masters of Merchandising supplement contained in this issue.

After all, the hallmark of retailing today is a dramatic change in the very nature of food business competition. For many decades the supermarket had been the only viable business model for selling most food products most of the time. Today, however, the very nature of competition has switched. A conventional supermarket is likely to find itself in the midst of a constellation of shopping experiences: A Wal-Mart Supercenter beckoning customers with its every day low prices. A Costco offering incredible bargains on high quality goods and selling them in a quantity that can keep consumers from restocking for some time. Perhaps a Whole Foods or Wild Oats attracting a certain psychographic and being a high end option for everyone when looking for something special.

Maybe there is an Aldi or a Trader Joe’s with the attraction of their private label offerings. A 24-hour drugstore now sells an awful lot of food, as do regular Wal-Marts, Kmarts and Target stores. Then, of course, there are the convenience stores, gas station mini-markets, vending machines, and even department stores selling specialty items, not to mention the butchers, bakeries and produce stands chipping away at supermarket deli sales.

If each concept attracts just a few percentage points from a supermarket, sales can be 30 percent lower than they would be otherwise, and we haven’t even talked about takeout, drive-throughs and other foodservice options.

All too often, though, what happens is that pressure from all these alternative outlets leads to massive drives to cut costs, especially labor hours, a cut that can hit the deli department especially hard.

Yet, it is obvious that conventional supermarkets can’t get the edge over all these alternatives by more effectively merchandising Tide detergent or even Kellogg’s Corn Flakes. It has to be perishable departments that will stand out and, especially, it has to be the deli, with its unique supermarket roll of selling food ready to eat. The deli offers the greatest opportunity for differentiation from other retailers and effective competition with other foodservice offerings.

So this is today’s Gordian knot: On the one hand, supermarkets must offer extraordinary delis with fantastic products so as to compete with all the other food purchasing venues out there. Yet, somehow, supermarkets also have to cut costs to keep prices competitive with concepts such as Wal-Mart Supercenters that have different cost structures.

The only possible way to cut this knot is by turning to manufacturers.

Top suppliers can do consumer research and product development, and can prepare good tasting, restaurant-quality foods that do not require armies of chefs on site. The same manufacturers can share their experience on how to effectively merchandise and market the foods.

It is no surprise that Wal-Mart, with its thrust to drive costs out of the system, has gone the furthest in a vendor-managed procurement system. But, for the conventional supermarket, the key may not be driving out costs; the key may be using vendor knowledge to increase sales.

Our Masters of Merchandising is a great place to start. Each sponsor has taken on the responsibility and leadership role of undertaking to help the industry do a better job with their category of products. There is much to learn by simply reading what these category captains have put in our pages.

Real success, though, will involve taking the next step: Reaching out to these manufacturers and sharing real information such as sales statistics and consumer research results. It involves making words like partnership have real meaning.

Right now many manufacturers are loath to discuss partnerships with retailers, because retailers have conditioned manufacturers to expect that when they say “partnership”, they mean “send money”. As long as that attitude prevails, we will, as an industry, underperform from where we could be.

You know Alexander never actually untied the Gordian knot. He started out to do it, but it was so complex that he was about to give up. He then explained that it didn’t matter how it was undone, just that it was undone, and so he took his sword and cut the knot in pieces thus unraveling it. Zeus made sure the prophecy of becoming king of all Asia came true by rewarding Alexander for his ingenuity.

So many of our delis suffer because they try to solve all their problems internally. Turning to manufacturers may not come naturally to many, but a little ingenuity may be just what we need.  DB