June, 1998

From the Editor

The Upscale Trap

BMW and Volkswagen have been jostling for months now over the dubious honor of owning the right to make motorcars with the Rolls-Royce insignia. I say the honor is dubious, not because I denigrate the lofty pedigree of Rolls-Royce automobiles, but because of the limitations inherent in the market positioning of Rolls-Royce.

These cars, the very utmost in luxury vehicles, are already among the most profitable cars in the world on a per vehicle gross profit basis. It is hard to believe that any suitor will be able to increase profits by raising prices. Instead, the would-be acquirers doubtless see the path to increased profitability as being from increasing sales. Higher sales would allow for a more mechanized production process, the amortization of R&D expenses over a larger base and, of course, assuming Rolls-Royce can maintain per vehicle margins, increased volume will directly translate into increased profit.

Alas, it is not to be. Whoever winds up paying top dollar for Rolls-Royce had better be successful enough that they are willing to pay a hefty price for the benefit that basking in the reflected glory of Rolls-Royce can do for other divisions of the company.

The reason is simple. Rolls-Royce is the epitome of an upscale line, and what must always define upscale is exclusivity. If Rolls-Royce was able to increase production and offer financing to allow every Tom, Dick and Harry to own a Rolls-Royce, the immediate effect would be to alienate those wealthy customers that now consider a Rolls-Royce their car.

It is worth thinking about upscale, because upscale is being downscaled at delis all across America. Time and again some supermarket has decided to feature some particular brand as its featured meat and cheese in the deli. Inevitably, this brand is identified as “upscale”. Deli directors who have struck these kinds of deals regale me with their enthusiasm for how the deli is going upscale by capturing this quality brand.

I have no argument with the quality of the brand’s product, but, conceptually, these efforts are off the mark. Whatever brand is prominently featured by mainstream supermarkets becomes a mainstream brand.

It has nothing to do with quality; it has to do with marketing. The average deli sale cannot be of an upscale product – only an average mainstream product.

Failure to understand this dynamic causes a lot of lost business for supermarket deli operations and the supermarket as a whole. Countless barrels of ink have been spilled to analyze why consumer dollars are spent in non-supermarket venues – why at foodservice, why in gourmet and specialty stores, etc.? Many a workshop has urged supermarkets to upgrade operations and feature “restaurant quality food.” The advice, of course, has its place, but it is, at base, a chimera. The problem is that a substantial portion of the highest spending consumers are simply not attracted to the idea of buying the same product that everyone else does.

The supermarket deli manager who wrings his hands wondering why consumers would pay double the price when the supermarket’s quality is superb misses the point. American society has come to champion a different positioning. Once, the hero was the company man. Today, the hero is the entrepreneur.

The brunch is bought at Sutton Place for the same reason the car is a Rolls-Royce; it is an expression of who the consumer is – or at least who he or she wants to be. And what the high-value consumer does not want to be is just like everyone else shopping at the deli counter.

Part of the answer is just being aware that the old definitions of upscale and mainstream change as society changes and consumers become more affluent and culinarily sophisticated. Even more, deli retailers have to stop thinking that single supplier alliances are some sort of panacea. To the extent that any mainstream supermarket ties itself to one brand, the supermarket limits its ability to appeal to the consumers’ interest in having their food choices reflect their own individuality.

One mainstream brand is fine. However, the supermarket must never agree to limit itself in terms of its freedom to promote other products. The deli department needs to offer, and promote, a multiplicity of lines. This can’t happen if we think our one base line is the upscale line!

Although many supermarkets have a lot of different meats and cheeses in the case, they are easily lost. Instead the store needs to feature an upscale line of Italian meats and cheeses, perhaps Danish or French or Spanish line. Offer several domestic brands with each one focused on a niche.

Existing lines need to be repositioned – Kosher foods, for example, can be marketed as a mainstream upscale line.

It is not just the product that needs to change. How about different wraps for different lines? Maybe the consumer won’t mind shopping in the supermarket if her deli choice lies in the cart wrapped in a special paper declaring she bought the upscale line.

We’ve become too utilitarian in our product-stocking philosophy. We should never forget we have the great privilege of selling food, and food is part of what makes each of us unique. If supermarket delis don’t provide the opportunities for self-identification, which people crave, don’t be frustrated when consumers find places that will.  DB